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March 2021, No. 96


Landmark

Economic Program of the Future Government


The question now is what changes will take place in the relations between Iran and USA, especially in the field of economy.


Masoud Khansari, Chairman of Tehran Chamber of Commerce, Industries, Mines and Agriculture


US domestic developments usually affect the course of the global economy. Even European countries with strong economies are affected by these developments. A clear example of this influence can be seen in the developments since the election of Donald Trump as President over the past four years. He was able to challenge many of the rules of the international economy and cost the world economy dearly.

The United States controls more than 20 percent of the global economy and 62 percent of the worlds financial transactions. Thus, all countries, especially those that are more developed and have a significant share of the world market, are more affected and dependent. A clear example of this situation is China.

It is the worlds second largest economy, which has been in constant economic and diplomatic strife with the United States for the past four years, but given the two countries economic integration and joint ventures, there is virtually no time to cut ties. In many cases, China has been forced to abide by US policies. One of them is the oil embargo on Iran. Irans economy, although less than one percent of the world economy, is not unaffected by global developments. A clear example of this effect can be seen in the fluctuations of Irans financial markets after the US presidential election.

It is noteworthy that this level of influence of the Iranian economy from the United States takes place in a situation where there has been virtually no direct financial and economic relationship between the two countries during the last forty years. Whereas before the Revolution, the United States had limited investments in Iran and was very influential in Irans domestic policy-making process. After the Revolution, events such as the takeover of the US embassy in Tehran, the escalation of regional tensions and conflicts in the eight-year war, the downing of an Iranian passenger plane, etc., practically strained relations between the two countries. Especially since the United States has tried to cripple Irans economy by imposing tough sanctions.

The question now is what changes will take place in the relations between the two countries, especially in the field of economy, with the election of Joe Biden?

Some believe that relations between the two countries will improve to some extent and the economy will open up and the volume of sanctions will be reduced. As a result of these scattered actions, the presidential election in Iran will also be affected. Some believe that a change of presidency in the United States will have no effect on their general policies, and that Washington remains Irans main enemy. Now, with a review of the economy over the past three years, i.e. from 2018 to the end of 2021, certain results can be reached. Irans economic growth has been negative during this period. In these three years, the volume of the economy has decreased by 20% and, consequently, the purchasing power of the people has decreased by 20%. In fact, during this time we have experienced one of the biggest declines in the economy since the eight-year war (1980 1988). In fairness, although much of the decline was due to sanctions, poor management and misguided economic policies cannot be ignored. Of course, the coronavirus pandemic and its side effects also exacerbated this situation.

Of course, in 2011 the largest historical income for Iran was already recorded, but there was no opening in the economy. In 2012, too, negative economic growth and other problems deepened. That is, the situation in Irans economy has been the same with fewer sanctions. Perhaps the main reason for the situation is that no government is trying and daring to establish the right economic structure. In all post-revolutionary governments, revenues have never been on a par with expenditures, and the government has always faced a budget deficit, which has led to inflation of more than 20 percent and devaluation of the national currency by printing banknotes and tampering with the Central Bank of Iran. Therefore, it can be concluded that without solving the structural problems of the countrys economy, we will not get anywhere, even if the sanctions are lifted.

In fact, sanctions have only deepened economic problems. It seems that exports are limited, financial costs are higher and financial transactions are more difficult. At the same time, the lack of transparency has led to the creation of corruption and rent-seeking gangs in transactions and the deterioration of problems. Now, accepting that resolving domestic problems takes precedence over economic issues and foreign disputes, one must speculate about the 2021 elections. Reputable polls show that the social capital of the government is declining day by day and the relationship between the people and the government has been severed due to appointment failures, social problems and excessive government interference in peoples lives due to lack of proper discourse. This is while today more than 15,000 thousand billion rials of cash and non-cash subsidies are injected into the whole society. That is, every Iranian receives an annual subsidy of about 160 million rials. But as a result, people are all dissatisfied; both the affluent and the low-income.

As a result, everyone voices their dissatisfaction in one way or the other; a big number of the youth long to migrate to foreign countries. It is unfortunate that more than $10 billion in capital outflows occur annually in the country. Here, the role of the government in the 2021 elections will affect the economy. A government that can gain the trust of the people through constructive dialogue and recruit qualified and young managers as members of the government with maximum votes will find the power to implement structural reforms.

Among these structural reforms mention can be made of the following: Unification of the foreign exchange rates; targeted subsidies; setting deficit-free budgets; elimination of production barriers; minimizing government involvement in enterprises; eliminating golden signatures; strengthening foreign diplomacy; improving relations with other countries with priority going to neighbors; and ending conflicts of the past 40 years.

 

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  March 2021
No. 96