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The Cause of Iran’s Economic Crises

While many try to downplay Iran's economic crises or blame sanctions for their creation, state-run media acknowledge aspects of these crises.

Iran is experiencing its worst economic crisis. While many in the west try to downplay these crises or blame sanctions for their creation, state-run media acknowledge aspects of these crises. They underline that the regime is behind all of them. 

“We have a high rate of underemployment in many areas, and unfortunately, we hear disturbing news. People cannot manage their families with their current employment. Many people have two or three part-time jobs so they could make ends meet,” wrote the state-run Eghtesad-e Pouya on Tuesday, June 15, 2021. 

Eghtesad Pouya then refers to the regime officials “Referring directly to the unemployment” and concludes that “we are not in a good economic situation.” 

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“A large part of countries’ economic growth is due to productivity improvements. Over the past 40 years, about 30 to 40 percent of economic growth in developed Asian countries has come from productivity growth. Meanwhile, Iran had only one percent of economic growth from productivity growth,” Eghtesad-e Pouya adds. 

According to Eghtesad-e Pouya’s article, “The lion share of the government and Costly but fruitless protectionist policies are among the most important causes of poor productivity in Iran.” In other words, the regime’s corruption and wasting the national wealth on terrorism and other malign activities have destroyed Iran’s production. 

“Iran’s general economic, political, legal, and social conditions do not provide a favorable environment for economic growth. Economic growth relies on investment, and the investor needs an atmosphere of trust. Lack of trust in Iran is one of the important obstacles for investment and subsequent economic growth,” Eghtesad-e Pouya concludes. 

 

Rising liquidity, a cause of Iran’s economic crises 

One of Iran’s main economic problems is the high inflation rate and subsequent skyrocketing prices. The reason behind Iran’s increasing inflation is the rampant growth of liquidity. 

“While productive sectors of the economy are being closed due to lack of liquidity, liquidity in non-productive sectors has increased dramatically in recent years. Therefore, inflation has made life bitter for the Iranian people. In other words, the lack of liquidity in the productive sector of the economy and, on the other hand, the entry of huge amounts of money into speculative and destructive activities leads to a cycle of destruction and weakening of the Iranian economy,” the state-run Frahikhtegan daily acknowledged on June 13. 

Farhikhtegan’s article adds that the recent report of Iran’s Central Bank shows, “The Amount of liquidity by the end of February 2021 has reached 3.4 quadrillion, which is 40% more than the liquidity of 2.4 quadrillion Tomans in February 2020. The 40% growth of liquidity in 2021 was the most unprecedented in the last five decades.” 

The main reason for Iran’s rising liquidity is the regime’s banknote printing for compensating its budget deficit. Hassan Rouhani’s government directly borrowed money from the central bank and sold the government’s foreign exchange earnings to the central bank. Since the Central Bank did not have enough resources to cover the government’s expenses, it started banknote printing. Yet, banknote printing in the modern economy is generally done by commercial banks, and the central bank has a limited role in directly increasing liquidity in society. 

Farhikhtegan daily concludes that “In our economy, even in years when the growth of the monetary base was low and reasonable, liquidity has increased. The monetary statistics in 2014, in which the growth of the monetary base was 10%, but the growth of liquidity was 31% confirms this fact. Therefore, in the absence of budget deficits or sanctions, what has led to chronic inflation is the banking system.” 

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As a result, Iranians are grappling with high inflation, skyrocketing prices while they receive low salaries. 

“Most Iranian households are currently in absolute poverty. Absolute poverty is a severe form of poverty in which individuals are unable to meet the basic needs of themselves and their families, including food, water, health, education, and housing,” wrote the state-run Vatan-e Emrooz on June 13. 

“Currently, the level of prosperity of Iranian families has reached its lowest level in decades. There are indications that this downward trend will continue in the future, and even the lifting of sanctions will not provide a way to return to the normal situation,” Vatan-e Emrooz’s article adds. 

Due to extreme poverty, there are growing social crises in Iran, such as the rising number of labor children. 

“The most important factor in increasing the number of labor children, especially children working on the streets, is poverty. Certainly, with our current economic situation, along with the lack of a vision to address these issues that can alleviate concerns, we will witness more labor children on the streets,” wrote the state-run Hamdeli daily on June 13. 

Iran’s social and economic crises and the regime’s role in creating and amplifying them have turned Iranian society into a powder keg. Two major Iran protests in 2018 and 2019 that rattled the regime’s foundation started due to the economic crises. 

“The last popular protest [in 2019] started due to the fuel price-hike. But officials seem to have forgotten this. The truth is that the consequences of social issues are very much worrying. Yet, officials have not understood the importance of this matter,” Hamdeli daily warned regime officials.