Parliament Approves Elimination of 4,200-Toman Exchange Rate; ‘Revolutionary’ Officials’ Joint Decision for Controversial Economic Surgery

Ibrahim Raisi’s government and the Islamic Consultative Assembly, whose supporters call them “revolutionaries,” have made numerous economic promises since the beginning of their term, including “eliminating the 4,200-toman exchange rate” and making “revolutionary” decisions to improve the public’s dire economic situation. Yesterday, they also approved the general principles of a bill that could have a direct impact on how this decision is implemented.

Senior and “revolutionary” officials of the Islamic Republic, who after the June 2021 elections took complete control of the executive branch, repeatedly refer in their speeches to an important vague monetary-banking program with the general title “the country’s biggest economic surgery,” which every mention of it simultaneously confronts society and economic activists with concerns about the situation ahead.

The 4,200-toman exchange rate is the economic legacy of the previous Islamic Republic government under Hassan Rouhani’s presidency, established on April 10, 2018. This economic policy sought to neutralize the financial and banking sanctions imposed by the United States and normalize the challenges arising from the government’s controversial nuclear and missile activities.

Ibrahim Raisi submitted the 2022 budget to the Islamic Consultative Assembly on December 12, 2021, while various officials emphasized the need for economic surgery with elimination of the 4,200-toman exchange rate and called for direct parliamentary involvement in implementing it. In contrast, many economic experts and even political figures opposed such policies and issued serious warnings about their consequences.

IRNA, the government’s official news agency, in a report called this preferential government exchange rate “preferential rent” and wrote: “The 4,200-toman exchange rate … could perhaps be called the biggest loss of Iran in the past decade; a loss that not only failed to prevent price increases, but brought profound inflation to the country.”

Hassan Foruzanfard, a member of the Tehran Chamber of Commerce, in analyzing the possible conditions after eliminating this government exchange rate in November 2021, told ISNA: “Although currently raw materials do not reach producers at preferential prices, eliminating this exchange rate would suddenly introduce a kind of excitement and shock to the economy and, in addition to changing the prices of basic goods, also changes relative prices.”

Mehrad Abbad, Vice-Chairman of the Trade Facilitation and Export Development Commission of the Tehran Chamber of Commerce, also said to IRNA in October regarding the destructive effects of the preferential exchange rate policy on domestic production: “It is also very important what policy replaces the current situation. Policy changes should not be made in a way that worsens conditions. In recent years, we have witnessed that whenever laws were eliminated to correct conditions, it has worsened the situation.”

This controversial exchange rate, which senior Islamic Republic officials have been emphasizing the “need to eliminate” in recent months and media outlets close to the Islamic Revolutionary Guard Corps have also supported, has become known as the “Jahangiri dollar” because it was first announced by Hassan Jahangiri, the first vice president of Rouhani’s government.

Ishaq Jahangiri in May 2021, in one of the virtual rooms held on the Clubhouse platform, stating that such a decision was made jointly by the three branches of government at that time, said: “Currency reserves at the beginning of 2018 were less than one day’s supply in 2017.”

This senior official of the eleventh and twelfth governments who simultaneously headed a body called the “Headquarters of Resistance Economy” based on orders from Supreme Leader Ayatollah Ali Khamenei and with the decree of Hassan Rouhani, added: “Three options were on the table: continuing the status quo, setting a fixed rate, or setting a floating rate so we could both ensure currency supply and prevent the shock caused by America’s withdrawal from the JCPOA.”

Yesterday, despite all approvals and disapprovals, ultimately members of the Islamic Consultative Assembly approved the general principles of the 2022 budget bill with 174 votes in favor, 76 votes against, and 6 abstentions out of 260 representatives present. The budget bill at this stage is referred to specialized committees and reconciliation for the second round and review of details—a bill in which Raisi’s government has taken its main steps for its claimed “economic surgery.”

Masoud Mirkazemi, head of the Plan and Budget Organization, said in the parliament chamber: “In recent years we had currency shortages, and currency was purchased from the free market and paid at the rate of 4,200 as preferential exchange rate, which increased the money base. We are in economic warfare and must make a rational decision about currency.”

Gholamreza Mesbahi-Moghaddam, former parliament member and current member of the Expediency Discernment Council, also wrote today in the government newspaper Iran: “Although some parliament members opposed the elimination of the preferential exchange rate yesterday in the parliament chamber, which is the parliament’s own responsibility, and considered the elimination of the preferential exchange rate equivalent to potential inflationary shocks, we should not forget that parliament itself voted positively on the general principles of the 2022 budget bill.”

Given that various sectors of the Islamic Republic concluded in 2021 that the government’s economic policies from 2018 should undergo fundamental changes for 2022, some experts predict that these new measures, or what is called the “big economic surgery,” could, like the previous “preferential exchange rate” plan, have many adverse effects on society, especially lower-income groups, small businesses, financial markets, or a significant portion of producers.

Source: Voice of America