“L’Echo”, the oldest and most reputable economic newspaper in France, years ago in one of its issues dated October 12, 2010, published a confidential report written by “Yves Bordelon”, an economic expert and writer. The report, based on the confidential information from prominent Iranian economists, warned about the imminent “collapse of the Iranian economy” under the pressure of sanctions, high inflation and economic recession, and its proximity to the leader of the Islamic Republic of Iran, Ayatollah Khamenei. The report was obtained by the Paris-based newspaper “L’Echo”. (1) In light of recent discussions about the collapse of the Iranian economy, it is interesting to take a look at this report, which was published over twelve years ago.

Ayoub Bordalan writes, according to this confidential report submitted to the President of the Islamic Republic in late September 2010 (Mehr month 1389), Iran’s economy will soon collapse due to heavy economic pressures caused by international sanctions. According to this economic journal, some of the contributors to this confidential report are economists from the Central Bank of the Islamic Republic, the Ministry of Economy, and the Ministry of Oil.

These economic experts had stated in their report that the imposed sanctions and penalties by the United States and Europe since late July (summer of that year) and pressuring other countries to enforce the mentioned sanctions on Iran’s financial, commercial, and oil industries have had a heavier impact on Iran’s economy than the sanctions imposed by the United Nations Security Council.

The editor of the “Liz Echo” magazine adds, citing this confidential report, that the Iranian oil industry is under pressure from international sanctions in two ways. On one hand, due to the withdrawal of major European and Asian oil companies from Iran, such as Total from France, Shell, Stat Oil, and ENI from Italy, which with their departure from energy projects in Iran, have essentially turned the exploitation of oil and gas resources into a major problem for the Iranian government. In this regard, we can mention the decision of the Japanese oil group “Inpex” to leave Iran, which was responsible for building, maintaining, and repairing oil extraction equipment and helping with daily extraction of 4.2 million barrels of oil. On the other hand, there are countries that have forced the Islamic Republic to smuggle gasoline by cutting off its supply to Iran.

The article stated that the increase in the value of the dollar and other valid currencies against the rial has irreversible consequences, and contrary to the beliefs of the officials of the Islamic Republic’s bank, injecting dollars into the market in the short term will not solve this underlying problem. A confidential report had called on the leader of the Islamic Republic of Iran to make root decisions to prevent the worsening of crises. The authors of this report had requested from Ayatollah Khamenei to increase the reserves of food and fuel in the country and, despite technical difficulties, convert the central bank’s currency reserves to the Chinese yuan and deposit them in banks in that country.

What are the indicators of an economy at risk of collapse?

In 1355, the year before the unrest and the 1357 revolution, Iran was the 18th largest economy in the world; ahead of Turkey and South Korea, which were ranked 20th and 28th respectively. 40 years later, in 1397, Iran was ranked 28th, behind South Korea at 12th and Turkey at 19th. In 1355, Iran’s economy was 26% larger than Turkey’s and 65% larger than South Korea’s, but 40 years later, it was smaller than both. On the eve of the February 1357 revolution, Iran’s nominal per capita GDP was higher than Turkey and South Korea, but in 1397, it was lower than both.

In this year, Iran’s economic system collapsed due to its approach of self-sufficiency and reliance. Although the US sanctions during the presidency of Donald Trump (from Monday, November 14, 2018) and their continuation under Joe Biden have added to the difficulties, as mentioned, the root of Iran’s economic problems is not the sanctions. It is the military mindset that cannot even fulfill its own promises and has failed to achieve the economic growth goals of the Fifth (2015-2020) and Sixth (2021-2026) development plans, among many others. This regime, long before the sanctions, even from the beginning of the victory of the revolution, with confiscation, government corruption, rent-seeking, anti-globalization, and hypocrisy, destroyed the economy that had grown by 10% in a decade.

After more than 40 years, the economic situation of the people has become so dire that every day they protest, asking why you don’t give us our rights, or why you don’t give us enough, or why you don’t return our lost property. The gap between the rising and the hungry has become shorter and their protests have become more intense than before. Unlike before, now the essence of the system has been lost.

In the economy of this theocratic system, signs of chaos, as we have seen in other countries, are abundant: poverty affecting more than half of the 85 million population, consumption instead of capital formation, heavy inflation leading to loss of savings and purchasing power, stagflation, budget deficit, worthless currency, bankruptcy of businesses, depletion of underground water resources and increased risk of hunger and conflict between different provinces and neighboring countries, selling of hydrocarbon and mineral resources without forming financial assets or capital, unemployment or emigration of two-thirds of the working-age population, bankruptcy of insurance funds, increasing number of retirees, widespread political and administrative corruption, brain and capital drain, and devaluation of the national currency.

In the Islamic Republic, inflation has reached 40%, production is in shambles, the government has a deficit of about 50 to 60%, and every month is concerned about how to pay the salaries of government employees and how to deposit the citizens’ subsidies, which are now less and more dissatisfied than before. That is why even if it pays salaries, it does not increase the amount and does not give subsidies to these and those.

According to the reports of the Parliament’s Research Office, from 1390 to 1398, the per capita income of Iranians decreased by 35%. In 1399, the Gross Domestic Product (GDP) was only smaller than seven countries out of 205 countries in the world for the third consecutive year, with the Islamic Republic being one of them; alongside Lebanon, Argentina, Nicaragua, Angola, Sudan, and Equatorial Guinea.

In 2019, Iran’s gross domestic product (GDP) dropped between five to eight percent. Where is the economic position and status in the region, which according to the 1404 Vision Document, was supposed to show eight percent growth annually? Where is it?

The economic outlook is bleak; as most economic officials within Iran believe that in the year 1402, the purchasing power, employment, production, inflation, dollar exchange rate, capital flight, brain drain, corruption, and potential for growth, even if sanctions are lifted, will worsen for businesses in terms of financial support from the banking system and customer demand.

Economic collapse is not like a recession or inflation that has a clear definition. This term is used more for an event that is damaging and disruptive to the economic system. However, it can be seen as a widespread and long-lasting decline in national production, in line with many intellectuals and policymakers. But not like a recession, which occurs in the lower phase of the economic cycle and leads to a decrease in production and an increase in unemployment, and then returns to normal after a while, but rather it is more difficult than that.

The economic collapse, as it came, was a widespread and long-lasting decline in production until it was out of the government’s control. Widespread means that the decline in production affects not just one sector, but the entire national economy. Long-lasting means that production is affected for more than three months or a year due to the decline.

Signs of an economic downturn?

Recently, with the increase in hourly rates and the continuous rise in currency exchange rates, many economic activists and experts believe that the country’s economy is rapidly heading towards a downward spiral. The question now is whether the sudden rise in the dollar exchange rate in the free market should be seen as signs of an imminent collapse of Iran’s economy?

The US dollar rate, which had surpassed 60,000 tomans in the free market of Tehran, has now settled at 42,400 tomans at the time of writing this report. Although the trend of exchange rates has decreased due to political reasons (recent agreement between Iran and the International Atomic Energy Agency and improvement in relations with Saudi Arabia) and lowering inflation expectations, the risk of another surge in foreign currency continues to destabilize the country’s economy.

Economists believe that the value of a country’s national currency is a measure of that country’s economy. In other words, if we use the US dollar, which is the most important currency in the world, as a benchmark for comparing with other currencies, we will arrive at a price known as the exchange rate. The exchange rate is known in society and among people in the streets and markets as the “dollar price.”

Economists can provide a general overview of the economic situation of different countries by looking at their currency exchange rates. Iran is not an exception to this rule, and comparing the value of the rial against the dollar is widely accepted as the most important economic indicator among ordinary people and even experts in the field of economics. Therefore, it is natural that if the trend of devaluation of a country’s currency accelerates and continues in the long and even medium term, the likelihood of an economic collapse and bankruptcy will be very high.

Another indicator that can show the state of an economy is the inflation rate. Inflation, which is widely accepted as one of the most important factors for evaluating the economic situation of a country, actually reflects the pace of devaluation of a country’s national currency. In other words, the inflation rate indicates the speed of the process of devaluing a country’s national currency within a specific period of time (annually or monthly). No developed country has ever been among countries with high inflation rates at any point in history and has always enjoyed stability in its currency market.

Unemployment rate and economic growth are also among the other economic indicators that can reflect the economic conditions of a country. These two factors, which are closely related to each other, also have a significant relationship with inflation rate or the state of a country’s national currency.

The economy of Iran is on the edge.‌

Y. (This is a letter or abbreviation and cannot be translated without context.)

What is a portal?

Based on the four indicators mentioned earlier, it can be summarized that the Iranian economy has not yet reached the edge of the cliff, but is moving towards it at an increasingly rapid pace.

As mentioned, the most important indicator of evaluating the state of an economy is the inflation rate or the pace of decrease in the value of the national currency. Therefore, the exchange rate of the Iranian rial against the US dollar can be considered as the main criterion. This criterion indicates an increase of over 100% in the price of the dollar in the past eleven months of the year 1401 and it is predicted that this figure will surpass 120% by the end of December.

Such a situation has only been experienced in economies that have collapsed. For example, economies like Zimbabwe (during the presidency of Robert Mugabe), Venezuela (in the past 10 years), Bulgaria (in the 1990s), etc. have experienced such a situation. Now, if we consider the performance of the main government in maintaining the value of the national currency as the main indicator of Iran’s economy, it can be said that the Iranian economy is completely on the path of collapse.

The growth rate of inflation and also the very small economic growth are among other signs that have raised concerns among economists about the collapse of Iran’s economy in the not-so-distant future. In other words, it can be said that examining the vital signs of Iran’s economy and comparing it with the struggling economies of the world, indicates that the country’s economy is on the verge of collapse.

Historical examples of economic collapses.

In the United States, the economic collapse of 1929 was manifested by the stock market crash and lasted for five years and, according to some beliefs, more than 10 years; until the United States entered World War II in 1941. During this time, more than one-fourth of the gross domestic product was lost and unemployment increased by 25%. Government intervention was ineffective and no matter what was done, the economic situation worsened. In 1930, when tariffs were added to support domestic industries, stock values reached their lowest point in the summer of 1932, and the banking system lost its ability to lend in the winter of 1933. Per capita income in 1933 was 30% lower than in 1929, and more than 9,000 banks went bankrupt in the 1930s. As a result, global trade also plummeted by 50% and the crisis affected many other countries.

The 1929 crisis became global and also caused the collapse of the “Weimar Republic” economy. “Paul von Hindenburg”, the president of this country, called for the formation of new prime ministers and the resolution of the crisis from March 1930; but they came and went and nothing was accomplished. Until finally “Adolf Hitler” became prime minister on January 30, 1933 and did something else; the formation of a one-party dictatorship that put an end to the Weimar Republic.

In Indonesia, the economic collapse began following the 1998-1997 financial crisis and lasted for at least three years. During this period, the national economy shrank by 13%, inflation reached over 72%, and the value of the national currency plummeted by 500% against the dollar.

The Russian Federation, which emerged from the collapse of the Soviet Union in 1991, was unable to cover its construction and current budget expenses due to the decrease in oil prices and therefore constantly borrowed money. However, after a while, it became so indebted that it could no longer obtain new loans at reasonable interest rates. The bankrupt government was unable to repay its debts and in the summer of 1998, it faced a financial crisis and caused a major panic in the bond and securities market, which was eventually resolved with the help of the Federal Reserve in 2000.

The economic crisis has affected Argentina from 1998 to 2002. As a result, national production decreased by 28%, unemployment increased, and more than 50% of the population fell below the poverty line. In 2001, the fixed exchange rate between the national currency and the dollar collapsed, causing people to lose trust in the national currency and banking system. They converted their money to foreign currency and sent it abroad.

The economic collapse of Venezuela was caused by the economic policies of “Hugo Chavez”, the president from 1999 to 2013, and worsened during the tenure of his successor, “Nicolas Maduro”, due to a decrease in oil prices. In 2014, national production dropped by 40%, basic goods became scarce, and since 2017, due to hyperinflation, prices have been increasing by at least 50% every month. The economic collapse of Venezuela continues to this day.

In Greece and Argentina, the economic collapse was caused by heavy government debt. Greece’s government debt increased from 168 billion in 2004 to around 252 billion in 2009 and its credit rating decreased. In 2010, the Greek government was no longer able to repay its debt.

The failure of the Russian model of currency control and the confusion of the government’s leadership.

While in recent weeks, the exchange rate in Iran has experienced a historic jump, the Central Bank of Iran announced the launch of the “Currency and Gold Exchange Center”. The purpose of establishing this center, which was launched based on the decision of the Money and Credit Council, is to “create price authority, increase official transactions, and facilitate access for currency and gold market participants”.

Simultaneously with the increase in currency rates in Iran and as a result, the beginning of a wave of inflation of essential goods for people’s lives, the Central Bank announced the presentation of a new currency package. The Central Bank, which less than three months ago handed over the presidency from Ali Salehabadi to Mohammad Reza Farzin, announced in its statement that in the new currency package, it has used “Russia’s experience in restoring the value of the ruble”.

Some market activists have brought up the issue of significant rent being received by the holders of exchange currency by calculating the difference between the central exchange rate and the free market. The establishment of the currency and gold exchange center is the second policy of Mohammad Reza Farzin in the Central Bank, relying on the support of this monetary institution, which has gradually shown signs of failure. This new policy, also known as the “Russian policy”, is inspired by Russia’s policy to strengthen the value of the ruble against the dollar in the winter of 2022.

Prior to Russia’s attack on Ukraine, every US dollar was equivalent to 80 rubles, but after the start of the war, in less than 20 days, it increased to 126 rubles. The Central Bank of Russia also adopted a policy to solve this political crisis, which caused the US dollar to decrease to 55 rubles in less than three months.

Central bank authorities say that according to this model, all foreign currency resources obtained from exports will be placed under the control of the central bank, commonly known as the “central bank key”. From now on, all major exporters are required to offer their currency in the “foreign exchange and gold exchange market”.

According to this plan, the currencies obtained from exports of industries and mines will be under the control of the Central Bank and the banking authorities of the Islamic Republic claim that if it is successfully implemented, there will be a possibility of heavy falls in the currency market and the recovery of the national currency value, similar to what happened in Russia.

The dollar rate during the mid-days of Dey month, coinciding with the beginning of Mohammad Reza Farzin’s presidency at the Central Bank, was around 43,000 tomans, which at that time had a growth of 65% compared to the beginning of the current year. In his first decision in this position, Farzin said: “To stabilize the exchange rate, the rate of each dollar will be fixed at 28,500 tomans in the Nima system. All imports of essential goods, raw materials, and machinery will also be provided at this rate, and efforts will be made to reflect this rate in the free market.”

At the same time, Ibrahim Raisi, the head of the government’s economic team, also emphasized on the complete coordination of economic policies for “exchange rate stability”, reducing inflation, and serious monitoring of banks’ performance.

In Iran, the “one-dimensional” view of the currency crisis is accompanied by a strange manipulation and instead of preserving the value of the rial, policymakers are seeking to secure foreign currency for imports; a policy that will not remove the currency from the category of “capital goods”.

Less than three months after that plan and promise, the dollar rate has reached over 40,000 tomans and as a result, the prices of other essential items such as meat have skyrocketed. People have become even poorer and a large number of retired individuals, who are facing financial difficulties, have taken to the streets in various cities across the country.

It seems that what is being introduced today as the performance of the government’s economic team is actually the result of the economic performance of the Islamic Republic over the past 44 years; a government that from the beginning came to power with the claim of establishing an “Islamic economy” and in just a few years not only destroyed the economic infrastructure that existed before the 1979 revolution, but also turned into one of the most corrupt and destructive governments in the history of Iran and even the world.

If the Iranian economy has survived so far despite the mafia structure and rent-seeking in the Islamic Republic, it has been with the help of huge amounts of money from the sale of crude oil and other natural resources of the country. However, economic sanctions have closed the main artery of large foreign currency revenues from the sale of crude oil and exposed the inefficiency of the economic structure of the Islamic Republic.

All of this is happening while experts from different factions of the regime are currently warning about the coming weeks and months. And of course, at the top of the government, officials are seeking to secure as much income resources as possible, at any cost. The “privatization” plan, based on which public assets and resources belonging to the people of Iran and entrusted to the government will be sold, so that the government can use it for current expenses; all of this in a non-transparent process and under the protection of a seven-member committee of government officials who are pushing forward this treacherous auction.

“Escaping from economic collapse.”

Leaving the economic collapse is not an easy task; monopolies must be removed to allow for free competition and the reduction of government subsidies to decrease government expenses. In such conditions, people receive less financial and sexual assistance, pay the real price of goods, and only receive wages for a job that has economic justification and return on investment. It is a difficult task and requires inevitable trust to succeed.

Trust from the people and civil society is necessary; because they must have trust in order to endure difficulties and lead to prosperity and well-being. If they are worried that no matter how much they sacrifice, they will still fail and only the government will benefit, they will not cooperate and the economy will collapse. Economic officials must also have trust that the country has a plan to overcome collapse and achieve economic prosperity and are making efforts towards it. Otherwise, what hope or reason do they have to help and lend to a bankrupt country and invest in it?

But how can we restore trust in citizens and economic officials? It’s simple, by establishing democracy or at least opening up the political and market-oriented sphere in the economic realm.

In any case, no one trusts the government officials and managers who have caused the economic collapse. Therefore, it is necessary for the previous government officials to step down and make way for leaders who are competent, trusted by the people, and have the courage to break away from previous government policies and adopt free and stable policies. Just like in Greece, early elections were held to choose a new president to manage the severe government debt crisis. (5).

As long as we cannot trust the government officials who have caused the economic collapse, we cannot trust the government programs that have destroyed the economy with monopolies, rent-seeking, non-competitive support, and inflation. The only trustworthy programs to overcome the economic collapse are those that support market economic institutions and replace the government’s socialist and directive programs with civil society entrepreneurship.

The condition for international aid is the same. Just as the governments of Greece and Argentina turned to market-based economic reforms to overcome the crisis and be able to benefit from international aid. The first was a condition of the second. In 2012, the international community pledged to pay 130 billion euros to Greece and banks agreed to write off 75% of their debt to Greece; on the condition that the country adopts a market-based economic system.

Market-oriented economy is efficient and leads to increased fertility, production, employment, and welfare in society, making people capable; but it takes time. In the initial stages, when the market-oriented economy model has not yet been established and economic activity may even decrease by up to 25%, it is appropriate for the government to continue working towards a market-oriented economy and also have social programs for the upper class citizens. The less social trust there is, the shorter the opportunity for the government to rule and the more likely there will be social unrest, tension, and even confrontation between society and the government.

Therefore, it is important that until the economy stabilizes, the government always reports and educates the people with transparency, opens up public discourse, and supports vulnerable citizens to be prepared for economic activity. Sometimes governments change fundamental principles of the constitution to make it easier to escape economic collapse, prevent its recurrence, and support citizens. Just like the United States during the 2008 crisis – similar to the 1929 crisis – resorted to amending the constitution and took away the government’s obligation to consider consumer rights when issuing orders.

Footnotes.

1- Ayu Bordelan, the collapse of Iran’s economy.

Liz Echo Economic Newspaper.

October 12, 2010.

2- Has the economy of the Islamic Republic collapsed? Independent Farsi, 4 Khordad 1401.

3- A catastrophic event is on the way for the economy and people of Iran, Event 24, 5 Dey 1401.

The second largest drop in the American stock market in the last 90 years, Jahan News, October 5th, 2022.

5- The sound of economic collapse; the confusion of the authorities of the Islamic Republic in managing the economy, the voice of America, 2 Esfand 1401.