Iran: printing banknotes and empty promises from the president
Iranian President Ebrahim Raisi recently said he had no plans to increase the country’s liquidity. “I decided to compensate for budget deficits and reduce inflation”, he said. However, how is he supposed to enforce such claims?
In a nutshell, liquidity means the government’s debts to the people. Therefore, since this number was higher, the government owed more debts to the citizens. Liquidity also includes:
âBills or coins
âSavings or bank loans
âBudget deficits, which led the government to receive loans from the banking system
âBanks’ debts to the Central Bank
In Iran, the productive economy has been destroyed due to the mismanagement of civil servants. The government is spending domestic resources on exporting terrorism, advancing the range of ballistic missiles, nuclear bombing projects and funding extremist groups in the Middle East.
The ambitions of the Islamic Republic have also resulted in international sanctions and restrictions, almost freezing the country’s revenue. Thus, the government faces massive budget deficits. To offset these deficits, officials printed unsupported banknotes or taken out loans from the Central Bank of Iran (CBI), plunging the country into a liquidity crisis.
In other words, since there is no real production and income, the government has injected unwarranted money into the market. This question has increased demands. However, the prices are measured by the exchange of US dollars, which means more devaluation of the rial of the national currency against the dollar and other foreign currencies.
In this regard, prices keep rising and liquidity intensifies inflation. In such circumstances, citizens are the first victims, and they feel the grueling inflation through their empty product baskets. However, who is responsible for liquidity?
“90% of the country’s liquidity is in bank deposits, and only 2% of investors control 90% of those deposits.” Mohammad Noei, economist at the Parliament Research Center (Majlis), said in an interview with the Bazaar website on October 4, 2020.
Indeed, only 2 percent of investors – not the Iranian population, who are either the children of the “Aghazadeh” ayatollahs or the affiliates of influential officials – control more than 80 percent of the cash in Iran.
However, Raisi claims and boasts of solving financial crises and overdue wages without printing banknotes or increasing the monetary base. âSome governments had declared the treasury to be empty. You can criticize me by saying: “you started by complaining”, if I am talking about the situation of the treasure, “ Raisi admitted.
Still, how could Raisi – who has no formal education – solve economic dilemmas in a short time despite an empty treasury and dire financial conditions? Particularly when official sources announced that the country’s oil revenues had declined by at least 70 percent, the government was faced with a sum of 4 quadrillion rials. [$14.424 billion], or nearly 50% of budget deficits.
On the other hand, Raisi’s lack of classical education trapped him in ambiguous claims. He claims to have solved financial dilemmas without referring to the CBI or printing unsupported banknotes. On the other hand, his collaborators had already admitted that the government created 43 trillion rials [$155 million] of cash every day.
âIt is undeniable that this year we are facing a massive budget deficit. This deficit was usually made up by borrowing from the CBI. To increase the monetary base is, in fact, to take out of people’s pockets by increasing prices â, said Morteza Afagheh, an economist close to the state.
The government has also resorted to the printing and sale of financial titles to offset its budget deficits. âFrom August 20 to September 20, the government was able to sell 270 trillion rials [$973 million] of financial securities “, said Minister of Economic Affairs Ehsan Khandouzi.
âHowever, how long would the government pursue such plans? Really, he should pay the profits of these titles in addition to their prices next year when there are no clear resources. Therefore, it is another game to the detriment of citizens, and their food baskets would be increasingly reduced â, observers believe.
The printing and sale of financial securities allows the government to defer its debts into the future, but such performances bring more economic crises for this government and the next ones, mainly as the whole Islamic Republic faces a hyper crisis. economic. In other words, the government is auctioning off the country’s future by selling financial securities and leaving much more difficulty for future generations.
“While government officials describe the ‘denial of loan’ as their most important achievement, a recent CBI report indicates that the government has relied on the banks against these claims,” wrote Arman Meli paper October 23.
âTherefore, there is no obvious difference and the CBI has to print banknotes to offset additional overdrafts and properties of rotating banks. Therefore, Raisi’s economics team doesn’t even know that inflation and increased liquidity are not the only results of direct borrowing from the CBI, while the withdrawal of bank reserves will lead to inflation. “
In addition, people familiar with the country’s financial system believe that âBanks themselves are the root of the escalating corruption, embezzlement and theft,â Saeed Leilaz said in a statement. maintenance with Eqtesad 24 on October 20. âThey get people’s money through interesting and deceptive ‘profits’. However, they give loans to those who are not supposed to return the money.
Nonetheless, the reality is far more visible than the claims made by Raisi, or parts of details leaked by state media. Indeed, citizens feel the government’s failure to resolve their dilemmas and economic demands with their blood and their flesh.
In just two months, the prices of most essentials such as bread, rice, oil, eggs and sugar have increased dramatically. Official statistics show that inflation has exceeded 60% and that the point-to-point inflation situation is dire. Home rentals are up 48.4 percent from the same period last year.
All of the facts mentioned above show that Raisi was crippled in solving the country’s economic dilemmas despite his promises and the unlimited support of Supreme Leader Ali Khamenei and the Islamic Revolutionary Guard Corps (IRGC). This is an important point in the history of theocracy, revealing the failure of the state to respond to the grievances of the population, putting the regime of the Islamic Republic in a difficult situation.