ICCIMA Pushing for End to Forex Subsidy Policy

EghtesadOnline: The head of Iran Chamber of Commerce, Industries, Mines and Agriculture has again urged the government to scrap the controversial subsidized currency policy and focus on creating the long-delayed single forex rate mechanism.

News ID: ۷۴۷۴۵۱

29 May 2019

“Those in charge of forex policy should do more to put an end to multiple currency rates and let market mechanisms prevail,” Masoud Khansari told Mehr News Agency.

The economy will indeed benefit if the gap between the foreign exchange rate on Nima (Integrated Forex Deals Systems) and open market is eliminated or diminished, he added.

Nima is the platform where exporters sell their currency earnings to companies importing non-essential goods. Nima currency rates are lower than in the open market but higher than subsidized rates, according to Financial Tribune.

A subsidized US dollar costs 42,000 rials. This is while it sells for 100,000 rials in Nima System and close to  140,000 rials in the open market.

The senior official called on the Central Bank of Iran to take the initiative in eliminating subsidized forex allocation for importing essential goods. He warned that in the absence of a robust monitoring mechanism, the present policy has had little to show for itself.

Khansari says allotting subsidized currency also paves the way for the corrupt and rent-seekers, saying that “scrapping the policy can and will help the people, government and economic system.”

The ICCIMA chief gave a positive rating to CBI performance as a forex market regulator, noting that the bank has performed well in recent months.

Good But Not Enough

However, he said the CBI’s measures to stabilize the currency market are not enough, arguing that putting an end to the subsidized forex policy could be a necessary first step for the success of other forex policies.

“The CBI should be given the authority to decide forex policy and unify currency rates. If this happens one can invest some hope in CBI measures.”

He referred to delisting some basic goods from the category of goods eligible for subsidized forex over the past weeks, noting that that move did not have any positive impact on the price of such goods.

“The private sector has long been wondering why the government fears eliminating its subsidy policy.”

Echoing earlier calls by observers and economic experts, he recommended the government to substitute the inefficient and corruption-prone forex policy with one that can directly target end consumers.

“It would be better to pay the subsidies directly to low-income people or help them buy basic goods,” he told the news agency.

In a study released earlier this month, the Majlis Research Center, the research arm of the parliament, proposed the government pay the subsidies either in cash or kind to selected groups and income deciles.

It argued that compared to other options, cash subsidy is less susceptible to corruption because money is paid directly to the deprived consumers.

As per provisions of the current fiscal budget, the Majlis has made it mandatory for the government to revise its forex subsidy policy for importing essential goods.  The government is obliged to allocate $14 billion from oil export revenue to this end.