Wednesday, April 30, 2008

So It Rumbles

The problem these days with writing on Iranian economy is the number of subjects to write and not the lack of a topic of interest. The most noticeable event was the change of the guard in the ministry of Economic Affairs. Dr. Danesh Jafari, whose immediate departure had been a topic of rumors in capital, left his office not so quietly. In his farewell address he gave an account of internal conflict over the economic policies in Iranian government.

He highlighted the lack of belief in the principle concepts of economics theory, the lack of trust in experienced individuals and the lack of belief in the 4th development plan as the road map of development in Iran. He told his audience: “the government does not consider the 4th development plan as an obliging document and yet it has not introduced a substitution.”

He mentioned the friction between the government and other bodies and organizations. He also criticized those who do not know much about economics and economic affairs and create crisis through misinformation. He offered a history of these events, such as accusing the managers of insurance companies of fraud, accusing an unknown high official of accepting bribes to grant license to import cigars, accusing tax services of being unfair and some other incidents.

He particularly named Dr. Jahromi the minister of Labor as someone who opposed his line of policies by saying: “Whatever we did to persuade this dear friend of ours, Dr. Jahromi, that publishing money does not create jobs, was unsuccessful.” His account was the headlines of Iranian papers the day after and forced the Vice President to deliver a speech to defend the government’s economic policies right there and then.

Dr. Jahromi is already a known name in policy making circles. To many he is the main leader of those who advocate a further reduction of interest rate and oppose the policies advised by the economists in the Central Bank of Iran and Economic Affairs Ministry. He already made that well known by writing an open letter to the President criticizing the monetary package suggested by the Central Bank to control inflation accusing it of hurting production.

In his letter Dr. Jahromi wrote: “In last year private banks by using the agreed upon rate of return charged much higher rates than what government approved.” He recommended: “There must be investment companies to prevent banks from investing directly.” He highlighted the policy regarding banking sector by saying that it is a matter of policy to limit the banks to banking services and to prevent them from investing. His reason for such an approach is Iranian banks “natural” desire to invest in service sector where a short term profit is available and their reluctance to invest in long term projects.

Dr. Danesh Jafari departure is assumed a victory for Dr. Jahromi and his supporters in the cabinet. However many experts continue to warn against the government’s economic policies. Many say that adopting such policies would increase an already high inflation even more. In response President Ahmadinegad in a recent speech in Qom accused those with special interests in banks, customs and monopolies to conspire against the government causing the inflation.

The rising housing prices, the global food crisis and the forecasted drought and above all rising inflation that according to the Central Bank continues to rise all draw a challenging picture for Iranian economy. And the critiques of the government have wasted no time in blaming government policies. However at the end of the day the issue is not one of the policy but of believing in economics as a science. As many economists point out readily: “The prevailing opinion is that of engineers and not that of economists in policy making in Iran.”

Sunday, April 13, 2008

A Roadside Conversation on Inflation in Iran

Katalaxy blog has a note on its author’s conversation with a cab driver in Tehran that I found very insightful. He wrote:
I was walking out of Mehrabad Airport in Tehran looking for a lift to Sa’adat Abad[1]. The cab drivers were yelling their fares from 8’000 to 10’000 Thoman[2] , so I passed. Then someone said: Sa’adat Abad 5 Thoman (meaning 5’000 Thoman). It seemed fair and the cheapest. So I stopped and said:
- Two months ago I went this road for 4’000 Thoman, 25% increase in just two months

He said:
- Two months ago the year was the year of national unity, this year is the year of innovation and invention
He was right, I laughed and got into his car

I love this story because it some how outlines how an Iranian consumer adjust his or her attitude toward inflation. Sometimes he or she does it by a smart comment with some reference to political realities or objectives set by authorities.

[1] A neighborhood in northwest of Tehran, mostly recent constructions It was developed rapidly in 1980’s and 1990’s.
[2] One Thoman is 10 Rials, although Rial is official currency people always use Thoman in their dealings, daily shopping and business activities. One Thoman also stands for 1’000 Thoman or 1’000’000 Thoman, depending on where the conversation is happening. (And most recently for 1'000'000 Thoman, this notion is used in real estate market).
[3] Reader surely observes that the increase in fare is as high as 100% for some other cab drivers.
[4] Iranian new year begins with the first day of spring. In New Year day in their official greetings the officials usually call people to concentrate their efforts in achieving a moral objective, last year this objective was Islamic national unity. This year's objective is achieving technological advancement through innovations.

Monday, April 07, 2008

Norouz and Domestic Tourism in Iran

Iranians celebrated their new year, the first day of spring, by traveling. Those who could have afforded it flew to Dubai to celebrate the coming of spring with excessive shopping and attending shows that are banned in Iran. Many grunt that Dubai’s prosperity and glamour owe much to Iranian travelers and tourism.

Those who could not afford it took on the road. To preempt any public discontent government added 100 liters to all gas ration cards for Norouz, uploaded the rations for next 2 months and took the extraordinary and much demanded step of allowing gas stations to sell fuel at a price close to market one. Iranians used up to 79 million liter fuel during these days. Showing a 6 million liters increase compared to the last year.

Local businesses also thrived in these days. According to Iran Cultural Heritage Organization 6 million tourists visited Mashad the seat of Khorasan e Razavi province and 5.75 million went to Mazandaran, north of Alborz Mountains and south of Caspian Sea. Sistan and Baluchistan in southeast, a usually remote destination, witnessed a two fold increase in the number of spring time visitors.

As usual Norouz reminds authorities of the need for more hotels and tourism infrastructure. For the time being many cities improvised by opening public schools and kindergartens to visitors and allow them to tent in parks and other public places. It also reminded people of how dangerous roads could be. According to ISNA news agency 770 individuals were killed in the road accidents.
[1] pic is from