Ex-Minister Advocates Rationing of Essential Goods

EghtesadOnline: Rationing of essential goods is a less corruption-inducing approach in the current economic situation facing Iran, says Mostafa Hashemitaba, a veteran politician who served as industries minister for three years during the 1980-88 Iraq-imposed war.

News ID: ۷۴۷۳۵۰

18 May 2019

With the reimposition of sanctions against Iran, depreciation of the country’s national currency and the resulting cash squeeze, the supply of essential goods has become the government’s top priority. The allocation of subsidized foreign currency for the import of essential goods and raw materials, which controversial policy was implemented by the government past year, has led to large-scale fraud and malpractices by some importers as well as complications with money transfer and delays in the delivery of products.

Policymakers have now put forward the idea of introducing a coupon system for the distribution of subsidized essential goods, or rationing in other words. In March, lawmakers ratified an amendment to the current year’s (March 2019-20) budget that obliges government to allocate $14 billion worth of subsidized foreign exchange in the form of “electronic coupon”.

On the other end of the spectrum, many economists believe in the payment of cash subsidies to target groups, according to Financial Tribune.

Hashemitaba, positioning himself as an advocate of the former option, thinks it’s high time the government took steps to ration essential goods.

“We need to opt for an approach with fewer disadvantages ... I’m not talking about fancy items most people don’t need, just essential products people cannot do without, goods that are being smuggled out of the country by profiteers and their shortage, given the sanctions regime, is felt at home. Scarcity should be tackled,” he told the Persian daily Iran.

Doling out cash payments, Hashemitaba said, would fuel shopping passion and that would drive up demand and consequently prices when there are not enough goods in the market.

“There is no one-to-one correlation between demand and supply. Imagine rice supply is 10% less than the market need and people still have the power to purchase. Under the circumstances, rice prices won’t increase by 10%, it might even jump by 200% as the shortage spurs a progressive rise in prices,” he said.

“We should have rationed a number of goods, including gasoline, for years now. Essential goods must be available for all people. We need to devise the means of rationing, if the traditional, paper-based systems don’t produce desired results, we need to resort to computerized and electronic methods.”

He noted that misappropriation of subsidized currency does not mean that coupon distribution is an inefficient system; rather it signals that rationing should be implemented.

“Applying an open economic system by throwing subsidized currency at imports would lead to further rent-seeking practices. I believe any other approach provides inducement for people to commit corruption. Rationing is said to give rise to two forms of corruption. One, people might try to sell their ration coupons on the open market. This does not amount to a case of corruption, if people do choose to sell some of their rations, even at higher prices, it’s their own right and they’re selling it on their own free will.”

Counterfeit coupons, Hashemitaba said, are considered the second source of corruption.

Statistics by the now-dissolved Economic Basij Headquarters, which was operational during the years of war against Iraq, show the total number of counterfeit coupons issued during the war was insignificant.

"The defects in rationing scheme are comparably far fewer. Any other system would result in rent-seeking practices, widespread corruption, price gouging and consequently public destitution. Under the current circumstances, we need to direct our efforts toward supporting members of the public," he concluded.