Iran’s Policy to Stem Currency Decline Backfires

(Bloomberg) -- The Iranian central bank's efforts to stem the rial's decline and stamp out the currency black market have backfired, undercutting President Hassan Rouhani's case that he can parry the U.S. war on the Iranian economy.

Rather than choking off the illegal transactions, the introduction of a fixed exchange rate in April has encouraged some traders to profiteer by charging higher black market prices for goods they imported with dollars bought at the lower official rate, officials say. Ordinary Iranians are up in arms over the enrichment of wealthy businesses while they're being squeezed financially by the looming Nov. 4 renewal of U.S. sanctions.

“Corruption is like a termite and a main factor in economic instability in our country,” Minister for Information and Communications Technology Jalal Azari Jahromi, who released details about the importers' financial maneuvers, wrote on Twitter on Saturday.

The disclosures fed into the social unrest over rising prices and water shortages in parts of Tehran and the oil-rich southwest, amid the certainty that life is going to be much tougher now that the U.S. has pulled out of the 2015 nuclear deal. Last week, protests broke out at Tehran's Grand Bazaar, where gold and jewelry traders shuttered shops and demonstrated against rising prices and the weakening rial. The phrase “transparency in currency allocation” has become a trending social media topic in Persian.

Shakier Standing

Rouhani's political standing has become more precarious over the unraveling of the nuclear accord he championed. While Iran and European signatories are trying to salvage the agreement, which traded curbs on the Islamic Republic's nuclear program for partial sanctions relief, the Trump administration is taking tough positions, pressing allies to end all imports of Iranian oil, the country's economic lifeline.

In an attempt to defuse the latest outcry over his government's management of the currency crisis, Rouhani ordered the publication of the names of merchants who took advantage of the central bank's policy moves. On Sunday, the bank released a list of 1,480 companies that received a combined hundreds of millions of euros at the bank's fixed rate, which is about half of the black market rate.

“We have to tell the people who we've given currency to, at what price and for what goods,” Rouhani said Wednesday in a speech aired on state TV. “People shouldn't have to be worried about securing their own daily needs and this responsibility falls on our shoulders.”

Mobile Maneuvers

Rouhani has taken responsibility for his government's mistakes and has welcomed efforts by some ministers to expose shortcomings. In this latest case, it was a government minister and several lawmakers who claimed on Twitter that importers made millions of euros by playing the rates differential.

Jahromi tweeted last week that dozens of mobile phone importers bought iPhones at the official fixed rate of 42,000 rials to the dollar, then sold some at the black market rate while hoarding hundreds of others in anticipation the Iranian currency will weaken further.

Another official interviewed by the semi-official Fars News on Wednesday described how a 31-year-old private individual placed the largest order of gold coins since April from the central bank. The order for more than 38,000 coins was worth about $13 million at the official rate, said Nasser Sejar, head of Iran's National Audit Organization. Fifty people accounted for 5 percent of the 7.5 million orders for gold coins placed since April, Sejar added.

“We have to wage a war on the economic profiteers,” Jahromi wrote on Twitter on Saturday.

To contact the reporter on this story: Golnar Motevalli in Tehran at gmotevalli@bloomberg.net

To contact the editors responsible for this story: Lin Noueihed at lnoueihed@bloomberg.net, Amy Teibel, Abbas Al Lawati

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