Tyranny of numbers

Can Iran’s economy restructure to minimize the impact of sanctions?

Posted in General, Macroeconomy by Djavad on September 20, 2019

In a post published on Lobelog.com today, I ask if Iran’s economy is sliding.  Available data do not allow me to answer this question one way or the other, but they do undermine the claim of doomsayers that the economy is on the verge of collapse.

A lot rides on the answer to this question, however, and I do not have more to say on it here.  There is no doubt that in the standoff between Iran and the US, time is on the US side. They can wait this out for a very long time, at least as long as Iran keeps to its promise not to develop nuclear weapons.  The question is then how quickly and to what degree will Iran’s economic situation deteriorate in the next year or so.  If the economic clock for Iran runs out fast, we should expect it to resort to asymmetric responses and further instability in the Persian Gulf.  If, as the data hints, the economy is stabilizing, albeit at a lower level, Iran could decide to use the sanction years (how long?) to restructure its economy away from oil and toward domestic production.

The reforms needed to do so range from reform of education and banking systems to better management of the exchange rate.  If the government is working on a strategy to achieve all this, I do not know.  But, when the big economic news from Iran is about kicking 800,000 rich people off the cash transfer roll, I have doubts. To be bust saving about $50 million a year when the economy is losing 5-10 percentage point in lost economic growth (worth $50 billion) a year, does not make sense.

 

 

 

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