Currency Crisis shakes Rouhani’s Middle-Class Base

By Saeed Jalili for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iran Business News.

Barely over a month after economic grievances, mainly among the working class, sparked deadly protests across the country, fluctuations in the value of the Iranian currency — the rial — have generated grave disappointment with another key constituency.

This time, the grievance chiefly stems from the pillar of President Hassan Rouhani’s voter base — namely, the middle class, which has been pinning its hopes and pursuit of greater freedoms on the ballot box.

Since last summer, the rial has dramatically lost value, reaching all-time lows against the euro and the dollar on Feb. 4 and Feb. 13, respectively. After a crackdown on speculators and the Central Bank of Iran’s (CBI) announcement of measures to absorb liquidity on Feb. 15, the rial has posted considerable gains, currently trading for some 44,800 against the greenback, up from a low of 50,000. Yet these fluctuations have been a cause of serious concern for many, including young Iranians who seek to study abroad.

“It feels like my plans have been getting ruined on a daily basis as the euro continued its gains [against the rial],” Sepideh Farvardin, a 25-year-old professional photographer in Tehran, told Al-Monitor. “I need to pay 9,500 euros for a graduate photography course in Belgium. Now, thanks to our currency’s devaluation, I need to save 15-20% more than the maximum amount of cash I had planned to save. And this is happening while my income remains the same. Now I’m not really sure whether or not I can increase my savings to the needed amount by the application deadline.”

A weakened rial also tends to directly hit the middle class by virtue of driving up prices of preferred imported consumer goods and foods.

On the morning of May 20, 2017, Farvardin posted an Instagram story to her 30,000 followers that showed a simple illustration of a golden semicircle, resembling the rising sun, against a dark purple sky that bore the words “Sunrise of Hope.” Celebrations of President Hassan Rouhani’s landslide win against his main hard-line rival, Ebrahim Raisi, in the election held a day before had officially begun.

During the weeks leading up to the vote, Farvardin and a community of her social media influencer friends would reach out to hundreds of thousands of potential voters on Instagram to urge them to support Rouhani, who had improved Iran’s relations with the West after years of escalating tension in clinching the 2015 nuclear deal with six world powers.

Farvardin and her friends would publish pictures of men and women wearing shirts, wristbands or headscarves in purple and green — colors associated with Rouhani’s campaign. Or they would post to their West-leaning, music-loving audience videos of the rallies of the moderate candidate — including, for instance, a skillfully edited clip of excited youngsters cheering together to an overlay of Queen’s ’80s hit song “We Will Rock You.”

But for many pro-reform voters who backed their centrist president with such high hopes, excitement and enthusiasm were replaced with rage and disenchantment when Rouhani turned away their favored ministerial candidates and rather stuck with figures close to the conservative camp, and when the budget bill for the coming Iranian year (beginning March 21) revealed rising costs would reduce their living standards in the next year while the budget for religious bodies was set to increase.

“It all started with the bill to increase the departure tax [payable when leaving the country]. I became really disappointed back then. I travel abroad frequently,” Farvardin says. “I’m not happy about the promises that were not delivered. And the promises Rouhani made were not related to the economy alone, but about controlling the environmental crises such as that of Urmia Lake or appointing women to ministerial roles and letting them enter soccer stadiums. None of these pledges have been fulfilled.”

In the wake of the protests, parliament rejected the budget bill’s controversial proposals, ultimately adopting a revised version last week. But the original budget bill drew major criticism on social media, where the hashtag #I regret was trending, reviving the debate that always emerges before votes about the effectiveness of an election boycott. Nonetheless, many still stand by their decision to vote, arguing that there is no better nonradical and nonviolent alternative to the ballot box.

“At times, you think maybe this is just a political game they’re making us play and whether there is actually anything to be done to make a change. But then you ask yourself what else you can do but to turn to the ballot box,” Nioosha Sheikh Soleimani told Al-Monitor. The 28-year-old co-runs a trading company that imports raw materials for the Iranian tile industry from Europe.

“The currency crisis came as a shock to me; [it emerged] when we were just starting to get used to a sort of calm during Rouhani’s term,” Soleimani says. The rial had been battered in the final term of conservative President Mahmoud Ahmadinejad (2005-13), undergoing major swings in the years after 2011 when increasingly stringent sanctions were imposed on Iran over its nuclear program.

“This bothers me mentally and emotionally. I became hopeful that things were changing for the better. I thought we were en route to better conditions, and I was somehow content with these thoughts for a while. As for my business, we had started to import some materials on credit because we thought the currency fluctuations were not so significant. But suddenly there was a shock; we incurred losses on some of our shipments and the market was in turmoil.”

The rial has recovered over 11% since hitting rock bottom, driven by decreasing demand for dollars and euros in the market. That is a clear sign of the effectiveness of the new CBI measures, which prominent pro-reform economist Saeed Laylaz thinks should have been taken much sooner.

“The turmoil is controllable and the government will be able to do so,” he told Al-Monitor. “The fact that we should take note of is the government did not act in time to control the market. I believe, to contain the currency fluctuations, the government will have no choice but to take more serious actions in the future. They’ll have to take radical measures, like [the crackdowns on currency traders], to keep the value of the dollar against the Iranian currency below 50,000 rials.”

Laylaz pointed to the differential between the domestic and global inflation rates in outlining what experts believe the rial is really worth without intervention from authorities. In January 2017, each dollar traded for around 40,000 rials. Laylaz told Al-Monitor, “Considering the inflation rate, one dollar should be worth around 45,000 rials now,” which would square with the current dollar rate on the open market.

For political purposes, the Rouhani administration has been trying to keep the value of the rial at a fixed level during the past couple of years, Laylaz said. “This is why all of a sudden the dollar registers a shocking jump. The rial is only 20% lower than the last days of Ahmadinejad’s term, and that was more than four and a half years ago.”

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