Economy Iran’s 'Economic Collapse' Has Not Happened So Far!

Iran’s ‘Economic Collapse’ Has Not Happened So Far!

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The Governor of Central Bank of Iran (CBI) Abdolnaser Hemmati wrote on his online page that: “He has not allowed the perpetrators of the sanctions to achieve their main goal in the last two years, which was the collapse of the country’s economy.” (Bazar News website, October 2, 2020)

He has promised to explain the reasons for the rise in the exchange rate in recent weeks in a timely manner. But for the time being, he acknowledged that these days, after the trigger mechanism is proposed, there are rumors about the complete disconnection of the Iranian financial system from the world. He admitted that regardless of its operational capability and the extent of its practical impact, its psychological impact on the foreign exchange has unfortunately overshadowed the market.

With these words by the head of the CBI, it seems that the Iranian governing body considers economic collapse possible. But so far, they have not allowed this to happen.

Although Hemmati, the head of the CBI, did not provide a precise definition of ‘economic collapse’ and its consequences in the country, the remarkable point is that these words are expressed by one of the most important economic officials of the government.

Let us see what the current economic situation in Iran is. Haidar Hosseini, a government economic expert, says: “What is the name of this non-collapse of the economy when the dollar reaches 300,000 rials, the coin reaches 150 million rials [$500], and the family livelihood is kept to a minimum, and some do not have the same livelihood? What else must happen to say that there has been an economic collapse?” (Arman Meli daily,  October 3)

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Economists generally acknowledge that ‘psychological impact’ is effective in a healthy economy. An economy that has many challenges and the regime’s top experts enumerate its different types and varieties. From the water and environmental crisis to the budget deficit and unemployment and the bankruptcy of banks and social security funds. It is not clear what is left for Iran and the country’s economy that the ‘psychological impact’ should impact it?

Iran’s President Hassan Rouhani has raised impudence to the highest level. Speaking about the country’s economic situation, he said: “Statistics from Germany show that their economy has shrunk by a negative 5.2 percent, that our economy is in better shape, and that economic growth without oil will be positive by the end of the year.” (Mashregh daily, October 3)

Judging by Rouhani’s claim, when Europe’s largest economy does not catch up with Iran in terms of economy, in addition to Germany’s Chancellor Angela Merkel, the experts of the International Monetary Fund (IMF) should be brought to Iran for a training course in economic science and to admit in a TV interview that Iran’s economy will not shrink by 6 percent in 2020, that Iran’s economic growth was not -7.6 percent last year and -5.4 percent in 2018, and economic growth will not be negative for the third year in a row. And these are all rumors by the global enemies.

Valiollah Seif, the former head of the CBI, referring to the 400 percent increase in the exchange rate since the beginning of 2018 and the reasons for this rapid growth, ‘advised the CBI to take control of tomorrow’s transactions in order to control the exchange rate.’ (Mehr news agency, October 2)

However, he says that he is witnessing the intensity of inflammation in the foreign exchange market, and this has caused concern among officials, economic activists, and individuals. He also compared the current situation with his presidency, and in order to console Hemmati, he said:

“This phenomenon is not new and has a history in the past, but it can be said that it is unprecedented in terms of intensity and amplitude of fluctuations as well as the length of the time period, compared to the past. Since the beginning of 2018, the exchange rate has risen by more than 400 percent, and in addition, we have witnessed sharp fluctuations that have severely affected economic activity and seem to continue to do so.” (Bourse Press website, October 3)

Earning 330 trillion rials [$1.1 billion] of income from people’s money in the stock market: “Farhad Dejpsand, Minister of Economy, after months of silence and exploitation of capital market financial instruments, is now referring to some predictions about the possibility of non-realization of government revenues in the first half of the year and forcing the government to borrow from the CBI and the concerns of the private sector and the people about the resulting inflation, have acknowledged the government’s use of it, and he happily said, I would like to give the good news that fortunately, as a result of the measures devised by the government, in the last six months, we have been able to compensate for the deficit of our resources from the sale of securities and the transfer of shares of state-owned companies. (Aftab-e-Yazd daily, October 3)

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Without mentioning the negative consequences of this action in disrupting the capital market and harming thousands of shareholders, he adds: “In the first half of this year, we had a very brilliant performance in terms of transferring government shares in state-owned companies, and we managed to earn about 330 trillion rials [$1.1 billion], which is a significant figure.”

At the end of the discussion on the ongoing economic collapse of Iran, it is appropriate to look at the latest research report of the French company ‘COFACE‘, which is one of the most reputable global companies in the field of credit insurance and ‘risk forecasting’. The report notes the fragility of Iran’s economy and that it is one of the most dangerous countries for trade.

“The annual update of Coface’s Political Risk Index, published in this barometer, highlights a dual trend: on the one hand, a decrease in the risk of conflict at a global level, but on the other, an increase in the risk of political and social fragility. Iran and Turkey are among the countries whose level of social risk increased the most. Given the unique context this year, we have constructed an exposure indicator to the COVID-19 crisis, in order to identify the most affected populations who are more likely to turn against their governments.

“The social and political fragility indicator, which is relevant to analyze the increased risks of social unrest, shows a slight deterioration in its score at the global level, obscuring the different trajectories from one country to another (Table 1). While the five riskiest countries based on this indicator remain unchanged, other developments are noteworthy. Iran reinforced its position at the top of this indicator.

10 riskiest countries according to the political and social fragility risk indicators
10 riskiest countries according to the political and social fragility risk indicators

Top 10 and bottom 10 of the evolution of the political and social fragility risk indicators score among emerging and developing countries
Top 10 and bottom 10 of the evolution of the political and social fragility risk indicators score among emerging and developing countries

One economist interviewed by Radio France International (RFI) has warned that the happiness by the head of the CBI that there has been no ‘economic collapse’ so far has come too soon:

“Assessment of the current situation shows that the state of the country’s economy is completely critical and on the verge of collapse. People’s purchasing power has dropped dramatically. Unbridled inflation, poverty and unemployment, economic instability, lack of economic security combined with the reluctance of domestic investors to spend in the manufacturing sector, lack of constructive interaction with the outside world, are among the factors that have made the country’s economy helpless in the current situation.”

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