Tag: Iran

Iran: From Hyperinflation to Stability?

With the announcement on Saturday night that Iran and the P5+1 group reached a tentative deal over the Iranian nuclear program, the Iranian rial appreciated 3.45% against the dollar on the black market. The rial jumped from 30000 IRR/USD on Saturday November 23rd to 29000 IRR/USD on Sunday November 24th. A daily appreciation of this magnitude is rare. In fact, it has occurred fewer than ten times since the beginning of 2013. Indeed, this indicates that the diplomatic breakthrough is having a positive effect on Iranian expectations.

Over a year ago, I uncovered the fact that Iran experienced a period of hyperinflation (in early October 2012), when its monthly inflation rate peaked at 62%. Since then, I have been actively monitoring and reporting on the IRR/USD black market exchange rates and calculating implied inflation rates for the country.

Since Hassan Rouhani took office, on August 3rd, Iranian expectations about the economy have turned less negative. Thus far, it appears Rouhani has been successful in ending the long period of economic volatility that has plagued Iran, since the US imposed sanctions in 2010. This has been reflected in the black-market IRR/USD exchange rate, which

There are three main factors at work here. The first is a concerted effort by the Rouhani administration and the central bank to curb Iran’s inflation. This stands in stark contrast to the previous regime, whose strategy was to simply deny that inflation was a problem.

The second is that that Iran’s economy has proved remarkably “elastic” – meaning that the country has ultimately adapted to the sanctions regime and has found ways to keep its economy afloat in spite of them.

The third factor in the rial’s recent stability is an improvement in Iranian economic expectations. This is where the P5+1 talks come into play. Iranians recognized that easing of the sanctions regime would be a bargaining chip in any nuclear negotiations. In consequence, their economic expectations improved as the talks progressed. Indeed, Saturday’s announcement gave these expectations a shot in the arm.

In light of the rial’s recent stability, I have delisted the rial from my list of “Troubled Currencies,” as tracked by the Troubled Currencies Project. For starters, the rial no longer appears to be in trouble. And, on a technical note, implied inflation calculations are less reliable during sustained periods of exchange rate stability.

That said, we must continue to pay the most careful and anxious attention to the black-market IRR/USD exchange rate in the coming months. Like the P5+1 agreement, Rouhani’s economic progress in Iran is tentative and likely quite fragile. Since the black-market IRR/USD is one of the only objective prices in the Iranian economy – and perhaps the most important one of all – it will continue to serve as an important weather vane, as the diplomatic process continues, and as Iran’s economy gradually moves into a post-sanctions era. 

A “Bad” Deal Was Always Better than No Deal, and We Should Be Thankful if We Get One

The foreign policy news of the day is the apparent deal being reached in Geneva between Iran and the permanent five members of the UN Security Council plus Germany (P5+1). What’s particularly striking is the pre-spin being offered by Israeli Prime Minister Binyamin Netanyahu and his ideological fellow-travelers in Washington.

To be clear: we do not know the precise terms of the deal being hammered out. The sketchy details that have been leaked make clear that both sides are taking small steps, as would be expected. Iran is not shuttering its nuclear enrichment program, or even freezing enrichment entirely, as the UN Security Council demanded it do in several resolutions. Similarly, the P5+1 is not normalizing economic relations with Iran, rescinding the spider web of sanctions that is strangling Iran.

Iran

None of this has stopped Iran hawks from asserting, without evidence, that the deal is a disaster for the world and a coup for Iran. Netanyahu was most succinct, labeling the deal—again, not having seen its terms—to be “the deal of the century” for Iran and a bad deal for the rest of the world.

Similarly, Danielle Pletka at AEI asks some pertinent questions about the exact terms of what was agreed to then declares, without answering them, that the deal is “lousy.” By her own one-sided accounting, what the Iranians will receive is “not clear” but she asserts, in spite of her admissions, that they will give “nothing.”

What’s happened here is that any gettable deal has been framed as “bad,” and the administration, while disagreeing with that framing, has agreed that “a bad deal is worse than no deal.” Netanyahu actually had a pretty solid debating point when he tried to scuttle the early feelers of this diplomatic opening by comparing a prospective deal to the deal brokered with North Korea. The parallels there are not ones that pro-diplomacy doves like very much, for good reason.

So let’s concede: this interim deal is not reliving old glories on the decks of the Missouri. It’s not a complete, irreversible end of the problem posed by Iran’s nuclear program. What hawkish observers fail to understand is that there is no such solution, through diplomacy, military strikes, or otherwise.

Thus the question was never whether this deal could provide Netanyahu’s desiderata: the shipping out of all enriched uranium, the destruction of Fordow and Arak, and an end to Iran’s pursuit of enrichment altogether. Nobody, perhaps even including Netanyahu thought that was possible. Given his various public statements, Netanyahu seemed to think any deal was a bad deal.

So yes, it’s not time to pop champagne corks and forget the world, nor time to throw a tantrum. A prospective interim deal would be a small, but very important, step in the right direction. Given the disaster that would be a war in Iran, we should take this small step and see if it can be built on. As Amos Yadlin, head of the Israel Institute for National Security Studies remarked, “There needs to be a scrutiny of the details before determining whether the ‘holy of holies’ was destroyed today.” One hopes Netanyahu, and hawks in Washington, will come to agree.

Syrian Pound Soars, Iran’s Single Digit Inflation, and Other Troubled Currencies Project Updates

Syria: On September 27th, the United Nations Security Council unanimously adopted a resolution outlining the details of the turn over and dismantlement of Syria’s chemical weapons. Syria’s president, Bashar al-Assad, has stated that his government will abide by last week’s UN resolution calling for the country’s chemical weapons to be destroyed. 

It appears that this news was well received by the people of Syria. The black-market exchange rate for the Syrian pound (SYP) has dropped from 206 per U.S. dollar on September 25th to 168 on September 30th. That’s a whopping 22.6% appreciation in the pound against the dollar. Currently, the implied annual inflation rate in Syria sits at 133 percent, down from a rate of 185 percent on September 25th.

Iran: Since President Rouhani took office, Iranian expectations about the nation’s economy have turned positive. Over the past month we have seen a significant decrease in the volatility of the Iranian rial on the black market. This trend of stability has continued into this week, as President Rouhani’s trip to the UN has raised hopes of constructive cooperation with the West. In consequence, the rial has remained virtually unchanged on the black market, moving from 30,500 per U.S. dollar on September 25th to 30,200 on September 30th. The implied inflation rate in Iran as of September 30th stands at 8%, down from 23% on September 25th.

Venezuela: While the crises in the Middle East are easing, the troubles in Venezuela are far from over. The black market exchange rate for the Venezuelan bolivar has fallen from 44.03 per U.S. dollar on September 24th to 40.92 on September 30th. This represents an appreciation of 7.6% over the last week.  The implied annual inflation rate as of September 30th sits at 255%, down from a local high of 292% on September 17th. The ConocoPhillips dispute, a massive blackout, and worsening shortages caused by price controls have ravaged the Venezuelans’ confidence in the bolivar over the month of September.

Although the bolivar has rebounded modestly in recent weeks, this simply indicates that the economic outlook in Venezuela is only slightly less miserable than it was in mid-September. The economy is still on a slippery slope and economic expectations continue to be weighed down by the fragile political atmosphere, worsening shortages, and the ever-present specter of political violence. An inflation rate of 255% is nothing to celebrate.

Argentina: The black market exchange rate for the Argentine peso has held steady at around 9.5 per U.S. dollar since September 25th, with a 9.55 exchange rate on September 30th. That represents a 2.9% decrease in the value of the currency from the September 22nd rate of 9.27. The implied annual inflation rate as of September 30th sits at 54%, a decrease from the rate of 49% on September 22nd.

Egypt: The black market rate for the Egyptian pound has held steady at around 7.1 per U.S. dollar since September 25th, roughly the same level as the official exchange rate. This indicates that, for the time being, the military has brought some semblance of stability to the Egyptian economy. As of September 30th, the black market exchange rate was 7.12. The implied annual inflation rate as of September 30th sits at 19%.

For up-to-date information on these countries and their troubled currencies, see the Troubled Currencies Project.

Rouhani Delivers Lower Inflation, and other Troubled Currencies Project Updates

Iran: Prior to Hassan Rouhani’s election as Iran’s new president in June, the black-market Iranian rial to U.S dollar (IRR/USD) exchange rate stood at 36150, implying an annual inflation rate of 109 percent (June 15th 2013). Since Rouhani took office, Iranian expectations about the economy have turned positive, or at least less negative, and the black-market IRR/USD exchange rate has strengthened to 29200. In consequence, the implied annual inflation rate has fallen like a stone, and currently sits at 20 percent. That’s even lower than the most recent official annual inflation rate of 35.1 percent. (August 2013).

Rouhani has stated that one of his top priorities is to set the Iranian economy right. So far, it appears the new president has delivered the goods.

Venezuela: September got off to a rocky start in Venezuela. On September 4th, the World Bank’s International Center for the Settlement of Investments Disputes announced that Venezuela had illegally expropriated ConocoPhillips’s multi-billion dollar crude oil projects. This coincided with a massive blackout that left half the country without power. To top it off, price controls have led to worsening shortages, with the government announcing on September 13th that the shortage index had hit a whopping 20 percent for the month of August. All of this bad news is reflected in Venezuelan’s economic expectations, as measured by the black-market exchange rate for the Venezuelan bolivar (VEF).

From beginning of the month through September 17th the VEF/USD exchange rate depreciated by 16.3 percent, from 37.32 to 44.59. In consequence, the implied annual inflation rate rose from 230 percent to a high of 292 percent.

Things took a turn for the positive on September 18th, when Venezuela and China agreed to a $14 billion investment package, which includes joint venture to develop the Junin 10 bloc of the Orinoco Oil Belt, as well as investments in mining, transportation and agricultural projects in Venezuela. In consequence, the black-market VEF/USD exchange rate has fallen to 44.03, yielding an annual implied inflation rate of 261 percent.

Argentina: Despite some recent good economic news, Argentineans still appear to be skeptical about their economy’s future. On Friday, September 20, Argentina announced a strong 8.3 percent year-over-year growth rate for Q2. One would think this strong performance would have improved Argentinean’s expectations for the economy, as measured by changes in the peso’s black-market U.S. dollar exchange rate. But, the black-market exchange rate has held steady in the days since the announcement. The current black-market ARS/USD exchange rate sits 9.43, yielding an implied annual inflation rate of 50 percent. It appears that concerns of ongoing inflation troubles are still weighing heavy on the minds of Argentineans.

Egypt: Since the Egyptian military ousted Mohammed Morsi on July 3rd, the Egyptian pound’s (EGP) official and black-market U.S. dollar exchange rates have converged. Currently, the black-market rate sits at 7.10 EGP/USD – very close to the official exchange rate of 6.89 EGP/USD. These rates have been stable for the past month.

Prior to the military takeover, the black-market exchange rate sat at 7.6 EGP/USD. Since Morsi’s ouster, the pound has appreciated by 7 percent, to 7.10 EGP/USD. This yields a current implied annual inflation rate of 18 percent, down from 28 percent in the final days of the Morsi government.

Yes, it appears the Egyptian generals have delivered some semblance of stability on the economic front. Indeed, the black market for foreign exchange has all but disappeared.

Syria: As President Obama heads to the United Nations General Assembly to iron out the terms of a tentative Syrian chemical weapons deal, the black-market exchange rate for the Syrian pound (SYP) continues to hold steady at 206. Currently, the implied annual inflation rate in Syria sits at 189 percent. This is down from a high of 291 percent on the 28th of August, when Secretary of State John Kerry kicked off the United States’ abortive march to war.


For up-to-date information on these countries and their troubled currencies, see the Troubled Currencies Project.

 

On Iran, Would U.S. Take “Yes” for an Answer?

Since the election of relative moderate Hassan Rouhani to Iran’s presidency, there’s been a wave of events producing a newfound optimism about the prospects for a peaceful resolution of the dispute over Iran’s nuclear program. President Obama sent a letter congratulating Rouhani on his victory and mentioning other, unspecified issues, and Rouhani reciprocated. Obama told Telemundo he saw Rouhani as “somebody who is looking to open a dialogue with the West, and with the United States, in a way we haven’t seen in the past. And so we should test it.”

Iran’s Supreme Leader, Ali Khamenei, got into the act, reiterating an earlier call for “heroic leniency” in diplomacy over the nuclear program. Khamenei also told the radical and anti-American Islamic Revolutionary Guards Corps to butt out of Iran’s politics. At this time of writing, there are reports Tehran has released a number of political prisoners in Iran.

It all adds up to a period of positive trends in relations between the two countries. But it’s important not to overlook the fact that while atmospherics may help bring about talks, the countries are miles apart on the substantive issues surrounding Iran’s nuclear program. Too much attention has been spent on getting to talks, and too little on bridging the chasm dividing the parties.

A central, if not the central, problem is that the American foreign policy community has failed to lay out any conceivable way Iran could satisfy Washington other than immediate suspension of all uranium enrichment with no serious sanctions relief in return, which nearly everyone agrees isn’t going to happen. Congress seems to have two speeds on Iran policy these days: sanctions and asleep. Congress regularly piles on more sanctions to Iran, some painful, some symbolic, because it’s the easy thing to do politically, and no one seems willing to spend the political capital to provide Iran with a realistic offramp by which Tehran could lessen the pain and save face. Unfortunately, Congress’ actions and rhetoric have given the Iranians good reason to fear that our real policy in Iran is regime change, which can’t augur well for a deal.

Adding to the problems, Israeli Prime Minister Benjamin Netanyahu recently reiterated his own ultimatum to Iran, which is certain to fail. Netanyahu, whose hawkish id commands more influence in Washington than one might hope, demands zero enrichment in Iran—a formula no one believes is achievable. This formula puts Israel, and likely the United States, on a path to war with Iran.

So would Sen. Lindsey Graham, who last weekend reiterated his call for Congress to pass a war resolution allowing the Obama administration to bomb Iran when it determines bombing would be appropriate.

Free Advice from Bill Kristol

Republicans who still look to Bill Kristol for political advice will find his case that “yes” is “The Right Vote” over at The Weekly Standard today. Ignore those melting phone lines, Kristol urges congressfolk: despite what your constituents are telling you, “no” on the Authorization for Use of Military Force (AUMF) in Syria is actually “the risky vote.”

If Republicans refuse authorization, Kristol argues, “the GOP can be blamed for whatever goes wrong in Syria, and elsewhere in the Middle East, over the next months and years. And plenty will go wrong.” If they don’t want the Middle East mess hung around their necks, he says, then Republican lawmakers should vote for bombing Syria—and “consider moving an authorization for the use of force against the Iranian nuclear weapons program.” See, that’s how you minimize your political risk. With double the bombing, what could possibly go wrong?     

It’s not the most persuasive bit of political analysis I’ve ever read. But, disturbingly, Kristol’s on to something in this paragraph:

A Yes vote is in fact the easy vote. It’s actually close to risk-free. After all, it’s President Obama who is seeking the authorization to use force and who will order and preside over the use of force. It’s fundamentally his policy. Lots of Democrats voted in 2002 to authorize the Iraq war. When that war ran into trouble, it was President Bush and Republicans who paid the price. If the Syria effort goes badly, the public will blame President Obama…. If it goes well, Republicans can take credit for pushing him to act decisively, and for casting a tough vote supporting him when he asked for authorization to act. 

There’s genuine insight there into the way we war now, and how Congress shirks its constitutional responsibilities. Domestically, as David Schoenbrod has observed, broad delegations of power allow Congress “to kiss both sides of the apple,” taking credit for the benefits of the legislation they pass and railing against whatever costs the executive branch imposes.

Congress plays the same “shell game” abroad. Where possible, modern Congresses have preferred to punt to the president and reserve their right to criticize him should military action go badly—to be for the war before they were against it, or vice versa, depending on which way the political winds blow. That’s how it worked in Vietnam and in Iraq—and that’s the danger with the Senate’s loosely crafted Syria AUMF. The provisions that purport to limit presidential action are too weak to stick, but if we get a wider, bloodier war, they’ll allow legislators to say: “That is not what I meant at all.” It’s TARP with Tomahawks. 

Still, there’s always the risk that the marks will see through the shell game. And at this point, Congress seems unconvinced that a “yes” vote is “close to risk free.” 

Troubled Currencies Project Update: Syria, Iran, and Egypt

Syria Since August 26,  when U.S. Secretary of State John Kerry began laying the groundwork for military intervention in Syria, the Syrian pound (SYP) has taken a beating on the black market. Indeed, the SYP has lost 24.07 percent of its value against the U.S. dollar (USD) in the two days since Kerry’s announcement. Currently, the exchange rate sits at 270 SYP/USD, yielding an implied annual inflation rate of 291.88 percent. In countries with troubled currencies, there is no better measure of economic expectations than the black-market exchange rate. The recent deterioration in the SYP/USD exchange rate clearly indicates that Syrians are anticipating Western military intervention in the near term. 

IranThe initial weeks of the Rouhani presidency have seen renewed economic confidence, as reflected by the Iranian rial’s (IRR) black-market exchange rate. The new central bank governor, Valiollah Seif, has stated that his primary concerns are to rein in inflation and boost economic stability. Over the past few weeks, the rial has strengthened on the black-market, and inflation has moderated somewhat. That said, recent international saber-rattling over Syria clearly has spooked the Iranian public. In the two days since Secretary Kerry first made his case for intervention in Syria, the value of the Iranian rial has dropped 4.74 percent on the black market, to 32,700 IRR/USD. This yields an implied annual inflation rate of 52.10 percent, up from 44.89 percent, prior to Kerry’s announcement.

EgyptSince the fall of the Morsi government, public confidence and support for the military regime has boosted the value of the Egyptian pound (EGP). Prior to the military takeover, the black-market exchange rate sat at 7.6 EGP/USD. Since Morsi’s ouster, the pound has appreciated by 7.34 percent, to 7.08 EGP/USD. This yields a current implied annual inflation rate of 18.62 percent, down from 27.85 percent in the final days of the Morsi government. In recent weeks, the Central Bank has been auctioning off up to $40 million in foreign exchange, three times per week. This rather modest sum has adequately met the demand for foreign exchange at rates close to the official exchange rate of 6.99 EGP/USD.

 

For more information on troubled currencies in these countries and others, see The Troubled Currencies Project.

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