The Forum for Partners in Iran's Marketplace

January 2017, No. 82


Businesses that Gain from Inflation!

Dr. Mousa Ghaninejad, Economist

A businessman is a friend of God but not any businessman. A true businessman is a friend of God; because he is the one whose business serves the interests of others and brings blessing to others more than he thinks about his own interests. The scientific version of this principle is in fact the same as alignment of individual and collective interests in a society based on competitive economy.

In the meantime, there are always those who are looking for their personal interests at any possible way and would not hesitate to trespass the rights of others. The more the economic system of a society is non-competitive, state-owned and coupled with severe inflationary fluctuations, the more the environment would be appropriate for the growth of this type of illicit traders, and naturally this would make the situation more difficult for true businesmen.

Towards the end of the 10th government and in the chaotic conditions under which the sanctions had been escalated, some raised the idea of “sanctions dealers”, which was in fact a clear example of the same illegitimate business cited above. Beyond this particular case it should be noted that it is more than four decades that Iran’s economy, due to several reasons, has become more state owned and more affected by inflationary fluctuations to the extent that it has boosted various types of illegitimate businesses.

Along with different illegitimate trades caused by governmental economy such as taking advantage of different rents and monopolies, some kind of inflationary trade has emerged the interest of which depends on the continuation of the turbulent inflationary conditions. Identification of these cases is not a difficult task. All the major debtors and professional borrowers, including the government itself are examples to cite; because continued inflation would reduce their debts in cash and increase the value of their non-cash belongings. In addition to these visible inflationary businesses, there are more or less invisible traders who make huge profits through speculation in the market for land, housing, stock exchange, currency and gold and by doing so create bubble and turbulent markets.

Continued reduction in inflation rate in our country over the past three years and reaching a single-digit this year and creation of relative stability in the macroeconomic level has endangered the interests of all of these inflationary businesses. Therefore, it is natural if they try to undo what has already been done through different schemes and once again accomplish their goals. Of course, they would never overlook the blessings of inflation for their specific interests, rather they would talk about the general advantages of a two-digit inflation in the range of 15%, and how such a figure would stimulate demand, help coming out of recession and generate employment. But, the truth is that as soon as the inflation rate rises again the speculators would resume activity and rstore turbulence to all the markets and thus waste the greatest economic achievements of the 11th government.

The concern of the Central Bank of Iran (CBI) and government officials over failure to cut bank interest rates, commensurate with the drop in inflation on the one hand, and insistence on rapid exit from recession in less than a year to the presidential election on the other, led to the adoption of policies in recent years that seem to have stopped the falling inflation trend and causing its rise again.

These policies were tantamount to monitoring stimulation of demand, contribution to financing debtor and troubled corporations and also the apparently non-imperative (but in practice imperative) cut in bank deposit interest rates and finally involvement of the CBI in intra-banking market, which all contributed  to a rise in monetary base and liquidity. Therefore, the inflationary potential has currently increased in Iran’s economy in a dangerous way and it seems that only the positive expectations towards the single-digit trend of the inflation has prevented translation of this potential into reality.

The plans that have been announced these days by the aithorities under the title of “saving the money market” and “ceasefire in the money market” despite their positive aspects, contain some worrying policies, including  securitization of government bonds with the CBI. This measure would ultimately have no result other than increase in the monetary base and along with other measures already cited would strengthen the inflationary potential.

We hope that the economic and monetary policy makers will pay attention to the fact that if they hit the wrong target in checking the inflation and if the positive expectations are reversed, then no one would be able to control it easily. The professional inflation businessmen are waiting for an opportunity to take action and by creating bubbles in the market restore the vicious cycles of inflation into the national economy. The present single-digit inflation is a very important achievement towards healing the economic system of Iran which must be turned a long term historical reality from a transitional event.


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  January 2017
No. 82