As inflation soars, Iran looks headed for a Zimbabwean disaster

The main cause of the Zimbabwean crisis was a badly implemented and demagogic attempt to reform the economy. Veterans of the bush war that ended minority rule in Zimbabwe long have been a key component of the Mugabe regime’s coalition; as the economy weakened, they became a source of agitation, occupying white-owned farms. The regime backed the occupiers, framed the farms as a relic of the colonial period and seized them. The farms were then redistributed, frequently to friends of the regime and veterans. Productivity plummeted, foreign capital fled and large areas of the seized land were left fallow due to the limited availability of credit. Shortages resulted, fueling inflation.

Similar problems have arisen in Iran. Iran is sorely in need of foreign investment, equipment and expertise. The sanctions regime and inflation make this harder. A major reform of the subsidy program was supposed to hinder inflation while directing state benefits more effectively toward the poor, but it has been imperfectly implemented, with many unable to access the cash transfers that would replace the subsidies and inflation continuing to accelerate. As long as the government is transferring rials directly to the population while oil revenues drop, the currency depreciates and inflation grows, the government risks a choice between cutting off the poor and compounding inflationary pressures.

Like the well-connected “farmers” of Zimbabwe, Iran has its own political elite that stands to gain from the nation’s economic chaos. The Revolutionary Guards have seen their role in the economy expand rapidly in recent years, using smuggling to make gains on the black market and buying up sanctions-shattered companies.