Why Iran Did Not Turn Into A Second Venezuela

(Former presidents and close friends, Mahmoud Ahmadinejad of Iran and the late Hugo Chavez of Venezuela during a meeting in 2012.)

As a commentary published on moderate website Asr-e Iran said on Sunday, a growing tendency to compare Iran and Venezuela is becoming more and more tempting since the two oil-rich countries have undergone very different economic circumstances despite what seemed to be their quite similar start half a decade ago. “In addition to their improved political ties, the two countries became known for their political and economic populism, encouraged by huge oil revenues when prices were above $100 per barrel” the website argues.

The commentary then contrasts the present situation in the two countries now that oil prices have plummeted to around $50. Whereas Iran has reduced its inflation rate from 40 percent under Ahmadinejad to less than 9 percent, as Asr-e Iran noted, Venezuela is wrestling with 450 percent plus inflation rates and socioeconomic collapse. The contrast becomes more meaningful when we consider the fact that Venezuela did not even face crippling sanctions, to begin with. Alongside images of Venezuelans lining up in front of stores to provide food and other basic needs, Asr-e Iran called the nuclear deal as the sole difference between the two countries that saved Iran from a fate similar to that of Venezuela.

In an op-ed published in the state-run Iran Daily, pro-reform economist Saeed Laylaz has drawn on the same analogy between Iran and Venezuela in economic terms, in what seems to be an effort to illuminate the economic achievements of the Rouhani administration. Read “Why Iran did not Become Venezuela” by Saeed Laylaz below:

One can daresay Iran’s economic situation has been much worse than Venezuela’s in the past four years because the former experienced sanctions in addition to sever oil shocks the two economies went through.

Venezuela’s population is less than 40 percent of Iran’s, while its per capita oil revenues are more. However, what took place over the past four years in the two economies widely differed, with Venezuela going down the road of an economic collapse with an inflation rate of over 400 percent and a growth rate of minus ten. Meanwhile, Iran now sees a stably one-digit inflation rate after 25 years and an economic growth of 7.4 percent.

Economic growth in Iran takes place while the stream of foreign investment is yet to flow. What caused the seven-percent growth is improved economic productivity. Iran’s industrial growth rate is close to becoming two-digit. Figures demonstrate that production in large manufacturing industries almost equals its record high in 2011-2012. Next year, Iran will once again have a positive economic growth, though it may be less than the current rate.

Improvement in macroeconomic indicators comes while income levels have deteriorated and the country has had its biggest foreign exchange rate fluctuations in the past five years. Oil revenues dropped to a quarter and imports reduced 40 percent. Thus, by the end of the current Persian calendar year, Iran could only make up for part of its GDP and PPP back in 2011. People, who suffered from catastrophic policies of the past, should know this bitter reality.

Under the previous administration, the proportion of capital formation to the GDP dropped from 41 percent in 2005-2006 to less than 22 percent in 2013. Those years are gone. Now, one could say we are in an economic status that even the most optimistic economists did not see coming. Control of the economic atmosphere together with monetary and financial policies adopted in line with the country’s general economic conditions have paved the way for a great leap. In doing so, it was the nuclear deal that put the economy on the right rail. An economy that was much worse than that of Venezuela’s is now worlds apart from it in effectiveness and efficiency.