Former VP Says Iran's Foreign Policy Perpetuates Economic Crisis

Until further notice, Raisi said in a televised interview Monday evening, the government will pay monthly around 4 million rials (about $15) to 30 percent of the population at the lowest-income groups, and around 3 million to 60 percent of the population. The 10 percent at the highest income level will receive no cash handouts.

This means the government must spend the equivalent of $850-900 million a month to placate an impoverished population that has already been largely deprived of many daily food staples, such as meat, fruit and dairy products. Food prices have skyrocketed in the past year, by more than 60 percent.

The $10-billion annual cash assistance means the government will print more money and create more inflation.

Iranian pundits and politicians have been warning of possible unrest as bread and other food prices suddenly jumped last week when the government removed import subsidies costing up to $20 billion a year.

The government claims it has made elaborate plans to ensure traditional flatbreads cost the same as before although bread at the subsidized rate will be rationed. Raisi said the government will issue smart bread ration cards within two to three months.

For the first three months the cash handout will go to people’s accounts that they can spend for shopping. Later the payments will go to the smart cards to be spent only for bread.

The massive jump in the price of flour after removal of its subsidies will affect the price of a wide range of foodstuffs including bread, pasta, biscuits, and cakes but the cash handout that the government will pay will not compensate for anything other than traditional flatbreads. The price of western-style baguettes and buns which are widely consumed both at home and at restaurants for instance, has already sky-rocketed by around ten-fold.

Since last week, Iranian security forces have been on high alert in anticipation of possible bread protests and riots. Authorities resorted to shutting down the internet in the southwestern province of Khuzestan where some protests were first reported on Friday.

Before the 1979 revolution, the government subsidized fuel and other necessities, but with high oil exports and better financial management it balanced the books. The Islamic Republic continued and expanded subsidies relying on oil income, which wildly fluctuated due to the war with Iraq in 1980s and later international and US sanctions.

The head of the Planning and Budget Organization said Monday that fuel subsidies cost the government more than $100 billion annually, which is far more than the country’s oil export revenues..

Iran began paying cash handouts to compensate for removal of energy and other subsidies in December 2010 based on legislation proposed by President Mahmoud Ahmadinejad's government. That payment is still made but its purchasing power has declined as the national currency has lost most of its value.

Most Iranians at the time, around 68.5 million out of 75 million, signed up to benefit from the billions of dollars of handouts.

Payment of cash handouts at first brought popularity to Ahmadinejad, particularly among lower-income groups, but his government's failure in controlling inflation and ever-increasing cost of living dissipated the initial euphoria among the lower-income classes.

In a little over three years the depreciation of the national currency pushed down the purchasing power of the 450,000 rial cash handout per person by over 40 percent. The amount of cash handouts has remained the same since the introduction of the plan but the value of the national currency has hugely dropped.

In 2010, the average monthly shopping basket of urban families cost 700,000 rials but the same money buys just a few eggs now.

In a recent voice message sent to all producers and presenters of Radio Farhang, the radio station's director, Alireza Habibi strongly warns them to avoid reporting economic woes and the government's responsibility and threatens them that mistakes will not be forgiven because these issues are now "viewed as [national] security matters."

In an audio recording of the message, which Iran International has acquired, Habibi also says that instead of discussing these problems, in the current circumstances, the media should strive to advance the "psychological security" of the society. "And don't include newspaper headlines that are gloomy, critical, or about high prices in the programs," he tells them.

Avoid criticizing the government, the official tells staff, until "the dust settles and smoke clears" because criticism of government may turn into "criticism of the state" in its entirety.

Supreme Leader Ali Khamenei who charts the country's macro-policies, including the economy, takes no personal responsibility for the failures and has on several occasions publicly blamed the government of President Ebrahim Raisi's predecessor, Hassan Rouhani, for economic troubles. In his speech to workers Monday, he made no mention of the politically sensitive rise in bread prices and urged everyone to support the Raisi administration.

Since 2017, Iran has seen several major protests fueled by economic demands rather than any specific political issue. The driving force of the unrest, including the nationwide November 2019 protests following an increase in fuel prices that left hundreds of protesters dead, and the 2021 water shortage protests in Khuzestan and Esfahan, were mainly ordinary people rather than political groups and parties.

In recent weeks, Raisi and his economic team have come under heavy fire for economic mismanagement from a wide range of critics -- including other hardliners who helped him to power in last year's elections.

Many blame Raisi's government for failing so far to reach an agreement with world powers to restore the 2015 nuclear agreement, which would lift US sanctions and give a boost to the badly ailing economy. But economic failures of the government, and the regime, are becoming more and more difficult to justify, even given US sanctions.

Raisi says his government has stopped the "growth of inflation", which is above 40 percent now, and that it will soon go down and show its effects but the hike in prices do not help convince those most affected by the hardships, that is a good majority of Iranians.

Poverty has soared in the country to unprecedented levels. According to official figures released by the interior ministry, in total, around 60% of the 84 million Iranians live under the relative poverty line of whom between 20 to 30 million live in "absolute poverty". In 2010, for instance, the number of those living under the absolute poverty line was around 10 million according to government statistics.

In the past few months prices of many commodities have risen, by several-fold in some instances, and the government is planning to remove the subsidies it pays for some foodstuff and other basic commodities. The announcement of plans to remove flour subsidies has already pushed up the price of many products including pasta, biscuits, pastries, and sandwiches.

The head of the Planning and Budget Organization Massoud Mirkazemi told state television that the government is in the process of “reforming the subsidy system…and we are close to final decisions.” He repeated the official argument that the government wants the subsidy to go to the people instead being wasted in different ways.

His remarks signal the implementation of a long-suspected plan to make hydrocarbon fuels and electricity more expensive. Iran has the world’s second cheapest gasoline after Venezuela and the cheapest electricity for more than four decades.

One gallon of gasoline is around 22 cents and citizens are said to be using too much electricity and natural gas which are similarly offered at extremely low rates.

However, inflation has stood above 40 percent in the past 12 months and food prices have risen even faster. As the people’s purchasing power has declined, many expect another round of protests. An increase in energy prices might be too much for the population to bear.

Mirkazemi said that in addition to energy subsidies, the government is providing another $20 billion to keep food and medication affordable.

As it tries to save financial resources after four years of tough United States’ sanctions, the government might be risking a popular backlash.

After days of chaos for people and politicians, with bread prices rising and essential commodities such as cooking oil disappearing from shelves, Khamenei’s unannounced meeting with workers’ representative appeared to be aimed at showing him as a supporter of labor.

In his speech at the event, however, Khamenei did not mention the economic crisis and rising prices and repeated a series of rhetorical statements that often Islamic Republic officials utter more as a wish-list than practical economic plans.

Khamenei called workers “the supporting pillar of production”, and repeated slogans such as “increasing job opportunities”, “equitable relationship between labor and capital”, and “job security”.

Unemployment, partial employment and declining wages have plagued Iran’s workers, specially in the last decade, when international and American sanctions have weakened the economy and a huge wealth gap has opened in society.

The highly corrupt “privatization” of government enterprises has led to the closure of many factories and companies, leaving tens of thousands of workers unemployed or unpaid for long periods of time. Labor unrest since 2017 has led to hundreds of protests and strikes.

Without mentioning the above-40-percent inflation rate and the politically sensitive rise in bread prices, Khamenei tried to express support for President Ebrahim Raisi’s government and called for all entities to support his administration.

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Raisi is under fire even by some of his hardliner supporters for appearing as disorganized and clueless over the handling of the economic crisis, although his administration has taken credit for circumventing United States’ sanctions and exporting one million barrels of oil per day.

Khamenei also tried to show that the regime he presides over values the contribution of workers, but the first example he mentioned related to the 1980s and the war with Iraq, when he said 14,000 workers were “martyred” in battle. He also thanked workers to “standing up” to US sanctions and keeping production alive.

In fact, the sanctions have cost Iran a lot of non-oil sector production losses and the closure of thousands of small producers, according to what officials and government-controlled media have reported in recent years.

Khamenei also claimed that workers have supported his regime but admitted that workers have “rightfully” protested “wrong privatization”.

He went on to say that contrary to Communist system and “exploitative” capitalism the Islamic government is appreciative of workers contribution.

An average Iranian worker now earns around $150 a month and with rising prices cannot afford most daily food items, such as meat or fruits. In 1970s, before the revolution and the Islamic Republic, an unskilled worker earned around $140, when the Iranian currency was 4,500-fold stronger than today (US dollar at 70 rials in 1978 compared with 285,000 now). Skilled workers earned as much $500 a month in mid-1970s, which provided incomparable purchasing power at the time.

The Supreme Leader reiterated his support for Iran’s closed economic system, emphasizing that imports should be minimized and domestic production increased, although recently there have been complaints by officials and politicians about the low quality of Iranian cars, while imports remain restricted.

With the deterioration of the economic situation in recent days and the danger of a social explosion, even state-controlled media publish interviews and comments about the mystery of oil revenues and higher taxes collected by President Ebrahim Raisi’s government.

According to official statements by the president and the oil minister, Iran has earned at least $45 billion in the past 12 months from higher exports and prices of crude oil and refined oil products. This is double of what Iran managed to earn in 2020, without any visible impact on the economy.

Hossein Raghfar a professor of economics in Zahra University in Tehran told the Iranian Labour News Agency, ILNA, that the money is being taken out of Iran by corrupt officials.

“The question now is why the impact these revenues are not being felt,” Raghfar said, and insisted, “One of the main reason is flight of capital from the country.”

He did not provide any details or evidence for his claim of massive capital flight, but a recent scandal surrounding the family of the parliament speaker traveling to Turkey for luxury shopping and reportedly buying two expensive apartments there for $1.6 million, speaks volumes about corruption and money taken out of the country by the elite.

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A Turkish nationwide news channel, TGRT, not only confirmed claims by Iranian sources that Mohammad Bagher Ghalibaf (Qalibaf) family purchased apartments but reported that 500 luxury units in the same high-rise complex have been purchased by families of Iranian officials. That would mean around $500 million of illicit funds taken out of the country and invested in just one location in Turkey.

Raghfar said that if government claims of exporting around one million barrels of crude per day are true, Iran can expect around $100 billion of revenue from its traditional financial lifeline. That kind of money should stop the fall in the value of rial, which reached a four-month low on Saturday trading at 285,000 to the US dollar. Just in late 2017, before the United States pulled out of the nuclear agreement known as JCPOA, the rial was trading at 33,000 to the dollar – an almost ninefold fall in less than five years.

The former head of the central Bank, Abdolnaser Hemmati, issued a short video on Sunday saying that the Raisi administration can be called “The sultan of printing money.” Raisi has been claiming that he stopped his predecessor’s practice of generating money for the government by printing more banknotes, but Hemmati said that according to new central bank date the government printed close to $6 billion additional money from August to March, which fuels inflation.

Raghfar also drew attention to large quasi-government companies not paying any taxes, and instead receiving subsidies. These companies are run by political appointees who are friends or family members of top government officials and can easily share funds with others in their circle.

He went to say that currently all major government institution are controlled by conservative (loyal to Supreme Leader Ali Khamenei) and the Raisi government has no excuse of disunity in failing to improve the economy. Why the government is eliminating subsidies for essential commodities, raising the price of bread fivefold, he asked, and said it is not clear what is happening to public wealth.

“Iran’s economy is hostage to various mafia interests, who spend a lot of [public] money and embezzling huge funds,” Raghfar said.