On Oct 6, 2006, at 10:13 PM, Yoshie Furuhashi wrote:
> Whether it's 10.5% or 16%, overall inflation doesn't seem to me to be
> a big concern.
Easy for you to say - you don't have to pay the rising prices. High inflation can do serious political damage to a populist regime, because it usually masks declining real incomes. It's a symptom of a weakness of a lot of populist economics, using subsidies to band-aid some problems, while not really addressing the deep structure of class and production. Like many oil producers, Iran is woefully underindustrialized. Here's the manufacturing share of value added for some interesting countries (from the World Bank, most recent year available, mostly 2003-4):
Chile 17.62 Iran, Islamic Rep. 10.38 Korea, Rep. 28.74 Low & middle income 17.04 South Africa 19.05 United States 14.93
Iran's figure has been declining in recent years, too.
Inflationist populist policies try to squeeze more out of the productive sector than it can deliver, and the response is rising prices. The IMF's advice that you cite is, of course, to tighten up monetary and fiscal policy; the word "manufacturing" doesn't even appear in the staff report you cite. But a more sensible long-term policy would be to use the oil revenues to finance industrialization - not subsidizing gas so it costs pennies a gallon.
> Take a look Figure 2 on page 9 of "Islamic Republic of
> Iran: 2005 Article IV Consultation -- Staff Report; Staff Statement;
> Public Information Notice on the Executive Board Discussion; and
> Statement by the Executive Director for the Islamic Republic of Iran"
> (International Monetary Fund, April 2006,
> <http://www.imf.org/external/pubs/ft/scr/2006/cr06154.pdf>). You'll
> see that today's inflation rate in Iran compares, if anything,
> favorably to what it had been in recent times (not to mention before
> that).
The IMF uses national statistics, and the claim is that the national stats understate real inflation. In any case, even 10% is too high if the underlying economy is weak.
>> "In the last weeks the issue of high prices has put a lot of
>> pressure on people, especially low income ones," Iranian news
>> agencies
>> quoted the supreme leader as saying.
>>
>> "The government and officials should look into the causes of the
>> issue and solve it."
>
> I'd recommend that the President of Iran look into employing the means
> for price control used by the US government during the New Deal:
That example is from the middle of World War II, not the New Deal. It was also a time when the U.S. had a substantial industrial apparatus that was being run at more than full tilt. Price controls can't address long-term imbalances of the Iranian sort for any length of time.
Doug