Iran facing Venezuelan type hyper inflation

Babak Vaziri and Sina Nahavandi:
“Will Iran become the next Venezuela?” Almost every Iranian has faced this question. In truth, Iran has not only become the next Venezuela, but the acceleration of its economic collapse is much higher than that of Venezuela.

The economic situations of Venezuela and Iran can be compared by examining the inflation rate and the conversion rate of USD to Bolivars (Venezuela currency) and the inflation rate and conversion rate of Iranian Rials to U.S. Dollars.

Almost all of Venezuela’s income is from the oil industry. In 2015, the oil-dependent economy contracted 5.7% and the inflation rate, which was at 57% in 2014, suddenly reached 181%. In 2016, oil revenues fell by 12.7%, and Venezuela's non-oil revenues fell by 19.5%, which in turn brought the inflation rate to 254%.

In 2017, this trend continued. The inflation rate reached 741%, and now a country that once was prosperous because of high oil prices suddenly faced economic disaster. Venezuelans reduced their meals, formed long queues for food and toilet paper, and were forced to eat garbage from dumpsters.

Maduro’s government blamed the situation on an “economic war” led by the country's political adversaries with the help of the United States. That’s exactly what President Rouhani and Ayatollah Khamenei say today. In August 2018, Iran’s Parliament summoned President Hassan Rouhani to answer questions about the country’s economic crisis. Rouhani blamed U.S. sanctions, not government mismanagement, for his country’s troubles.

In September 2018, President Rouhani and his cabinet met with the Supreme Leader, Ayatollah Ali Khamenei. During their conversation, Khamenei mentioned even the shortage of baby diapers, blamed it on "the enemy" (U.S.) who "wants the Iranian people to be angry with their own government."

Turning to Venezuela, we see that in December 2015, the Bolivar on the black market was at nearly 700 to 1 for the U.S. Dollar. However, in December 2018, each USD was 46,974,000 Bolivars. That is approximately 67,106 times more.

According to Professor Steve Hanke, an American applied economist and a distinguished professor at Johns Hopkins University, Venezuela's annual inflation rate on September 04, 2018 was 55,049% which is 304 times that of 2015.

Now let’s return to Iran’s economy and compare it with Venezuela’s economy. According to Professor Hanke's analysis, the inflation rate in April 2018 was 52.7%. Only after five months, on September 4, 2018, the inflation rate reached 268%.

The reason we say that the acceleration of the collapse of Iran’s economy is much higher than Venezuela is because it took two years for Venezuela’s inflation rate to increase from 57% to 254%, but in Iran it took only five months.
Both countries are poorly run and in its grip of ideologues who are pushing a failed economic model.  Iran squandered the Obama windfall from the bad deal he made with them by investing it in its terror proxies rather than in its people and its economy.  The return of sanctions has limited Iran's ability to make up for its bad policies by selling oil.  It has also made foreign companies reluctant to invest in Iran.  The answer for both countries' dilemma should be regime change, but at this point, they have both so weakened the opposition that it makes their situation hopeless.


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