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EghtesadOnline: When is the right time to terminate the infamous, destructive policy of subsidized imports? This is the question Mohsen Jalalpour, the former president of Iran Chamber of Commerce, Industries, Mines and Agriculture poses in an article for the Persian economic daily Donya-e-Eqtesad.

A translation of the text follows: 

Opposition with the termination of subsidized foreign currency policy usually springs from three sources of concerns: political concerns, economic concerns and concerns related to political economy.

A group of politicians worry about the social and political consequences, some economists are worried about the price increases ensuing from the removal of subsidies and the third group of worriers comprises those who are profiting from the continuation of this policy.

Aside from the third group, who hold sway in decision-making circles, the opponents generally provide three arguments against the cancellation of forex subsidies. They are either concerned about the increasing prices of goods subjected to forex subsidies and worry about the financial pressure rising on low-income individuals, or the social and political consequences of the move.

Subsidized forex is being allocated to import some essential goods that are of importance for the low-income decile; its removal might drive up the prices of these items in the short term. However, if the trade becomes faster and smoother, market will soon reach equilibrium. 

In addition to the rampant corruption it generates, the allocation of subsidized policy forces the exit of the real private sector from the fair trade cycle. When only a select few are entitled to subsidized forex, a majority of traders who have no political party association will be left out of the commerce cycle. 

The distribution of cheap forex among a few importers consolidates monopoly and erodes competition. When the rent-generating engine ceases operating, monopoly will disappear, competition emerges and players of the commercial sector find room and opportunity. Markets will soon regulate and prices reach equilibrium when barriers in the way of commercial activities are removed.  

In response to economic worriers, it must be said that the allocation of subsidized forex might lower the consumer prices of a few items, but the budget deficit and inflation that it creates trouble all members of the society. 

That’s not all. Bear in mind that the country is not currently experiencing a 20% inflation rate for the politicians to take risky issues into account The country has already registered dangerous rates of inflation and the current alarming conditions have the potential to turn into larger crises that will impact the whole society.

I know the time is not right for the termination of subsidized forex policy, but I do not know when the right time will come. Further procrastination of this so-called surgery is like delaying the crisis to the future. 

The political and economic opponents of this reform need to answer the following question: When will the right time to fix this harmful policy come? When will the consequences of this surgery be less pronounced than the pain afflicting the patient now? 

The old gendarmes used to say that when a bullet of the G3 [select-fire battle rifle developed in the 1950s by the German armament manufacturer Heckler & Koch] enters someone’s body, it makes a small hole the size of the ball pen, but when it comes out, it leaves a hole bigger than the palm of the hand. 

The subsidized forex policy is no less than the bullet of the G3 for Iran’s economy; it should not have entered the body of the economy in the first place, but now that it has, we need to let it leave the body, otherwise it will cause a severe wound and infection.

 

Mohsen Jalalpour