The president’s television interview on his 101st day in office raised more questions that it answered, especially about the sorry state of the government finances. Hist criticisms of the previous government’s irresponsible spending commitments is well taken and well known. Less well known and more doubtful is the charge that the previous government is also responsible for lack of revenues. If the blame game is to continue for much longer, it should at least be extended to include two other parties: the public for its unwillingness to pay for the services it consumes and the present administration for not moving fast enough to get them to pay. (more…)
There seems to be considerable confusion in the Iranian media about the pace of inflation. Since inflation is the main concern of the new Rouhani economic team, getting the facts right about its pace, whether it is rising or falling, is extremely important. There are questions about the accuracy of the official inflation figures, much of it exaggerated, but the most common source of confusion is not about the accuracy of official data but how to read them. (more…)
Iran’s subsidy reform program of 2010 depended heavily on a monthly cash transfer for its social acceptance. About 450,000 rials per person has been paid to all Iranians every month since then without any condition, so people were free to do whatever they wanted with the money. We know little about what they actually did, but there is a sense in Iran that this was not the best way to redistribute the energy subsidies.
There is much talk of improving the targeting of the cash transfer program, but less motivated by a desire to improve its equity than by the desire to cut the program’s cost. The most talked about proposal is to limit payments to the poorer households only, for example, to the bottom 7 deciles. I have already warned in this blog that this is impractical, arguing that identification of people in the top three deciles is very difficult and likely not worth the cost. I believe that the same amount could be raised by some very practical measures, such as charging more for the gasoline sold to consumers in richer neighborhoods and with more expensive cars. (more…)
I published this post on Lobelog today in which I raise a theme familiar to the readers of this blog: there is a deep misunderstanding of Iran’s economy in the West, exemplified by the NY Time story of last week that invoked the collapse scenario. I have been hearing the “collapse” theory of Iran’s economy lately, something that I thought people gave up after the economy recovered (sort of) from the huge shock of rial devaluation last October. Inflation is coming under control and unemployment has a real chance of declining thanks to a producer oriented (as opposed to merchant-oriented) Rouhani administration.
But years of negative reporting on the economy (“inflation and unemployment are always double what official data say”) had created the impression of a teetering economy and the temptation in the West to be tough with Iran and extract more concessions. I argue that this could be a big mistake and shows ignorance of the facts about Iran.
Returning to the global economy, this time as producer rather than shopper, is extremely important for the future of the country. The time is right in many ways, and Rouhani’s team have done a good job to show they are serious about rapprochement with the US, but the more charm is brought in the more people think Iran is desperate and the less the West should change its position. At the center of this is the lack of a credible story about the dynamics of Iran’s economy. How bad is it really and where is it heading.
The freeze on national income data in the last few years has hampered the effort to put such a story together for Iran. The online data banks of most government agencies (Iran’s Statistical Center and the Central Bank, in particular) have little new data past 2008. Numbers are slowly coming out in the Persian-language press in Iran, but unless they are available in English, it is difficult to make the case that Iran’s economy is not about to collapse and the West should approach these negotiations wisely.
Ever since it took over the reigns of government in August, President Rouhani’s administration has been grappling with the challenge of closing the huge gap in the government budget that it has inherited from its predecessor, reportedly at about 800 trillion rials (about $33 billion) or more than one third of planned expenditures. This is no small challenge given the fact that half of the year is over and much of the expenditures have already taken place or been committed. So, to reduce the deficit the government has little choice but to raise revenue. Luckily, inflation started to slow down just before Rouhani took over and has stayed below the 20% annual rate for the last three months, down from twice that rate in previous months. The bad news is that the most praiseworthy of the Ahmadinejad programs, the subsidy reform, is in deep deficit. The program has other problems besides its revenue gap, but it is on life support and the chord will be cut unless this problem is taken care of. Good solutions are there, all involving further adjustment in prices, but to implement them the government needs to show courage. The idea that has been floating for some time to cut the payments to richer consumers is appealing but not practical.
The latest inflation figures for the Iranian month of Mordad that ended on August 20 show that the Consumer Price Index (CPI) rose by a modest 1.16%, which translates into an annual rate of 14.9%, or less than half of the recent annual rate of inflation. The month before prices rose at an annual rate of 18.4%, which is also way down from the 49.7% increase Iran experienced in June. (more…)
The performance of the outgoing Ahmadinejad administration is in large part tied to its record of job creation during his tenure. Just before the presidential election, Professor Masoud Nili of Sharif University, one of Iran’s most prominent economists, created a stir when he criticized, on national television, this record. His claim of near zero net new job creation between the census years of 2006 and 2011 was considered controversial but it should not have been because he was basically reading the numbers off the census tables. (more…)
I have long been thinking to write something in this blog about the confusion in Iran between criticizing policies and politicians. If Ahmadinejad is bad, then every policy he implements must be bad (like subsidy reform) and if a president is good he can do no wrong (the wasteful $1.2 billion job creation program under Khatami). Today, I opened an article in Al Monitor entitled, “Ahmadinejad Takes Parting Shot At Iranian Women,” and was much surprised to learn about the parting shot. Apparently, the outgoing president has angered activist women by proposing a bill that would reduce the working hours for women to 36 hours per week while paying them for 44 hours, or if they work the full 44 hours, they get two additional paid days off per month. How will this hurt women? According to the article, “women’s rights activists believe this bill is another attempt by Ahmadinejad to dramatically reduce women’s participation in the workforce.” I am not sure about the intention part but I do agree with the conclusion. Most economists would argue that an attempt to raise hourly wages by reducing working hours while keeping pay constant would cause employers to favor men in hiring, which would hurt women’s employment. (more…)
One of the weakest aspects of Iran’s presidential election is fact checking for economic claims made by the candidates. For example, the other day candidate Gharazi seemed to imply that as Minister of Oil for the Rafsanjani government in the 1990s he was responsible for keeping the world price of oil high. He claimed that the world oil price dropped by about 50% when president Khatami replaced him by a reformer. It is a tall claim that a minister responsible for less than 5% of the world oil supply could have such a large influence on the global market.
Mr. Rezai made a similar exaggeration when he said the rial has lost two-thirds of its value since last year. True, in the free market for foreign exchange the rial fell by two-thirds last year, but prices have not tripled, as his remark implied. This is because imported goods account for only a proportion of consumer goods, and not all imports are bought with this rate.
But perhaps the prize for exaggeration goes to Mr. Aref, the reformist candidate, for claiming that 44% of Iranians are poor. If you assume that the 44% poverty rate also held for 2011, the last year for which Iran’s Statistical Center has released the raw data, it is easy to deduce the level of per capita expenditures (pce) that he has in mind as the poverty line. It is a whopping 61,500 rials per day (roughly $12 using the World Bank PPP rate of 5006 rials per USD for 2011). Unfortunately for Mr. Aref, the same poverty line implies a higher poverty rate for 2005 (47%), the last year of the reformist government in which he served as vice president.
Of course, these outcomes are not entirely the result of government policies, and Iran’s economy faces different challenges in 2011 than it did in 2005. But such cavalier use of data by politicians is not becoming for a country that claims to have reached a high level of scientific maturity and which wants to take its electoral process seriously.
The graph of the cumulative distribution functions of the pce for 2005 and 2011 also show that if we pick a lower poverty line, one more in line with international standards, of about $4, or 22,000 rials, we we notice a larger drop in poverty, from 7.1% to 4.3%. The cdf’s also show a decline in inequality. This is most likely the result of the cash transfer program administered under the Ahmadinejad government. Whether or not this was the best way to help the poor is another matter. I have been critical of his liberal import policy that hurt the Iranian economy during these very years, but that criticism is based on the poor losing jobs, not cash. I happen to believe that giving the poor work is much superior to giving them cash, but then that is a debate for another time.
The statistics most readily available for Iran are about prices, yet they are seen as the least believable. Last week the Statistical Center of Iran that reports on unemployment, household budget and national income, and now claims to be the official source for reporting on inflation, published a report providing us with detailed information on prices for the last six years (2007-2013). It shows that the consumer price index (CPI) rose by 40.6% during the Iranian year 1391 (21 March 2012 to 20 March 2013), and the average index for 1391 was 31.5% above 1390. The former is the point to point inflation, what people feel, and the other is what is officially reported as the years’ inflation. (more…)