The Past Year: Iran's Economy in the Hands of Zarif

Hassan Rouhani is pleased with his government's economic performance in the year 1393. The Islamic Republic's president said on Wednesday, March 18, during a cabinet meeting, "Economic problems have not ended, but statistics and indicators tell us that we have achieved significant successes." The use of the term "significant" to describe the economic achievements of the eleventh government in 1393 raises many questions. However, there is no doubt that compared to what happened in the years 91 and 92 in the country's economic scene, several of the most important macroeconomic indicators in the past year improved. The indicator most cited as a significant economic victory by the technocrats of the eleventh government is the inflation rate, which decreased from about 37% to below 16% between Bahman 1392 and Bahman 1393. Thus, it can be said that, in terms of prices, the promise made a year ago by Ali Tayyebnia, the Minister of Economic Affairs and Finance, regarding achieving a 15% inflation rate in Esfand is likely to be realized. In terms of GDP growth rate, there is also undeniable improvement. The Iranian economy, which experienced growth rates of -6.8% and -1.9% in the years 91 and 92, reached a growth rate of 4% in the first quarter of 93, ended the summer with a growth rate of 3.9%, and in autumn, based on the latest assessment by the Central Bank of the Islamic Republic, had a growth rate of 2.6%. Under these conditions, it can be hoped that Iran's economic growth rate in 1393, after the disastrous indicators of the two previous years, will be around 3%. For people grappling with a mountain of daily economic difficulties, the change in Iran's macroeconomic indicators over the past year, which has sparked the pride of the eleventh government's technocracy, seems quite abstract. A 16% inflation rate is undoubtedly much better than the 37% rate in Esfand last year, but this change is not very tangible in the daily lives of families in the lower to middle-income brackets. Currently, a large part of the developed world complains of inflation rates below 2% and even negative, and for many countries around the world, Iran's current inflation rate (around 16%) is a real nightmare. Exiting negative growth and achieving a growth rate of around 3% has also not brought about a noticeable change in people's lives. In the second half of Esfand, on the eve of Nowruz, there was little activity in the Iranian market. The housing market continues to struggle in recession. The Tehran Stock Exchange, in the last days of its working year in 93, experienced its largest drop in history with a decline of 3,590 units, increasing the stock market's losses to 23% since the beginning of the year. On the other hand, according to sources from the Chamber of Commerce, more than half of the 31,000 businesses in the country's industrial parks are either closed or semi-closed. Importantly, there are no positive signs of improvement in the country's job market. The Statistical Center of Iran announced the unemployment rate in the autumn season at 10.5%, equivalent to 2.5 million unemployed. This figure refers to those who did not work even for an hour a week before the survey. The issue is that in addition to the announced figure, another 2 million people are also in a state of underemployment. About 1.5 million university graduates in Iran are unemployed, and three times that number will enter the job market in the near future. Some sources estimate the unemployment rate among university-educated job seekers at about 30%. The unemployment rate among women with university degrees reaches 50%. We see that this is a major social and economic tragedy. Despite all that has been said, the reduction in the inflation rate and the exit of Iran's economic growth from negative territory is a positive development in Iran's economy. The important question is what factors provided the necessary conditions for this transformation? Can the changes in these two key economic indicators be attributed to the policies implemented by Hassan Rouhani's government in the economic sphere? The answer to this question is negative. Of course, the economic team of the eleventh government is composed of technocrats who cannot be compared to the economic leaders of the ninth and tenth governments. It would not be an exaggeration to say that Hassan Rouhani's government has the most cohesive and experienced economic team in the history of the Islamic Republic. The personalities of this team and their discourse undoubtedly created a new atmosphere in economic policymaking after a period of indescribable chaos. They inherited a grim legacy from the managers of the previous government, felt the crushing pressure of crippling economic sanctions on their shoulders, and, in addition to these two major calamities, faced a 60% drop in oil prices. These conditions, along with the existing deadlocks in the governance space, prevented Rouhani's economic team from ultimately implementing the necessary structural reforms to address Iran's long-standing economic constraints (ending the crippling dominance of the government and quasi-governmental institutions, ensuring the independence of the central bank, reforming the banking system, combating corruption, reforming the tax system, organizing labor laws and markets, removing obstacles in the business environment, etc.). It can be said that in the realm of economic reforms, Hassan Rouhani's government has not taken any initiative since the beginning of its tenure until today. The government's "package" of economic policies revolved around one key goal: exiting "stagflation." In the macroeconomic sphere, according to the authors of the proposed "package," the government prioritized combating inflation and continued this struggle in three major areas: monetary, exchange rate, and fiscal policies. In July and August 1393, a "policy package" consisting of two texts titled "The Reasons for the Emergence of Stagflation and Directions for Overcoming It" and "The Government's Economic Policies for Exiting Stagflation Non-Inflationarily in 1393 and 1394" was published by the Coordination Headquarters for Economic Affairs of Hassan Rouhani's government. The authors of the "package" humbly stated that "the prepared set is not a development program and cannot be expected to be comprehensive." They introduced the proposed set as a "short-term" document focused on the years 1393 and 1394 to create the maximum possible non-inflationary and job-creating economic activity. The government's economic package revolved around one key goal: exiting "stagflation." In the macroeconomic sphere, according to the authors of the proposed "package," the government prioritized combating inflation and continued this struggle in three major areas: monetary, exchange rate, and fiscal policies. The goal was to put the country's economy on the path to recovery without disrupting financial and monetary discipline to curb inflation. Recovery, from the government's perspective, would be sustainable only if the inflation monster was kept under control. About seven months after the introduction of the "package" to combat stagflation by Rouhani's economic team, the noise surrounding it has completely subsided, and even its existence has been forgotten. In fact, some of the executive policies outlined in this package required parliamentary approval, and for this reason, it was submitted to the legislative body in the form of a bill. In other words, the "package" that was supposed to be implemented as an urgent solution to combat "stagflation" has practically sunk into the quagmire of conflicts between the executive and legislative bodies, which have completely different and even contradictory political tendencies. A significant shift in foreign policy raises an important question: If no significant reforms have been made in Iran's economy since Hassan Rouhani took office, and the famous "anti-stagflation" package has also sunk into the sands of conflict between the executive and legislative bodies, why has Iran's inflation rate decreased relatively significantly over the past year, and why has growth emerged from negative territory? The reality is that Iran's inflation has decreased, but speaking of "controlling" it is a sign of recklessness. In Iran, there are still no structural reforms that can long-term control the scourge of inflation. It can be said that these two transformations are primarily the result of a significant shift in the foreign policy of the Islamic Republic, especially the agreement between Iran and the group known as the "P5+1," which was signed in November 2013 regarding Iran's nuclear file and has since been extended twice. This agreement, which is the most important achievement of Rouhani's government in international politics, also had a very positive impact on Iran's economy, as it closed the door to the intensification of foreign sanctions, facilitated the return of some oil dollars to the country, created the conditions for the relative stabilization of the exchange rate, and helped revive some activities by reducing restrictions in certain areas (oil, automotive, petrochemicals, etc.), and somewhat alleviated the burden of distrust and skepticism that weighed on Iran's economy. Without the signing of the Geneva agreement, the fall of Iran's national currency would have continued, and the inflation rate would have reached new heights. Also, without this event, the revival of some activities (including a 70% to 80% increase in automotive production) and the exit of Iran's GDP growth rate from negative territory would have been impossible. However, regardless of the source, there is no doubt that over the past year, both in terms of prices and economic activities, two positive transformations have occurred. Nevertheless, it is essential to reiterate that these two transformations are more due to changes in Iran's foreign policy than to desirable changes in economic policymaking. Recently, the "Khabar Online" website, following a survey of its users, introduced Ali Tayyebnia, Iran's Minister of Economic Affairs and Finance, as the "Person of the Year" in the economic sphere due to his "control" of inflation. The reality is that Iran's inflation has decreased, but speaking of "controlling" it is a sign of recklessness. In Iran, there are still no structural reforms that can long-term control the scourge of inflation. On the other hand, the decrease in the inflation rate over the past year and a few months, like the exit from negative growth, should be attributed more to Mohammad Javad Zarif than to Mr. Tayyebnia. It is fair to acknowledge that during Mr. Rouhani's administration, Iran's Foreign Ministry has had a more significant impact on Iran's macroeconomic indicators through its initiatives in the foreign arena than the Ministry of Economic Affairs and Finance.