Subsidized forex policy for imports a glaring failure

Soymeal prices in the domestic market have soared by 200% compared to last year, says the head of Food Wholesalers Association, noting that soybean imports are entitled to subsidized foreign currency (at the rate of 42,000 rials per dollar).

10 September 2021
ID : 33060
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Soymeal prices in the domestic market have soared by 200% compared to last year, says the head of Food Wholesalers Association, noting that soybean imports are entitled to subsidized foreign currency (at the rate of 42,000 rials per dollar).

“Last year [March 2020-21], each kilo of soymeal was sold at 68,000 rials [$0.24] in the local market, but this year [March 2021-22] it is priced at between 195,000 [$0.69] and 220,000 rials [$0.78] depending on the quality of the product,” Qasem Ali Hassani was quoted as saying by Fars News Agency.

Soybeans are imported as essential goods. After the oil is extracted, the meal is sent to the market for human consumption or as animal feed, he added.

Also known as necessity goods, essential goods are products consumers will buy, regardless of changes in income levels.

“Soymeal is sold at much higher prices than they should be. Commodities imported at subsidized foreign currency rates cost importers a sixth of their real price and should reach consumers at lower prices. Yet, what unfortunately happens in reality is that traders take advantage of the subsidized forex they receive and sell their products at prices many times higher than their actual price,” Hassani added.

Revocation Expected

The subsidized foreign currency allocation policy, which was ratified and implemented during the second term of former president, Hassan Rouhani, did not help the economy and only wasted the country’s forex reserves.

“It seems that the new administration headed by President Ebrahim Raeisi is well aware of this, which gives us hope for change,” says the head of Exports Confederation affiliated with Iran Chamber of Commerce, Industries, Mines and Agriculture.

“Raeisi’s administration has admitted that the policy gives rise to corruption, as some importers and consumers have been entirely left out of the benefits resulting from these allocated subsidies,” Mohammad Lahouti was also quoted as saying by Fars News Agency.

This is why the subsidized foreign currency allocation policy is expected to be gradually rescinded, he added.

“Within only four months after this faulty policy was implemented, orders for imports worth $80 billion were registered. The figure was unprecedented in the country’s import history. On the other hand, the government was unable to provide and allocate this volume,” he added.

Unfortunately, Lahouti explained, the policy remained intact due to the insistence of the government and parliament members.

“Despite all the hardship borne by the government to procure the required subsidized forex, the benefits never reached the public, causing their expenditure basket to shrink. The truth is that the subsidized forex turned into an opportunity for a few select individuals and businesses who never delivered on their commitments to import essential goods,” he said.

The official, who is also a member of the board of representatives at Tehran Chamber of Commerce, Industries, Mines and Agriculture, noted that when the policy was ratified, dollar rates in the market were hovering around 57,000 rials, but within a short period of time, the figure soared to 300,000 rials, providing a profitable opportunity for more rent-seekers.

“The former government realized how erroneous it was to subsidize foreign currency for importing essential goods at lower prices for domestic consumers, albeit too late. Now, with a new administration in office, we are hopeful that the policy will be repealed and replaced by regulations that directly support low-income households. The incumbent Cabinet has to remove subsidies on foreign currencies and increase the universal basic income allocated to the underprivileged by the profits made by selling forex at open market rates,” he said.

To bring this about, Lahouti concluded, the new government needs to begin collecting data from low-income households and allot each their due portion of cash subsidies.

 

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