Judicial activism

The government’s first budget of the fifteenth century was designed with policies that have the title of reform and have cost-saving results for the Iranian economy; reforms that are being pursued in the form of extensive elimination of currency subsidies. Last month, the official removal of preferred currency was put on the government’s agenda and the Prime Minister called it “popularization of subsidies”. Probably to cover the budget deficit and meet daily expenses; in other words, for the survival of the government. How? The elimination of preferred currency puts a large amount of financial resources at the government’s disposal; about 400 trillion tomans, according to the Minister of Labor (1) and about 15 billion dollars according to statistics published by the Islamic Republic Customs (2). Numbers that become clear when compared to the volume of Iran’s foreign trade: one hundred billion dollars; an amount that seems more deceptive than having an economic meaning.

“Popularization” seems to be a new term for the targeted subsidy policy during the Ahmadinejad era, and in fact, the thirteenth government also shows it as a major “economic surgery”. The Rouhani team claims to have spent a lot of courage to implement this program. The support of government advertising agencies for these changes is not recent. In the best case, the removal of subsidies can be a rewriting of the “economic transformation plan” in the Mahmoud Ahmadinejad government, rather than a bold and transformative economic policy.

“Popularization of Subsidies” was first introduced by Ibrahim Raisi as a populist cover for implementing changes in subsidies in the Islamic Republic of Iran; a phrase that specifically emphasizes the positive consequences of the plan for the people; however, based on the patterns that have remained from the past, it can be concluded that in practice, it serves more as a guarantee for budget deficits rather than providing benefits for vulnerable groups.

Justice test

Gradual elimination of subsidies is one of the top policies and established practices in the governing system of Iran, and every government has implemented a portion of it, with the difference being that the Ahmadinejad and Rouhani administrations have taken it more seriously and vigorously. These are governments that share the slogans of “justice” and attention to the underprivileged sectors of society. A look at past experiences in subsidy elimination shows that these policies not only did not have significant benefits for the lower economic classes, but also led to the collapse of the economy due to poor implementation.

In Ahmadinejad’s economic transformation plan, a large portion of subsidies were freed in exchange for paying 45,000 tomans to the people. This amount, which initially had a purchasing power of about $43, gradually decreased in value due to the devaluation of the rial during that period, to the point that with current prices in Iranian markets, what remains of Ahmadinejad’s 45,000 tomans is almost nothing. However, the government has currently proposed a subsidy of 300-400,000 tomans, which, with a currency exchange rate of about 10-13 dollars, seems insignificant from the beginning. With a simple calculation, it becomes clear that the targeted subsidy plan has resulted in nothing but worsening the living conditions of vulnerable classes, a result that is in clear contradiction with the government’s slogan of justice.

The ratio of economic liberalization in Iran to “liberalism”

From another perspective, leaving the fate of prices in the hands of the market is one of the approaches proposed by the World Bank and the so-called principles of “liberalism”. With this introduction, can we find a meaningful connection between “liberalism” and what has been implemented in Iran as the liberation of subsidies? What is strange about this connection in Iran is that the Ahmadinejad government and the leader who have given more slogans to “justice-oriented”, have pursued subsidy removal more seriously than other governments.

Who are the critics of removing subsidies?

Critics of price liberalization in Iran fall into three categories:

One

First, the intellectuals, community-oriented economists, and institutional economists who generally support government price support.

Two

The second principle-oriented conservatives, who oppose to the extent that they use the label “liberal government” as an insult to confront the Rouhani government.

Three

People; people who have struggled with weakened livelihoods and limited purchasing power in recent years.

This image reflects the economic realities of Iran, showing that the behavior of policymakers and decision-makers in the Islamic Republic is more like a roof with two different sides, rather than being based on a unified economic theory. These decisions are made in the moment and for the short-term preservation of the ruling regime, so it seems that the debate over which economic school the Iranian government has followed is far from the main issue. The governments, and at a higher level, the governing system in Iran have never adhered to a unified and cohesive economic doctrine; most of the economic policies implemented have been a chaotic mixture of different policies aimed at promoting systematic corruption, advancing ideological policies, and of course, maintaining the oppressive system. As a result, the economy of Iran has almost always been in a state of crisis and emergency. For example, to combat inflation, which is one of the constant features of the Iranian economy, there are proven and tested methods used in the world that require the adoption of contractionary monetary policies

Economic Literature by Raeisi

Ibrahim Raeisi had said just a few weeks ago on the sidelines of the privatization conference in Iran: “An economy that is eighty percent government-owned has problems.” (3) This statement shows that he, like most officials of the Islamic Republic, at least verbally supports economic liberalization, but in the face of structural weaknesses that disrupt market equilibrium, quickly resorts to suppressing the market by issuing orders.

The president has gone beyond mandatory pricing and even wants to eradicate absolute poverty every two weeks by issuing orders! (4) The literature of this person shows that he knows almost nothing about the economy; perhaps it is not surprising that he has become famous for giving “orders” as the president; so what is the government of the president seeking with subsidy removal? The answer is probably best sought from those whose interests are in the current situation; of course, if we ignore the issue of budget deficit.

In a healthy competitive system, price liberalization can increase productivity and even control rates after a period of time. However, when businesses are defined within the framework of the government and have simultaneous access to government power, no one will be willing to compete even with price liberalization. Market players in Iran have no more options after subsidy liberalization in the government of the president; if they want to compete, they will be under the burden of government power; therefore, they must become partners with the government. These conditions have led to rampant corruption in the Iranian economy; because in the logic of the market economy, if a business is supposed to profit through partnership with a power institution, it is considered corruption. In these circumstances, forces with access to government resources welcome price liberalization; because at the same time, competition is not formed with the increase in prices.

Why were subsidies removed?

The hidden reality of removing foreign currency subsidies is not something that a leader announces. This decision, rather than being in line with implementing a unified economic theory or even securing the interests of the weaker classes, is a clear effort to make up for budget deficits. The Iranian government is facing numerous financial and monetary obstacles at the same time as Russia’s presence in the black market for oil and a decrease in oil revenues. The government of Rouhani was able to issue bonds last year, a policy that cannot be a stable solution for budget deficits and will continue with extensive dimensions this year as well. On the other hand, banks’ excessive withdrawals to pay non-standard profits in the past months have become the main cause of inflation, and the country’s banking system has lost its ability to implement effective monetary policies. In a situation where the slightest shortage in paying the salaries and pensions of employees and retirees leads to security consequences, the government has chosen two ways to make up for budget deficits: removing subsidies and significantly increasing

The significant increase in taxes in 1401 is another route that the government has chosen to secure its finances. In this year’s budget law, taxes have increased to the extent that the operational deficit has decreased from 450 trillion to 300 billion tomans.

Notes:

Minister of Cooperatives, Labor, and Social Welfare: Increase in the prices of four essential goods is less than the expected amount, Mehr News Agency, 22 Ordibehesht 1401.

2- $14.7 billion was spent on 4200-toman currency, ISNA, March 23, 2022.

3- Raeesi: An economy that is 80% government-owned has problems, Eghtesad Online, 10 May 2022.

4- Criticism of the President’s statements about eradicating absolute poverty / Professor of Economics at Ahvaz University: Apparently, he does not have a correct understanding of “absolute poverty”, Khabar Online, 19 Esfand 1400.

5- Examination of various taxes in the Budget Law of 1401, Tasnim, 15 Farvardin month 1401.