InternationalInternational Economics

Hidden rent | Effects of 4200 Toman currency correction on previous goods / preferential value increased production cost and market price


According to the economic correspondent of Fars News Agency, the 13th government has put the policy of reforming the system of subsidies for basic goods on the agenda and is scheduled to be implemented. It has not reduced production costs and reduced consumer prices, but has also increased prices in terms of creating rents and corruption.

It is said that the implementation of this wrong policy has resulted in 690 billion tomans in rent and corruption. Was.

Subsidy reform begins in other countries The International Monetary Fund (IMF) has said in a report that subsidy reform is essential for the Middle East region, especially in the field of energy.

In this report, we review the impact of subsidies in the agricultural sector, which shows that the goals of the preferred currency have not been achieved and have had many negative consequences, the cost of the producer index and market prices have increased and a huge cost has been imposed on the country.

* The currency targets of 4200 Tomans were not achieved

With the intensification of primary and secondary oppressive sanctions in the two periods between 1391 and 1393 and from 1397, the policy of devaluation of the currency was adopted, especially this policy from 1397 continued much more strongly.

Objectives of allocating preferential currency for the import of certain goods and inputs, protecting domestic production and producers against the pressure of the return of US unilateral and secondary sanctions, ‌ compensating for the decline in consumer purchasing power, It was inflation. In addition, the government at the time tried to prevent the deepening of psychological inflation at the community level by allocating government currency.

* Negative consequences of preferential currency allocation

However, the allocation of preferential currency had negative consequences, which led to the loss and leakage of part of the paid foreign exchange subsidy (due to the difference between the preferred exchange rate and the market) along the value chain of agricultural goods. New inflation, ‌ imposing a cost burden on the country’s budget and reducing financial resources for productive investments, creating grounds for rent-seeking, corruption, smuggling and hoarding (formation of profiteering behavior and contrary to national interests), weakening domestic production, especially goods The main subject of pricing was the low benefit of foreign exchange subsidies to the target groups (low-income deciles and villagers).

* Imposing huge costs on the country by implementing a preferential currency policy

The documents show that the implementation of the preferential exchange rate policy has not only been unsuccessful but has also imposed huge costs on the country and society; In the years 1397-99, the amount of foreign exchange supply of inputs subject to preferential foreign exchange was $ 27 billion.

In 1397-99, the price of corn increased by 54%, barley by 47% and soybean meal by 95%.

Despite the allocation of preferential currency, in the years 1397-99, the price of live chicken in the country has grown by an average of 38%, the price of chicken meat in wholesale and retail by an average of 36%.

In the years 1397-99, the wholesale and retail prices of eggs also increased by an average of 38% and 34%.

In the years 1397-99, the price of red meat in the country increased by 40% on average.

* Production cost increased

The preferential exchange rate policy was aimed at preventing the increase in the cost of agricultural producers. The comparison of the producer price index of the agricultural sector in 1397-99 and 1394-96 shows a 38% growth of this index.

It should be noted that the producer price index is both a measure of production costs and as a predictive index of inflation index, which is transmitted to the consumer level with a time lag.

Below is a picture of the producer price index of the agricultural sector and its sub-sectors.

As can be seen, the average producer price index has happened to increase in the years when the subsidy was paid.

* Inflation of food and beverages by implementing preferential exchange rate policy

On the other hand, food and beverage inflation increased significantly due to limited preferential currency resources, which is quite clear in the chart below.

Hidden rent | Effects of 4200 Toman currency correction on previous goods / preferential value increased production cost and market price

According to the obtained documents, the inflation of food and beverages has increased significantly in rural and nomadic households after the allocation of government currency.

Due to the inefficiency of the subsidy system, this inflation led to a decrease in per capita consumption of basic items at the consumer level, especially in the lower income deciles, and inefficient allocation of support between the upper and lower deciles of society. .

The main goal of the plan is to reform and streamline the subsidy system with a view to comprehensive support for producers of agricultural and food products and targeted support for consumers of these products in order to ensure food security in the country.

* The elimination of the preferred currency stabilized some items of prices

During the same years, with the elimination of the preferred currency of some items, we have witnessed the stability of prices, in which the price trends of basic goods have been included in the preferred currency and the half currency are shown below.

Hidden rent | Effects of 4200 Toman currency correction on previous goods / preferential value increased production cost and market price

The number of goods that included receiving preferential currency increased from 25 items to 5 items, and almost all goods had a relative price stability after the elimination of government currency, but instead the payment of government currency for livestock inputs did not help reduce prices. Free and black markets were formed, which were sold at many times the price.

The government has decided not to eliminate subsidies, but to transfer them from the import sector to the consumer, meaning that the subsidy will be paid to the people so that they can manage it themselves.

But in the meantime, some experts believe that if this direct subsidy is given to the production sector, the first link in the chain, it will have better results.

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