Tyranny of numbers

On April 10, Iran instituted new foreign exchange regulations involving three changes: devaluation of the official rate by about 15 percent, restricting movement of capital out of Iran, and making the possession of foreign currency in excess of 10,000 euros ($12,500) illegal.  This policy was largely to stop the run on the rial, but rumors of capital flight may have also played a role. In particular, a claim by a prominent member of the parliament that, as reported in Al Monitor, “$30 billion of capital had fled Iran in the final months of the last Iranian year.” (more…)

This post is in keeping with my past practice of reviewing proposed government budgets, but this year’s review takes greater urgency in view of the recent protests in Iranian cities that have been linked to the budget for 2018/19 sent to the parliament just three weeks ago.  The basic elements of the budget are the same as in previous years — keeping the size of the government in check and assigning a minimalist role to public investment.  But there are big cut to a popular cash transfer program that has been in existence since 2010.

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If President Rouhani is re-elected to office next month, he will be presiding over his fourth frugal budget.  This is how he has gotten inflation down to single digits, and kudos to him for that, but the economic growth that he promised when he was elected has not materialized, and this frugality, borne out of his supply side economic views, is partly to blame.  If you expected to see a more expansive and stimulating budget because you heard oil minister Zanganeh say that oil exports will double in 2017/18, or noted the one-third higher expected oil price in the proposed budget, you might be wondering why this budget is only 10% larger than last year’s (see the number in the table below). You are not alone. (more…)

For the third year in a row the government has proposed a tight budget, keeping spending constant in real terms.  I am not sure the macroeconomics I studied decades ago has much relevance to Iran’s current economy, but the Keynesian in me says, given the economy’s dire conditions, a bit of fiscal stimulation could not hurt.  The government still believes that inflation rather than bankruptcies and unemployment are the economy’s enemy number one.  But perhaps Rouhani’s economic team is banking on the lifting of sanctions to pull Iran out of recession and generate a modest 5% growth.  This seems to be also what the IMF expects.
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You have probably read or heard very knowledgeable people talk about the $800 billion of oil revenues earned by the Ahmadinejad administration (for example, Iran’s Economy minister quoted in the Guardian here and Robin Wright speaking on NPR’s Diane Rehm show here), and that this is more than all the revenues earned from oil in the preceding 100 years.  Well, don’t believe them!  Repeating things frequently makes them sound more true but does not make them so.  Yes, the oil windfall of 2005-2012 was larger than all the revenues earned in the preceding century, but this is not true in terms of real dollars and therefore not really true. (more…)