Response to Economic Questions (Part Two and Final)

The first part of the "Questions and Answers" dedicated to "the current and future state of Iran's economy" was published on December 21 of last year. The publication of the second and final part of the "Questions and Answers" was delayed due to the necessity of addressing reports related to protests and demonstrations by the people in various cities of Iran. Apologies to users, this section of the "Questions and Answers," which was prepared before the recent events in the country, is being published late. The continued economic questions from users have been categorized into five topics: to go or to stay?, the future of markets, bank bankruptcies, Iran and China, and finally, the role of the outside world in Iran's economy. To go or to stay? Several users have raised concerns about their future and that of their children regarding the future of Iran's economy, posing a very painful question about "staying" or "leaving." One individual asks: "How do you see the future? Should we stay in the country and wait or emigrate?" Another is worried about their children: "Do you have hope for the future of Iran? I have two young ones. If there is no hope, should I send them abroad?" This is a very bitter and difficult question, and the author humbly admits that they have no answer for it. Those who have spent many years abroad, how can they advise those who live in their homeland about "staying" or "leaving"? There is no doubt about the legitimacy of the question itself, but any attempt to answer it soon encounters insurmountable obstacles. Iran is among the countries where a large part of its people, especially the younger generations, seek their future (rightly or wrongly) beyond the borders. The desire of many young Iranians to emigrate, especially those who have reached higher education levels, is clearer than the sun. Thirty-eight years after the 1979 revolution, it seems that "leaving" and detaching from one's homeland has never been so tempting. In this regard, the recent remarks of Hossein Abdeh Tabrizi, the former head of the Tehran Stock Exchange and current advisor to the Minister of Roads and Urban Development, sparked significant reactions. He stated, based on information he received, that currently "one million and five hundred thousand Iranians are in line to emigrate to Australia and Canada, which is a frightening number. This statistic indicates that skilled and expert Iranian workers are leaving the country, and this is one of the reasons for Iran's impoverishment of elite forces." It has been said that in the expanding camp of those wishing to leave the country, graduates of higher education hold an important place. Both field observations and statements from Iranian experts and assessments from international organizations indicate the dimensions of "brain drain" in Iran. Among the ninety-one countries examined from this perspective by the International Monetary Fund, Iran ranks first. For a large number of educated Iranians, after obtaining their degrees, there is no news of job opportunities. Once upon a time, ministries and important government institutions in Iran were the main centers for employing degree holders. For several decades now, this role should have gradually shifted to the private sector. If Iran could be a normal country and prioritize development, domestic and foreign investors would fill the void left by government bureaucracy and create new job opportunities for the younger generations. Today, young Iranians know that government employment capacities have drastically decreased, without the enterprises born from Iranian capital and foreign investment being able to take their place. Over the past couple of years, a group of young Iranians has turned to creating "startups" based on new internet technologies, and their dynamism and creativity have caught the attention of some Western media. They expected nothing from the government except to create a suitable business environment, and their only wish was that they would not be disturbed in their work. This wish has also not been fulfilled, and according to Masoud Khansari, the head of the Tehran Chamber of Commerce, after a while, "both tangible and intangible economic pressures have narrowed that space as well." So what should be done? No one denies the very difficult conditions that have arisen for young Iranians. But can everyone be advised to "leave"? Regardless of the increasing difficulties of emigration, in a world that has become more anti-immigrant than ever, let us not forget that known currents in the Islamic Republic wish for all dissatisfied individuals to leave the country so that there is more space for themselves. These currents, after the signing of the "JCPOA," were worried that perhaps some Iranians abroad might consider returning, and for this reason, through various initiatives, they created a climate of fear so that no one could threaten their position with the experience and knowledge gained from emigration. In summary, the suggestion of collective emigration to all Iranians who cannot cope with the current situation of the country, besides being impractical in the current conditions of the world, can only be offered by someone who has given up all hope for the future of the country. The author of these lines, due to their brief acquaintance with the contemporary history of the world and its unpredictable turns, has not yet reached this level of despair. The future of markets Users have raised many questions about the future developments of the money, stock, currency, and housing markets, including how the stock market will evolve with or without the "JCPOA," to what extent the currency market will be affected by potential new sanctions, the replacement of the dollar with other currencies, or the unification of the exchange rate, and what direction the housing market will take? Where should people invest their assets to avoid losses? In response to these questions, it is necessary to emphasize two points: 1) The markets mentioned fluctuate in Iran like in all countries of the world, with the difference that the number of variables, the intensity of their impact, and the degree of surprise in Iran are greater than in many other countries for various reasons. Additionally, in Iran, the role and ability of political variables, especially in the international context of the country, often outweigh purely economic variables. For example, Donald Trump's election as president in November of last year put the entire Iranian economy into question. Show me another country in the world whose economy and all its relations in the world in trade and investment have been so affected by the emergence of a new policy in the White House. In this situation, predicting future fluctuations in various markets, if not impossible, is at least very difficult, especially if it involves medium-term and especially long-term predictions. In other words, in assessing future developments in Iran's markets, the weight of geopolitical experts is heavier than that of economic analysts. 2) In the risk-laden environment of Iran, easy and windfall profits are not few. For example, by depositing in banks, one can achieve a nominal interest rate of fifteen percent per year for one-year deposits (although some financial institutions offer higher rates to attract resources). In comparison, it is worth noting that in the Eurozone, a saver can expect at best one percent for one-year deposits and at most two to three percent for multi-year deposits, and they must also allocate part of their modest profit to pay taxes. However, an Iranian depositor pays not even one rial in taxes. This is the surface of the matter. In reality, the Iranian depositor accepts a very large risk. First, the inflation rate in Iran is ten percent, while in the Eurozone, it is one percent. In other words, Iranian money loses ten percent of its value each year, while the euro remains relatively stable. Second, Iranian money faces the risk of collapsing against other currencies and may lose half or even less of its value against them, an event that has happened many times and is likely to happen again in the future. On top of all this, the fragility of Iranian financial institutions must be added, and the depositor cannot be unconcerned about the possibility of their bankruptcy. Given all these risks, offering a fifteen percent (or more in some financial institutions) interest rate to Iranian depositors is not so unnatural. Some large depositors take advantage of this situation and even feel like they are "raking in money." Others, especially among small depositors, face the collapse of the national currency (sharp currency fluctuations) or even the bankruptcy of the financial institution before they can pack their bags, losing everything they have. In other words, the money market, which in many countries is one of the least risky and at the same time least profitable markets, offers relatively large profits in Iran, while its risks are also at a high level. This is the very normal relationship between risk and return. In financial markets, one can hope for higher returns only by accepting higher risks. The Iranian stock market is also heavily influenced by political variables, especially in the international context of the country. The "JCPOA," which could have reduced the impact of foreign policy on the stock market, unfortunately failed for reasons we know, and the expected influx of foreign investment, which was supposed to put the Iranian stock market in a new position, is much less than anticipated. On the other hand, the economic situation in the world is improving, which is a positive factor for the Iranian stock market, mainly because the oil market is likely to recover somewhat, and the increase in Iran's export revenues from this commodity, given oil's role in the country's economy, will naturally have a positive impact on the stock market as well. On the other hand, half of the companies listed on the stock exchange (including petrochemicals and producers of metal and mineral products) benefit from a relative boom in global markets due to the potential increase in their product prices in global markets. However, in the housing market, after a long recession, there are still very few signs of a possible recovery. According to statistics published by official Iranian sources, the volume of housing transactions in Tehran has recently begun to increase. Can this activity be considered a sign of a return to prosperity in the housing market? In answering this question, one must be very cautious. Given the multitude of ambiguities prevailing in various Iranian markets, in the current conditions, spreading risk is the best strategy, with the recommendation that one should not put all their eggs in one basket. Of course, this advice mainly concerns those who have many eggs. Others are naturally forced to choose, and there is no market that is free of risk. The risk of bank bankruptcies? Several users have raised the possibility of the bankruptcy of Iran's banking system, and one of them, probably considering what has happened to some credit institutions in the country, asks: "When will we witness a day when banks no longer open their doors to customers?" Financial institutions can go bankrupt not only in Iran and similar countries but even in developed countries, as we saw during the economic crisis of 2007 and 2008. In some cases, to avoid facing greater difficulties, it is better for troubled banks to go bankrupt. The problem in Iran is the dangerous dimensions of the banking system crisis and the lack of the necessary will to confront it. Almost a year ago, Valiollah Seif, the head of the Central Bank of the Islamic Republic, stated that about half of the banks' resources and assets are frozen and unusable. We are talking about "toxic assets" that are practically burned and do not exist, but are still counted as assets on paper. Given this situation, some Iranian banks are considered bankrupt and only attract new resources by offering high-interest rates to meet their obligations to old depositors. How long can this situation continue? I hope to dedicate an article to the crisis in Iran's banking system in the future. Iran and China One user compares Iran and China and asks that both countries lack a free (market) economy and, as a result, are deprived of a competitive market and a favorable business environment. So why has China, despite relying on a state economy, managed to achieve economic leaps unlike Iran? The esteemed user is right to emphasize the weight of the state economy in China. In fact, to this day, the major industrial powers of the world have not recognized the nature of a free economy for the People's Republic of China, and for this reason, the "Yellow Empire" is still deprived of some trade advantages in the markets of Europe and North America. However, alongside a massive state sector, which has remained since the time of Mao Zedong, China has created an environment for the birth and growth of a significant private sector.