The Forum for Partners in Iran's Marketplace

June 2019, No. 91


Iranís Foreign Trade in the New Year

The Iranian business is tied to the foreign trade in 1398, and any defects, shortcomings and deviations on the side of exports and imports can put Iranians in difficult conditions.

Iranís foreign trade, as economic officials maintain and insist, is not simple and easy to handle and has numerous problems. Some of these headaches are caused by the continued US sanctions.
The United States seeks to block all the outlets to transfer foreign exchange revenues from exporting crude oil and non-oil goods to Iran. This American resolve to throw obstacles in the way of currency transfer to Iran over the past few years, despite the relative flexibility of the US after the Joint Comprehensive Plan of Action, is one of the main challenges faced by Iranian economic activists in trading with the countries of the world, especially Europe, the United Arab Emirates, the US, Japan and South Korea. The results show significant cut in operational volume and value of foreign trade of the country over a decade ago.

Will the exchange rate problems be reduced in 1398 (2019/20)? The US authorities seem not to have an incentive to reduce their severe measures as they wait to see Iranís economy to come out of the macro balance and experience more difficult days; the broad facilities of the US economy in financial markets too facilitate the job for its statesmen to increase the pressure on foreign currency transfer outlets. Ultimately, the conditions of international politics and the requirements of US domestic politics also provide incentives for US politicians and leaders to insist on the same strategy.

Experts, economic activists and informed observers believe that in 1398 the transfer of foreign currency from Iran to the outside world and the vice versa will not be easier than 1397 (2018/19). Even if we accept that the channels of circumvention of the sanctions (especially informal channels), have the capabilities and operational capacity of such transfers, the shadow of US financial restrictions will dramatically increase the cost of using these routes, and naturally these costs will be reflected in the finished costs of Iranís foreign trade and finally in foreign exchange market prices; therefore, economic managers and officials must accept these facts and share them to the extent possible with the citizens because countering difficult situations knowingly, if not easier, will certainly be more constructive. Thus we can avoid living in the bubble of unreliable news and rumors the source of which is the silence of politicians about the current realities of the economy.

Assuming that Iran could find new ways to bypass the US sanctions on the issue of foreign exchange, and these ways would not impose a significant cost on Iranís foreign trade, then again the issue of increasing exports and realizing government forecasts on foreign exchange earnings, especially in non-oil exports will be coupled with many buts and ifs.

Will Iranís steel and petrochemical exports (which stand atop the list of currency generating goods) earn the country as much foreign exchange as Iranian officials and foreign companies have projected in 1398? It seems caution is required in this respect.

The intensity of the oil embargo in 1398 will not be less than last year, and Saudi hostility, Russians greed and the secrecy of Iraq should not be overlooked either. On the other hand, the conditions for exporting steel and petrochemicals and other export products in 1398 should be assessed with great doubt as a result of the pressure of rivals in ruthless international markets. Saudi Arabia and South Korea, for example, are the two countries that can put Iranís petrochemical exports in difficult conditions.

The fact is that increasing the value of exports is difficult for all countries in todayís world and even under normal circumstances, and we cannot hope that Iran can boost its export volume in a predictable way in the presence of headstrong rivals.

Iranís foreign trade, like the foreign trade of other countries is on the side of imports which faces more difficulties and real hardships. Importing in Iran is crucial in creating a balance in the capital, intermediate and consumer goods market which has been facing difficulties since March 2019. The existence of several foreign exchange markets is at the forefront of these problems. This is a fact, and unfortunately, senior political leaders and economic policymakers do not see or do not want to see the real dimensions of the problems caused by this multiplicity for import regime.

Imports are one of the two pillars of foreign trade and an important part of the engine of creating wealth and prosperity, but amongst the politicians and even the Iranian intellectuals, they are regarded an intrusive, corrupt and contaminated category of rents and consequently always faced with very serious structural barriers in the field of political economy.

Here are some of these difficulties and obstacles, which are mainly reflections of political considerations and incorrect policy approaches: Iran Plan and Budget Organization (PBO) in the budget bill of 1398 forecasts that the equivalent of $14 billion in imports of basic goods this year will be based on the rate of 42,000 rials for one US dollar. On the last days of February, the head of the PBO explained that if the businessmen promise to get USD for 42,000 rials and import goods and supply them to the market at the same price, the difference of the value of the USD at open market will not be taken from them.

Now one should ask what is meant by other USD rate by the highest planning official in the country? Does it mean that the USD rate is the same as the open market rate which is fluctuating between 130,000 and 140,000 rials these days?

If one is supposed to wait and see the open market rate every day, is the dollarís rate for importing in 1398 what NIMA platform announces? Many traders know that this rate is also a preferential rate, and there are people who just want to use the foreign currency offered in this platform, without any established and continuous trading in the field of import, to earn rent. On the other hand, many importers also believe that the best thing to do is to use the rls 42,000 rate for importing basic goods as much as possible.

A main part of troubles importers face in Iran today is due to the presence in a market that is saturated with these one-night importers and sham businessmen and has reached a point of chaos. In addition, the issue of supply of foreign currency to the NIMA platform is also faced with major difficulties.

Currently, there is a heated debate between businessmen, the government and the Central Bank of Iran. The CBI says the exporters of goods and services do not deliver the foreign exchange earned from their exports to NIMA platform. The bank is seeking to earn these foreign currencies through threat, intimidation, or encouragement to organize the supply aspect. Exporters however have their own argument saying while they are using open market rate foreign currency for production and buying goods why should they present their USDs to NIMA platform which is actually suppressed by the CBI. This tough argument has not reached any conclusion yet and it is unlikely there would be a sustainable agreement between exporters and policymakers of the monetary system in the country in the year 1398 without solving monetary policy issues (which are also unlikely to be resolved in the short term).

As it was said before, even if the CBI fully succeeds in achieving this, the comparison between inflationary situation and the suppressed price of the foreign currency will create such a demand in the foreign exchange market that the current supply will not be enough to balance the market; therefore, the question of forex supply should not be taken lightly and by false repetition of the proposition that we have enough foreign currency, we should not give vain hope to economic activists and citizens.

Foreign trade is a pillar of the economy in every country, including Iran. The Iranian business is tied to the foreign trade in 1398, and any defects, shortcomings and deviations on the side of exports and imports can put Iranians in difficult conditions. Thousands of industrial factories, without importing raw materials and intermediate and capital goods from abroad, do not have the ability to supply them from inside and may fall on the verge of closure.

Thousands of service jobs in transportation, hotel business, and the sale of goods and services are tied to foreign trade and each blocked window in foreign trade will lead to the closure of one or more of these economic activities. In the present situation, it seems that the solution is a rational and principled revision in line with the conditions of the day and future of Iranians in foreign policy and keeping economy and trade away from the sanctions conditions. We should not accept foreign trade under the sanctions and make it the basis of the work and planning. Wisdom and logic rule that in order to ease the plight and not start the calendar year 1398 with out-of-control crises, we should eliminate what has caused the foreign trade to be hand tied.


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  June 2019
No. 91