By: Jabbar Fazeli, MD
The Iran rial hit an all time low with an exchange rate of 40,000 rials for the dollar today (1).
The Iranian government, short on hard currency, and contending with a budget deficit, is no longer able to pursue a policy of injecting hard currency into the exchange market to drive the exchange rate down as it had done in past years.
With the Iranian presidential "elections" approaching, the government is also preparing to spend money it doesn't have in the form of direct cash payments and/or subsidies to 70% of the wage earners, if we believe the latest reports (newspaper headlines below), thus decreasing the Iranian Government's "cash in hand", and its flexibility with regards to controlling the exchange rates in the future. If that holds true then a declining rial and increasing inflation is expected to continue in the upcoming Iranian new year.
|Ettelaat: The lower 70% will qualify for government "help"|
|Kayhan: Cash payments or commodity "help", the government and Parliament deciding|
One could argue that under the facade of "regime stability" there a simmering dissatisfaction among the public, and some say even the military, due to unpaid wages and rising prices (3). This year's "May Day" is likely to have a new meaning in Iran as a potential day of labor disconnect over unpaid wages and unemployment.
Title Photo source: PBS