Official inflation at 19.5 per cent, government main cause
Tehran (AsiaNews) – Inflation is having a serious impact on Iran’s economy. Officially at 19.5 per cent but closer to the 24 per cent mark, prices rising for a variety of factors: the crisis of the US dollar, high costs of foreign transactions as a result of international sanctions, higher food prices, poor coordination and the Ahmadinejad administration’s contradictory fiscal and monetary policies. And this for the first in Iran’s history, both before and after the 1979 revolution, said economist Saeed Leylaz.
First, “We must not forget that international food prices have gone up by about 65 to 70 per cent while during the last three years the Iranian economy has shifted from an exporter of food products to a large importer of food,” Leylaz told Rooz, an online opposition Iranian paper.
“Iran currently has a multi-billion Dollar import bill for foreign autos, fruits, different kinds of meat and other products that are not essential to people. Because of these imports, the inflation that exists in the international markets is passed on to the Iranian economy.”
Second, international sanctions linked to the nuclear issue are biting. Now “Opening any Letter of Credit to import anything is becoming more difficult and more expensive by the day,” he said.
Even the revenue windfall from higher oil prices—US$ 200 billion in the last three years—is not a solution to the problem.
“Until 1997 this country used to import about billion worth of goods but in 2008 I think the imports bill will be between and billion for products and services. This is six to seven times what it used to be. We do not have the capacity to import so much,” Leylaz explained.
There is no short term solution. In fact, for Leylaz, “the problem with Mr. Ahmadinejad’s administration is that it only seeks short term solutions.”
Indeed the government is a major offender in the inflationary spiral.
“We must return to proper fiscal policies that were planned and outlined in the fourth development plan. If we do not return to fiscal discipline and reduce the size of the government and do not bring the influx of dollars under control, we will not accomplish anything,” he insisted.
“The government must succeed in reducing its budget deficit for which it must reduce its own size and increase its revenues. There is no other way to control inflation. The principal cause of inflation in Iran is the government’s budget deficit.”
“For the short term, the best way to bring inflation under control is to increase the interest rate.”
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