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Raisi’s Don Quixote Cabinet and Hopes for Economic Recovery

October 20, 2021
Ali Ranjipour
6 min read
Rostam Ghasemi. Minister of Roads and Urban Development, says plans are underway to build at least 900 new homes
Rostam Ghasemi. Minister of Roads and Urban Development, says plans are underway to build at least 900 new homes
Economy ministry Ehsan Khandouzi claimed he managed to pay the September salaries of government employees in full without borrowing from the Central Bank
Economy ministry Ehsan Khandouzi claimed he managed to pay the September salaries of government employees in full without borrowing from the Central Bank

It has been more than two months since Ebrahim Raisi and his administration took office. That may not be long enough to form an accurate assessment of the government's performance so far, but one can say with relative confidence that not only has there been no sign of an improvement in Iran's economy, there is also good reason to expect the situation will deteriorate even further.

President Raisi, however, seems to hold another view. "As our work progresses, as a government servant, I have become more and more hopeful, and I can feel the opportunities being created for the country,” he said in a televised interview, the second since he became president. “We can see a very bright future before us.”

So where does Raisi’s optimism come from? Has he based his positive statements on anything concrete, and on signs of improvement fostered by the new government?

New Housing on the Horizon?

The dreamers of Ebrahim Raisi's cabinet — those figures who, like the famous literary character Don Quixote, base their decisions on their own misguided illusions rather than on reality — like to think they have been exacting change on a number of fronts. For example, plans are allegedly underway to build a million homes a year. In fact, according to Rostam Ghasemi, the Minister of Roads and Urban Development, the job is essentially already done. He has identified land plots in 900 cities, coordinated with the Central Bank and invited people to register for the scheme starting on October 20.

Ghasemi probably has no idea where the funds for building all these housing units will actually come from. Is Iran's crisis-ridden banking network a healthy environment to finance such a huge project?

The government seems comfortable with ignoring the inflationary risks of financing the construction of several million homes. There is no sign of hundreds of thousands of billions of tomans flowing into the Iranian economy, but, nonetheless, Iran’s new president is confident such a transformation in the housing sector can be achieved. "This must be done,” Raisi said, “Because, firstly, the country needs it. Secondly, it is stated in the law and we are obliged to implement the law. Thirdly, given the country's capabilities, this is entirely possible.”

The Miracle of Not Borrowing

In the televised interview, Raisi spoke about Iran’s budget deficit and the miracle of not borrowing from the central bank: "In September, the first month of the new government, every effort was made to make payments without borrowing from the Central Bank. Some people said it would not be possible, but, thanks to God, it was done. It will be the same in October. Without borrowing from the Central Bank, God willing, we will be able to provide and pay for government expenses and salaries."

Ehsan Khandouzi, the Minister of Economy, spoke on the subject a few days prior to Raisi. "Without a single rial of borrowing from the Central Bank,” he said, "the September salaries of government employees were fully paid." But how? The answer: through the sale of 27 trillion tomans of bonds over the period of a month, an amount totaling about 11 trillion tomans more than the average sold during the first five months of the year.

So who bought these bonds from the government? Who would buy government bonds at a lower rate than inflation, except government and quasi-government banks? Who will pay the interest and the original amount of these bonds? Has the government found new sources of revenue, or is it quietly shrugging off the use of Central Bank resources?

The Minister of Economy during Hassan Rouhani’s administration had previously stated that the government had compensated the 2020 budget deficit without borrowing from the Central Bank and through the sale of bonds. If these bulk bond sales actually had an impact, why has Iran suffered record-breaking inflation for two consecutive years?

A Mysterious Plan for Budget Reform

Another area hot on officials’ agendas has been the national budget. For years, key figures speaking out on Iran’s economy, led by Supreme Leader Ali Khamenei, have been talking about reforming the way the budget is structured, without providing any detail about how such reform would be implemented.

Now that Raisi, the man the Supreme Leader wanted for president, has come to power, it came as no surprise that he repeated the Leader’s favorite saying in his own broadcast interview. “There must be no deficit in the 2022 budget, and it must be based on real figures. The Supreme Leader of the Revolution first said two or three years ago, and has repeated many times since, that the budget structure must be reformed. Our government believes that now is the time, and that we have a responsibility to bring about some serious budget reforms."

Massoud Mirkazemi — the current head of the Planning and Budget Organization and another of the cabinet’s Don Quixotes — has spoken of the establishment of 10 working groups to implement the reforms.

But, again, these officials are short on detail. What budget expenditures does the government plan to eliminate? From what sources does it plan to define new streams of revenue for the government? Does cutting costs mean lowering the salaries of government employees and retired people? Will the country’s military institutions see their budgets reduced? Will there be an overhaul of previous government plans? If so, what will happen to the promises made to provinces? Why all the talk of increasing subsidies? Could it be there are new sources of income that no one yet knows about?

The Reality of Sanctions

In the real world, however, there is no other way to improve the situation without sanctions being lifted. Of course, the depth of Iran's accumulated economic crisis is so great that even if sanctions were lifted, it wouldn’t be a complete fix. On the other hand, ongoing sanctions will likely lead to complete economic collapse in a short period of time. A leaked report from the Planning and Budget Organization, thought to have been prepared before Rouhani left office, reveals the true impact of sanctions on the economic crisis.

Unfortunately, Iran's negotiating power to revive the nuclear deal is in the hands of other Don Quixotes, including Amir Abdollahian and Ali Bagheri Kani. As yet, they have not even been in a position to begin discussions with the relevant parties.  Given the background and experience of Iran’s leading diplomats, it seems unlikely that sanctions will be eased, at least in the short term. In this environment, it’s difficult to know how any kind of economic boost can take shape.

In fact, hope for Iran’s economy is on par with expectations that a runner with a broken leg can win a race.

After a decade of sanctions and economic crisis, Iran's foreign exchange resources have collapsed, and the country is suffering its worst recession and its largest accumulated inflation in modern history. The possibility of anything resembling normal financial engagement with the global community has vanished, to the point where even trade deals with neighboring countries has become difficult.

Related coverage: 

Women are the Victims of Iran’s Economic Crisis

Citizen Journalist Report: Unemployment, High Prices and a Chaotic Economy

Oil, the Dollar and Inflation: How Far Can the Economic Crisis in Iran Go?

Government Study Shows Up to 34.8 Percent Inflation Rate in Parts of Iran During the Pandemic

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