Iranian Economists Chide Tehran's 'Clumsy' Fiscal Policy

Several reform-minded Iranian economists say President Rouhani's government has been unable to curb inflation, shore up the currency or even absorb liquidity through constructive taxation.

A man walking past a currency exchange shop in Tehran
A man walking past a currency exchange shop in Tehran

Iranian economists are sharpening their criticisms of government policies on inflation and excess liquidity, in an economy distorted by decades of arbitrary decisions, cronyism and intermittent sanctions imposed by Western states.

Hossein Raghfar, a lecturer at the Alzahra University, a public university for women in Tehran, says the state had become just a "big machine" dishing out perks, favors and "status' to its supporters. He said "it gives out positions to its affiliates and fits them into this structure, so they can exploit its resources. That is not what a modern government does."

The reform-minded economist said the government should be taxing stock market transactions. Had it taxed 10% of the revenues generated by the Tehran bourse in the first two months of the year (the Persian year that began on March 21), he said, it would have earned the public coffers the equivalent of some $11 billion (50,000 billion tumans) in revenues for the national economy and the public sector, "without in any way obstructing participation in the capital market."

That's what modern governments do.

A typical investor with the equivalent of some $2,000 worth of local currency would have turned it into $10,000 in that two-month period, he said. The government might have taken half, and "with this income the government could have provided welfare services for others who are not able to invest in the capital market. It could build homes, expand healthcare and improve education services. That is what modern governments do everywhere in the world. They provide people with public services with these revenues."

Another economist, Sa'id Lailaz, previously a firm supporter of the government of Hassan Rouhani, believes the president's "mistakes at the start of the sanctions period wasted $30 billion in forex reserves and 80 tons of gold reserves."

Taking cash from an ATM in Tehran — Photo: Rouzbeh Fouladi/ZUMA

He said Rouhani made the "unforgivable" mistake of selling subsidized dollars inside the country in March-April 2018 to shore up the currency and counter forex shortages. He did stress that he hadn't made any other major errors, and prevented the economy's "collapse" due to U.S.-led sanctions.

Musa Ghaninejad separately told a local business daily in late August that the government had been mistaken in "encouraging people to enter the stock market." Writing in Donya-ye eqtesad (World of Economy) on August 26, Ghaninejad said the government had to rely on "economic science," and officials should stop dismissing economists as "theorists' with no idea of real living conditions.

He said "some officials have the mistaken idea that you can control inflation by channeling liquidity toward the stock market, which is generally absorbed into the secondary capital market. Essentially it means transferring money from one bank account to another." Flooding the market with subsidized dollars was another mistake, he said, based on erroneous assumptions that the dollar had a "real price," to be determined by the government. In the midst of sanctions choking Iran's exports, mainly oil, he believes the government cannot assume it can fully meet growing domestic demand for foreign exchange.

There were only two swift ways to curb inflation, argued Ghaninejad: either to issue or auction bonds, or let the markets set the nominal interest rate, which would lead to "positive" rates that would shut money into the banking system and prevent turmoil in the securities market.

"As long as politicians and those with power do not accept the real function of prices in the market and do not abandon the illusion of having "full knowledge and power" (over the economy)," he argues, "there cannot be a bright horizon for the Iranian economy."

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!

In Argentina, A Visit To World's Highest Solar Energy Park

With loans and solar panels from China, the massive solar park has been opened a year and is already powering the surrounding areas. Now the Chinese supplier is pushing for an expansion.

960,000 solar panels have been installed at the Cauchari park

Silvia Naishtat

— Driving across the border with Chile into the northwest Argentine department of Susques, you may spot what looks like a black mass in the distance. Arriving at a 4,000-meter altitude in the municipality of Cauchari, what comes into view instead is an assembly of 960,000 solar panels. It is the world's highest photovoltaic (PV) park, which is also the second biggest solar energy facility in Latin America, after Mexico's Aguascalientes plant.

Spread over 800 hectares in an arid landscape, the Cauchari park has been operating for a year, and has so far turned sunshine into 315 megawatts of electricity, enough to power the local provincial capital of Jujuy through the national grid.

It has also generated some $50 million for the province, which Governor Gerardo Morales has allocated to building 239 schools.

Abundant sunshine, low temperatures

The physicist Martín Albornoz says Cauchari, which means "link to the sun," is exposed to the best solar radiation anywhere. The area has 260 days of sunshine, with no smog and relatively low temperatures, which helps keep the panels in optimal conditions.

Its construction began with a loan of more than $331 million from China's Eximbank, which allowed the purchase of panels made in Shanghai. They arrived in Buenos Aires in 2,500 containers and were later trucked a considerable distance to the site in Cauchari . This was a titanic project that required 1,200 builders and 10-ton cranes, but will save some 780,000 tons of CO2 emissions a year.

It is now run by 60 technicians. Its panels, with a 25-year guarantee, follow the sun's path and are cleaned twice a year. The plant is expected to have a service life of 40 years. Its choice of location was based on power lines traced in the 1990s to export power to Chile, now fed by the park.

Chinese engineers working in an office at the Cauchari park


Chinese want to expand

The plant belongs to the public-sector firm Jemse (Jujuy Energía y Minería), created in 2011 by the province's then governor Eduardo Fellner. Jemse's president, Felipe Albornoz, says that once Chinese credits are repaid in 20 years, Cauchari will earn the province $600 million.

The Argentine Energy ministry must now decide on the park's proposed expansion. The Chinese would pay in $200 million, which will help install 400,000 additional panels and generate enough power for the entire province of Jujuy.

The park's CEO, Guillermo Hoerth, observes that state policies are key to turning Jujuy into a green province. "We must change the production model. The world is rapidly cutting fossil fuel emissions. This is a great opportunity," Hoerth says.

The province's energy chief, Mario Pizarro, says in turn that Susques and three other provincial districts are already self-sufficient with clean energy, and three other districts would soon follow.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!