The Economy Left Behind by Khamenei's Preferred President

Ebrahim Raisi was a committed and loyal figure to the Islamic Republic, who after many years of various judicial and appointed responsibilities, became president in August 2021; although his government ended after about three years with the crash of his helicopter. This detailed article analyzes the economic record of Raisi's government based on statistics and economic realities in Iran, showing that he and his administration not only failed to fulfill their promises regarding reducing inflation and improving the economic situation, but widespread corruption and misuse of public resources worsened the country's economic status, even by the standards of other Islamic Republic governments. Topics include: recession in production and inflation or the collapse of people's purchasing power; resilient inner-economy and sanctions; the expansion of corruption and the collapse of economic development institutions; the soaring dollar price and the fattening of rent-seekers; the protected share of rent-seekers from loss-making state companies; the value gap between the government and the people despite increasing propaganda costs. The economy that Ebrahim Raisi left behind Ebrahim Raisi is a model of the rights and judgments of the 'Velayat' system. Born in 1960 in Mashhad, he was a 20-year-old youth who, based on commitment rather than expertise, became a prosecutor in Karaj and Hamadan and at 25 in Tehran. He was not yet 30 when he became a member of the 'Committee for the Situation of Political Prisoners' or the 'Death Commission' to decide on the execution or survival of prisoners based on a few questions. With the beginning of Ali Khamenei's leadership, the committed Ebrahim Raisi advanced further and became the first deputy of the judiciary, prosecutor of the special court for clergy, attorney general, and at the age of 58, the head of the judiciary. Ebrahim Raisi also held other positions: head of the General Inspection Organization; custodian of Imamzadeh Saleh; custodian of the Astan Quds Razavi (from 2015 to 2018), member of the Expediency Discernment Council; member of the Board of Trustees of the Executive Headquarters of Imam's Command; first deputy of the Assembly of Experts; member of the Supreme Selection Board; founder of the Fatemeh Zahra Seminary; first secretary of the Headquarters for the Promotion of Virtue and Prevention of Vice; member of the Supreme Council of Cyberspace; member of the Money and Credit Council; and member of the Headquarters for Combating Economic Corruption. Such a committed figure was a reliable candidate for the executive branch for a government and leadership that was witnessing a decline in its forces. For this reason, he became president in August 2021 and remained president until the crash of his helicopter on May 19, 2024. The record of a 34-month incomplete presidency Recession in production and inflation or the collapse of people's purchasing power Oil revenues during Raisi's presidency improved compared to Rouhani's era because when Joe Biden came to power, he did not officially lift Donald Trump's severe sanctions against oil sales during Rouhani's second term but did not enforce them strictly either. Biden believed that by doing so, he could allow oil sales by Raisi's government to meet part of the global market demand after COVID-19 restrictions and Russia's export sanctions due to the occupation of Ukraine. It seems Biden, like Obama, believed that this way he could calm the Iranian government's positions regarding the nuclear issue and regional tensions. In any case, fortune turned towards Ebrahim Raisi, who not only sold more oil than Rouhani but also benefited from its price increase, achieving over $25 billion in revenue in his first year of presidency. In the previous year, 2020, Rouhani's oil revenue had dropped to less than $8 billion. Official government media tried to highlight a 5% growth in GDP in 2023 as a sign of success for Raisi's government, but this growth was not a stable achievement. First, because it came after years of decline and recession and therefore did not compensate for Iran's economic backwardness. Secondly, according to the Iranian Statistics Center, this growth was due to a 22% increase in oil production and especially a 17% increase in government spending, showing no sign of economic dynamism or resumption of activities. Production during Raisi's term did not take off, and inflation increased further. Ebrahim Raisi had promised to halve inflation first and then bring it down to single digits. Table 1 shows that this did not happen. During his two years in office, inflation rose above 50%, breaking an 80-year record. About a year before the crash of his helicopter, Raisi's government issued 10 directives in May 2023 to control inflation and boost production, which were ineffective. In March 2024, the Central Bank announced the average urban inflation rate for December to be around 60%. The price of the dollar increased by 10% during the first 32 months of Rouhani's government and by 160% during Raisi's term. Robert Barro, an economics professor at Harvard University, considers high inflation to reduce investment and, in the long term, to be detrimental to economic development and public welfare. If production does not grow adequately and inflation rises, merchants and workers can only meet their needs if their interest rates and wages exceed the inflation rate; otherwise, purchasing power collapses. This unfortunate event occurred during Ebrahim Raisi's administration, and Iranians lost part of their savings that they had set aside for consumption, investment, and future planning. The loss of purchasing power and savings was heavier for the lower classes than for the upper classes; as inflation in 2022 for the bottom decile was seven percent higher than for the top decile (53% versus 46%). Recession and inflation in Iran are fundamentally not caused by international sanctions, as without the continuous provocations of the Velayat-e Faqih government, there would be no sanctions against Iran, and secondly, whether under sanctions or not, the Iranian government has not sought economic development through 'free trade' with the world. Because if it did, it would have to compromise on its ideological values and also close the door on the huge profits of its own rent-seekers benefiting from the sanctions. Ebrahim Raisi did not want or have the ability to make such a sharp turn. Resilient inner-economy and sanctions In another part, we pointed out the impact of foreign trade on economic growth and poverty alleviation and stated that the consequence of an economy cut off from the global market can only be poverty and destitution for the people. From the beginning of his government, Ebrahim Raisi showed that he was not pursuing free trade with the global market but aimed to align with Khamenei's call for a resilient economy and to take advantage of economic sanctions as an opportunity for economic empowerment. Lost economic opportunities of Iran under the shadow of 'the system's world-hostility' Even if Ebrahim Raisi had economic experience, it was related to activities in the rent-seeking institutions of Imamzadeh Saleh and Astan Quds Razavi and the Executive Headquarters of Imam's Command, which have no relation to the view and experience of economic work with the outside world. Even if it had some relation, where could he have been a driver of free trade and an outward-looking economy while being accused of human rights violations by many countries and international organizations? Amnesty International called for the prosecution of Ebrahim Raisi 'for international crimes' (June 19, 2021), Javaid Rehman, the UN Special Rapporteur on human rights, called for an investigation into his role in the execution of prisoners in 1988 (June 28, 2022), and Reporters Without Borders supported Javaid Rehman's request (July 1, 2021). For this reason, and in addition to this, due to the Supreme Leader's inclination towards an inward-looking economy and the profitability of rent-seekers under international sanctions, Ebrahim Raisi's government sought to find economic partners outside the free market and the Western world on one hand and resorted to de-dollarization and mechanisms outside the international financial system for trade payments on the other. To replace trade with the West, he joined regional agreements such as the Shanghai Cooperation Organization (membership in 2023) and the BRICS summit, a group of emerging economies, and got closer to Russia and especially China. However, none of these allies risked their relationship with the Western market and capital for the sake of the Velayat-e Faqih government. The Chinese took advantage of the Islamic Republic's isolation and, with the tacit agreement of the US, obtained cheap oil and leveraged their special relationship with the Iranian government to bargain with the US, but despite numerous promises and agreements, such as the 25-year agreement, they did not do anything that would cause Chinese companies' sales in Western markets and cooperation with Western companies in investment and technology to come under strain. Since Raisi took office, neither Chinese investment in Iran has grown nor trade between the two countries has surged. Ebrahim Raisi not only failed to attract foreign and Chinese investment but also drove away national investments. The business environment and economic outlook became so bleak, and corruption expanded further that there was no safe haven for business and work. Raisi's government proposed selling shares of state companies and monetizing state assets in 2023 to achieve revenue, but selling shares and monetizing state assets only generates income in a market-based economy. In the Islamic Republic's economy, which does not respect private property rights, no independent Iranian investor dared to step forward for fear of confiscation and decrees for insiders and the consequences of sanctions, let alone foreign investors. The expansion of corruption and the collapse of economic development institutions Ebrahim Raisi, both when he was head of the judiciary and when he became president, promised to combat corruption. However, the commitment to fight corruption is not individual but rather stems from transparent and systematic institutions. Daron Acemoglu and James Robinson, in their book 'Why Nations Fail', describe transparent, inclusive institutions that protect property rights as drivers of economic growth and identify opaque, discriminatory, and rent-seeking institutions as causes of inefficiency, economic stagnation, and especially corruption. However, Ebrahim Raisi could not support inclusive and transparent institutions; he was committed to the leader of the government and insiders, not to an open economy and transparent institutions. For this reason, during Raisi's term, corruption increased in the country and even reached the heart of the government. Reports from 'Transparency International' indicate that corruption has become institutionalized in the Islamic Republic. This NGO defines corruption as the abuse of political and governmental positions to gain material and personal benefits and publishes a report on corruption in countries around the world every year. In the 'Corruption Perceptions Index' (CPI) of this organization, a score of 0 indicates the highest level of corruption and 100 indicates the lowest. As Table 2 shows, institutionalized corruption in the Islamic Republic expanded during the first two years of Ebrahim Raisi's government and worsened compared to the previous three governments. In Transparency International's reports from Middle Eastern countries, the UAE, Qatar, Israel, Saudi Arabia, and Turkey rank and score better than Iran; let alone comparing corruption in the Islamic Republic with countries like Denmark and Finland. This was a report on the institutionalization of corruption in the country's economy. But corruption was also present within Ebrahim Raisi's government. For instance, Gholamhossein Mohseni Ejei, the head of the judiciary, announced on May 14, 2024, that Javad Sadati-Nejad, Raisi's Minister of Agriculture, was guilty in a $3.7 billion corruption case regarding 'Dabesh tea' because he had instructed his ministry to contract with a company without a history for imports and pre-sell the goods. It seems he was also involved in corruption regarding the import of livestock inputs worth 110 trillion tomans. However, Ebrahim Raisi's responsibility for fostering corruption is greater in the selection of Mohammad Mokhber Dezfuli in August 2021 as first vice president, as he had previously been accused of economic corruption. The story was that Mohammad Mokhber, before becoming Raisi's vice president, was the head of the Executive Headquarters of Imam's Command and in this position, in collaboration with his son, Sajjad, managed to seize millions of dollars from oil sales revenue as one of the major bank debtors and a board member of several investment companies affiliated with Bank Pasargad. During that time, he prevented the entry of the coronavirus vaccine so that the Barakat company, affiliated with the Executive Headquarters of Imam's Command, which promised to produce '50 million doses' of the 'COV Iran Barakat' vaccine, could monopolize the entire market of the country. This amount of vaccine was not produced, and based on official statistics, about 70,000 Iranians died due to COVID-19. The point is not that Ebrahim Raisi pressured economic corruptors or gave them opportunities and privileges or was complicit with them; the point here is that the exploitation of the elites and insiders from economic spoils is a foundational and conventional principle of the Islamic Republic. Transparency International emphasizes legal oversight, fair law enforcement, independent media, and a free civil society to combat corruption. Which of these aligns with the principles and foundations of the Islamic Republic? With the long background he showed in judicial work and with the commitment he had to the mechanisms and interests of insiders in the country's economy, which of the conditions for fighting corruption could Ebrahim Raisi pursue? Like any other president in the Islamic Republic, even if Ebrahim Raisi fell short for the future and development of the country and the people's subsidies, he had to pay his dues to the rent-seeking insiders and institutions under Khamenei's supervision; as he did during his three-year government. Report 2022 Transparency International; Iran ranks among the most corrupt countries. The soaring dollar price and the fattening of rent-seekers Following the decline in revenues and rising prices, Ebrahim Raisi's government, like other governments of the Islamic Republic, was forced to send essential goods to the market at the cheaper dollar rate to prevent people from taking to the streets in protest over the loss of their purchasing power, as they did in December 2017 and November 2019. However, the price of the US dollar, which was 25,650 tomans at the beginning of Ebrahim Raisi's presidency in August 2021, reached 45,000 tomans in January of the following year, making it harder to obtain cheap official currency. For this reason, Mohammad Reza Farzin replaced Ali Salehabadi as the head of the Central Bank to keep the official exchange rates at a level preferred by the government and emphasized by Mohammad Mokhber Dezfuli, then first vice president, at 28,500 tomans.