Monday 22nd Apr 2019 

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News: Iran Economy

40 Years of Economic Downfall in Iran

40 Years of Economic Downfall in Iran

By Shahriar Kia

The mullahs in Iran have now celebrated the 40th anniversary of their malign regime, but few ordinary Iranians have anything to rejoice over. There are many problems that have been caused by the Iranian Regime’s corruption and mismanagement, but today, we’re going to look at just one: the economy.

In 1979, the Iranian rial had an exchange rate of 70.5 per US dollar. Now, it’s a massive 122,500 rials to the USD. That’s a tremendous decline by anyone’s standards, although it has suffered a considerable drop in the past year due to growing domestic unrest and stricter international sanctions.

The Regime tried to artificially fix the value of the rial at 40,000 rials per USD, but this only created more problems because the free market exchange rate was substantially different. This meant that import/export businesses had to buy USDs from the Iranian Regime at the artificial price to buy goods, but would sell the goods on at free market rates to make a major profit, thus further bankrupting the Iranian people.

But from the exchange rate, you can estimate the rate of inflation in Iran. According to the Iranian government, it's hovering around 18.4%, but outside economists have placed it as high as 200%. Steve Hanke of Johns Hopkins University estimates that it is around 164%.

Hanke said it’s also useful to check the black-market premium for indications on the Iranian economy, where you can see for instance, how much Iranians are willing to pay for items compared with what it would cost if they were able to buy them at the official exchange rate.

Hanke also used a modified version of the Misery Index, which was designed to provide a snapshot of the economy in the 1960s using a country’s annual inflation rate and the unemployment rate, to show that Iran has had an elevated Misery Index score since the Revolution. (His modification was to add together the unemployment, inflation, and bank lending rates, then subtract the percentage change in real GDP per capita.)

In 2017, Hanke predicted it to be 34.6, which is already pretty dire but by 2018, it had jumped to 79.7.

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