Rooting out the cancer of the economy: Why inflation in Iran is uncontrollable – Part 2
In the second part of the investigation into the root causes of Iran’s economic problems, economists have always attributed the main cause of inflation to the heavy budget deficit of the government. This budget deficit ultimately leads to government borrowing from the central bank and expanding liquidity. However, it is important to understand where and why this deficit is created. A significant and notable portion of government expenses is related to the pressure imposed by stakeholders in various sectors. This pressure is commonly known as rent-seeking.
In the first part of the investigation, we discussed the two major factors that prevent inflation control in Iran. These factors indicate the existence of powerful stakeholders in the Iranian economy, making it practically impossible to control inflation. In this part, we address two other important factors: banking facilities rent-seeking and land and housing rent-seeking, which effectively hinder inflation control.
Banking facilities in the name of the people, benefiting rent-seekers
First and foremost, it should be noted that the bank interest rate has been negative for most of the past 50 years, except for short periods during the seventh, eighth, and eleventh governments. This means that when the current inflation rate exceeds 50%, the loan interest rate is set at 18%. This means that anyone who has access to bank resources has moved at least 32% ahead of inflation without any effort.
If you have visited the country’s banks, you will understand the very difficult conditions for obtaining loans. Ordinary people have to go through seven hoops to possibly receive limited and small loans at interest rates much higher than the approved rates.
However, the publication of the list of bank debtors has shown that astronomical loans have been given to stakeholders who not only do not comply with the approved conditions but also refrain from returning the principal amount. In other words, they have neither provided collateral equal to the loan amount to the bank nor paid the installments.
In such circumstances, the thirteenth government opens the doors for loan recipients, but ordinary people who go to branches to apply for facilities are faced with closed doors. It should be noted that these non-refundable facilities ultimately disrupt the balance sheets of banks, a balance that the central bank is forced to inject resources into the banking network to recreate. This action also accelerates liquidity growth, expands the monetary base, and ultimately leads to inflationary surge.
In other words, when stakeholders receive large-scale facilities from banks and do not repay them, the central bank is forced to fill the gap of non-refundable money from the pockets of ordinary people through intensified inflation. This is why national currency always loses value and no one has the ability to cope with this domestic flood.
Of course, it should not be forgotten that sometimes governments themselves have a significant presence in the queue of bank debtors. This means that instead of directly borrowing from the central bank to compensate for their budget deficit, the government spins the loop around itself and receives facilities from banks without repaying them. This is done to cover up the statistics of government borrowing from the central bank, which the thirteenth government has proven to be a master at.
The auctioned wood hits the ground.
If we take a look at the financial statements of most publicly traded companies, we will notice an unexpectedly high profitability. The reason for this is the exploitation of land rent by these primarily state-owned companies in Iran.
For example, an individual, relying on connections, manages to acquire a piece of land in an industrial park and starts a production activity there. This is just a cover story, because the production activity itself is actually unprofitable. The main beneficiary of our story is able to accumulate a large capital under the guise of land rent, benefiting from the labor of the workers in that production unit.
The thirteenth government has recently forced many government institutions to provide land to certain state-owned and so-called private companies through the Four Million Housing Plan. This means selling government properties at a price lower than free.
This phenomenon reached its peak during the implementation of the Mehr Housing Plan in the ninth and tenth governments. Many actors, who did not even have a day of experience in construction, registered contracting companies and obtained residential lands from the government at negligible prices. These companies immediately made significant profits by selling the land to construction companies at market prices.
Once again, the government of Ebrahim Raisi has provided the ground for the activities of these corrupt profiteers. This is a government that came to power with the slogan of fighting corruption and improving the livelihoods of the people, but its performance is exactly aimed at shrinking the people’s table and further empowering the beneficiaries in the Iranian economy.
The series of articles on uncovering the roots of the economic cancer in Iran has been exclusively published on Iran Gate. Other sections are accessible to you through the links below.
- ریشه یابی سرطان اقتصاد ایران / چرا تورم ایران مهارنشدنی است؟ قسمت اول
- ریشه یابی سرطان اقتصاد، چرا تورم در ایران مهارنشدنی است؟ / قسمت دوم (در حال مطالعه این بخش بودید)
- ریشه یابی سرطان اقتصاد ایران، چرا تورم در ایران مهارنشدنی است؟ / قسمت سوم
- ریشه یابی سرطان اقتصاد ایران، چرا تورم در ایران مهارنشدنی است؟ / قسمت چهارم
Persian
مشاهده این مقاله به زبان فارسی
