Worrisome Outlook of Iran's Economy Reflected in Bolivia's Situation

On February 6, 2025, Bolivia's Minister of Economy and Finance revealed that the government is selling national gold abroad to cope with financial shortfalls and bankruptcy, enabling it to cover the costs of essential goods and fuel imports, which are then distributed at subsidized prices to increasingly impoverished citizens. This policy was not the government's preference but an inevitable consequence of declining gas sales and falling foreign revenues. A similar situation applies to Iran, suggesting that what happened in Bolivia could also befall the Islamic Republic. This article discusses three lessons from Bolivia's economic experience that can be applied to Iran. The first lesson: Foreign revenues are collapsing. Bolivia, reliant on gas exports, has seen its gas export volume plummet from over 18 billion cubic meters a decade ago to below 8 billion cubic meters, with gas's share of total export revenues dropping from about 55% in 2013 to under 19% in 2023, limiting the government's ability to meet external needs and fulfill commitments for domestic subsidies. Meanwhile, Bolivia's inability to meet its gas export commitments has led Argentina to halt gas purchases from Bolivia since early autumn, and the gas export contract with Brazil, its only current customer, will expire next year. Similarly, as Iran's daily oil exports fell to 350,000 barrels in 2020 (one-seventh of pre-sanction levels), revenues from liquefied petroleum gas (LPG) also dropped by about 60% compared to the previous year, reaching $2.6 billion. LPG is Iran's second most important source of foreign revenue after crude oil and petrochemical products. A similar incident occurred in 2023 regarding Iran's natural gas exports, as Turkey halved its gas purchases from the Islamic Republic due to Iran's inability to fulfill its commitments. Iran has also struggled to meet its gas export commitments to Iraq, with Baghdad recently announcing it would halt gas purchases from Iran for the next three years. During Joe Biden's presidency, when sanctions were eased, Iran's oil, LPG exports, and consequently foreign revenues increased, although they did not reach pre-sanction levels. However, with Donald Trump's return to the presidency and the announcement of renewed and even stricter sanctions, the Islamic Republic's foreign revenues will undoubtedly decline, placing Iran in a situation similar to that of Bolivia. The second lesson: Savings for future development are being depleted. The second lesson from Bolivia's experience is the extensive use of the country's international reserves or national savings by the government to compensate for the collapsed gas revenues and finance essential imports and subsidy policies. Bolivia's central bank estimated its 2024 reserves at $1.9 billion, with only $50 million in cash, insufficient to meet import needs. Thus, Bolivia's foreign reserves are nearly exhausted, eliminating the possibility of building a robust economy for the future and younger generations. The governments of the Islamic Republic have also repeatedly drawn from foreign reserves to escape the constraints of declining foreign revenues, especially following sanctions. Estimates suggest that Iran's foreign reserves fell from over $120 billion in 2011 to less than $10 billion in 2023. Consequently, the government of Masoud Pezeshkian neither has sufficient foreign revenues nor can withdraw from foreign reserves as needed. The third lesson: National and public resources are being auctioned off to cover expenses. The third lesson from Bolivia's experience stems from the previous two experiences. The government, having lost gas export revenues and then depleted national savings, had no choice but to sell its overseas assets to generate income. Therefore, Bolivia's central bank purchased a total of 14.5 tons of gold from the mining sector in 2024 to sell abroad and secure the foreign currency needed for essential imports like gasoline and diesel. The Minister of Economy and Finance states that the gold sold abroad is separate from the 22 tons that must always remain in reserve according to law. However, a former member of Bolivia's central bank board has warned that gold sales will not be sustainable in the long term as the country's reserves are running out. It appears that the Bolivian government is also selling its reserve gold. Additionally, the Bolivian government has compelled gold producers to sell gold to the government equivalent to what they export, receiving the national currency, boliviano, at the official rate in return. However, since the foreign exchange rate in the free market is higher than the official government rate, many producers prefer to sell their gold on the black market or smuggle it abroad for higher foreign currency income. The Bolivian government has imposed similar regulations for the export of many other mineral resources. The Islamic Republic's governments also resort to similar policies to compensate for financial shortages and obtain foreign currency. For instance, the Central Bank of Iran has sold parts of its gold reserves several times to support the rial's value against the dollar. However, in the medium to long term, it has not achieved success. The rial's value continues to decline, and national gold is being smuggled to neighboring countries due to the disparity between the official and free market rates. Iran, like Bolivia, compels exporters to return a portion of their foreign currency earnings at the official rate, which is lower than the free market rate, to the official NIMA system. The outcome of this policy is the same: exporters reduce their exports, smuggle their goods to other countries for export, or, more commonly, sell their foreign currency in the free market instead of returning it to the official system. The Iranian government, like the Bolivian government, grants special privileges for the extraction and export of gold, silver, copper, and other mineral resources to certain entities or sells oil and gas at special discounts to compensate for its foreign revenue shortages. In conclusion, Bolivia's experience in avoiding bankruptcy and financial shortfalls reflects the trajectory that has occurred and will occur in Iran. Governments in both countries indiscriminately draw from foreign reserves, auction off national resources, and compel exporters to sell foreign currency at rates lower than the market. In Bolivia, these policies depleted foreign reserves, created a crisis in the gold market, increased smuggling, and particularly devalued the national currency. In Iran, signs of declining reserves, currency market instability, and increased smuggling of financial and natural resources are evident. If this trend continues, Iran, like Bolivia, will reach a point where it can no longer sustain these policies and will be forced to increase liquidity to obtain money, as it has done many times before, each time raising the inflation rate. This bankrupt trend is not merely a sign of an economic crisis. The increase in poverty among the underprivileged, the collapse of the middle class, the flight of capitalists, the emigration of entrepreneurs and elites, and the intensification of discontent have dragged the crisis from the economic sphere into the political sphere. In Bolivia, this trend led to a popular uprising. In Iran, too, people have repeatedly taken to the streets in protest against economic crises, such as fuel price hikes, chanting against the leaders of the Islamic Republic. In such circumstances, the Islamic Republic government, for its survival, will likely resort to broader repression, a security economy, and greater control over the people and businesses, as it has done before. However, these are not solutions but rather an addition to the stockpile of grievances. The economy in the Islamic Republic has collapsed and cannot address the hardships of the people economically. The necessary remedy involves sidelining the rent-seeking insiders of the government and establishing a market-based economy within borders while abandoning forces deemed 'terrorist' by the international community and turning to free trade beyond borders. Such changes challenge the identity and foundation of the Islamic Republic, and the Iranian government will not concede to them. Therefore, the remedy for the hardships of businesses and the livelihoods of the people must be sought in the political sphere. This regime has shown that its only tool for resolving the economic crisis is the repression of civil society and control over the state apparatus. In contrast, the successful model of many countries has been the transition from closed, centralized systems to market-based economies and free trade, which requires political will and power.