Iran faces ‘economic disaster’ as currency plunges to new low

The Iranian currency has lost about half of its value since April because of a weak economy. (AFP)
Updated 31 July 2018

Iran faces ‘economic disaster’ as currency plunges to new low

  • There is worse to come and ordinary Iranians must brace for more misery, economic analysts tell Arab News
  • The year-long slide of the currency has accelerated in recent days as Iranians turn to the black market to buy hard currency

LONDON: The Iranian rial plunged to a historic low on Monday despite Tehran’s attempts to restore calm before the reimposition of international sanctions next week.

The year-long slide of the currency has accelerated in recent days as Iranians turn to the black market to buy hard currency while the authorities arrested traders accused of profiteering.

The dollar was trading at about 112,000 rials on the black market compared to about 90,000 last week as Iranians braced for tough times ahead.

It follows a decision by US President Donald Trump in May to pull out of the international nuclear deal with Iran and reintroduce sanctions.

“A shift to a convertible currency is a natural reaction when people lose faith in the local currency and want to shift quickly to something they will know will hold value as is the case now,” Oxford Economics senior economist Maya Senussi told Arab News.

“On the ground, sentiment is deteriorating as hopes that US sanctions can be circumvented are fading and that is reinforcing the flight to dollars in the ‘beat the clock’ fashion.”

Jean Francois Seznec, a political scientist in Washington specializing in Middle East business, said the new sanctions being imposed on Tehran will hit the economy hard.

“The sanctions — which haven’t really started yet — will bite a lot more than the Iranians are hoping,” he said.

“That will influence the value of the rial. It’s going to be a major economic disaster. By and large, it will be drastic for Iran. I think the markets really feel that.”

There will be a “major” further decline in the value of the rial against the US dollar later this year, Seznec forecast.

“Everyday Iranians are going to be more and more miserable,” he said. 

Seznec outlined the policy steps the Iranian regime would need to take to avert such an economic crisis — although he said they were unlikely to do so.

“They would have to compromise on the whole nuclear issue, and agree not to support the Houthis and Hezbollah … which I don’t think the current leadership is willing to do.” 

Iran last week appointed a new central bank governor to replace Valiollah Seif, who had attracted criticism for the steep decline in the currency.

President Hassan Rouhani has pledged to prosecute corruption within state and private sector institutions amid growing public anger.

The rapid weakening of the currency is expected to stoke inflationary pressures as the cost of imports surges.

“The authorities have remained in denial, the unification of the official rate with the parallel rate in April was insufficient as the new official rate was not where the market saw it even though it was the largest official depreciation of the currency since the step devaluation in 2013,” said Senussi.

“The collapse is very significant and the direct effect will be faster than inflation (it averaged 40 percent in 2013), though I would imagine official data will probably continue to understate actual price pressures.”

Arab News recording exposes Nissan lawyer’s lie on IMF bailout for Lebanon

Updated 01 June 2020

Arab News recording exposes Nissan lawyer’s lie on IMF bailout for Lebanon

LONDON: Arab News has published the recording of an interview with a Nissan lawyer after he denied saying that a bailout of Lebanon by the International Monetary Fund (IMF) was linked to the extradition of fugitive tycoon Carlos Ghosn.

The former Nissan chairman fled to Beirut in December from Japan, where he faced charges of financial wrongdoing.

In a story published in Arab News Japan on Saturday, Sakher El Hachem, Nissan’s legal representative in Lebanon, said the multibillion-dollar IMF bailout was contingent on Ghosn being handed back to Japan. 

The lawyer said IMF support for Lebanon required Japan’s agreement. Lebanese officials had told him: “Japan will assist Lebanon if Ghosn gets extradited,” the lawyer said

“For Japan to agree on that they want the Lebanese authorities to extradite Ghosn, otherwise they won’t provide Lebanon with financial assistance. Japan is one of the IMF’s major contributors … if Japan vetoes Lebanon then the IMF won’t give Lebanon money, except after deporting Ghosn.”

On Sunday, El Hachem denied making the comments. “The only thing I told the newspaper was that there should have been a court hearing on April 30 in Lebanon, but it was postponed because of the pandemic,” he said. In response, Arab News published the recording of the interview, in which he can be clearly heard making the statements attributed to him. 

Japan issued an arrest warrant after Ghosn, 66, escaped house arrest and fled the country.

Now listen to the recording: