The rial challenge
- Kejriwal's detention in Modi land sparks violent clashes between BJP, AAP in three states
- India goes to poll in 9 phases from April 7 to May 12; vote count on May 16
- Mumbai dailies laud Kamat, he denies he paid for the ânewsâ
- Congress bends, âopen to TRS allianceâ
- Mamata Banerjee releases candidates list for LS polls, lists out celebs and statistics
Time and options are running out for the Iranian regime
When Iran's rial went into a free-fall against the US dollar on October 1, it was evidence of the fact that one of the last remnants of former president Mohammad Khatami's achievements had been jettisoned — the unification of the multiple exchange rates in 2002. At the end of its war with Iraq, Iran had 12 exchange rates for the dollar, subsequently reduced by Hashemi Rafsanjani to four. Now, Iran is back to an official rate of approximately 12,000 rials to the dollar, a travel exchange rate restricted to $2,000, and the (black) market rate, which saw the currency plummet to 35,000 to the dollar.
The rial has been erratic for almost a year. This month, it lost approximately 80 per cent of its value, forcing traders in Tehran's central bazaar to shut shop and civilians to stock up on staples in bulk, since prices climb even as customers await their turn at the counter. The exchange rate had not been affected for years, even as Iran battled double-digit inflation. In fact, the very business people raging at the Mahmoud Ahmadinejad regime and the Central Bank of Iran (CBI) had earlier demanded, and got, the rial devalued to compete against cheap imports. The problem is, therefore, not devaluation itself, but unplanned devaluation, which has made the market unpredictable and put the private sector at a disadvantage, since state-supported companies continue to have access to the official exchange rate. Ironically, the reason why Iran's energy minister, Majid Namjoo, sought Indian investment against the backdrop of sanctions and a tumbling rial in New Delhi last Wednesday is that the private sector still remains mostly untouched by sanctions.
The Islamic Republic's economy has traditionally seen high liquidity. To absorb the cash floating around, the regime offered high interest rates for banks and government bonds. Therefore, no matter how hard the US- and EU-imposed sanctions are biting, the role of policy is the primary explanation of the rial's fall. It's not that sanctions haven't had any significant impact. Iran has lost half its oil markets abroad. Besides, the US penalty on any entity dealing with the CBI has made it extremely difficult for Tehran to park or route its oil money — in late 2011, for instance, Dubai's Noor Islamic Bank stopped clearing Iran's oil money. With the EU embargo on its oil since July 2012 slashing Iran's oil income by 45 per cent, and the country a great distance now from the 2.5 million barrels per day of crude it once exported, there aren't enough petro dollars for the CBI to sustain the rial's value.
- New police chief says smooth polls his top priority for now
- Battleground ready, tough fight on cards in Pune
- Gadkari visits PU for cultural event, crowd gets out of control
- Govt vehicle hits two visually impaired students
- Ecclestone rules out Indian GP in 2015
- Captain Vidic abandons sinking ship at Manchester United, to sign for Inter Milan