The left wing UK Guardian reports that Iran's economy is facing severe difficulty, as President Ahmadinejad ham-handedly (oops! I mean mutton-handedly) intervenes in the economy, defying the law of supply and demand, in addition to sharia law. Iran's financial system suffered a fresh jolt yesterday with panic selling on the stock market after the president, Mahmoud Ahmadinejad, abruptly ordered banks to cut interest rates sharply, despite surging inflation.
The order, which Mr Ahmadinejad issued by telephone during a visit to Belarus and which flew in the face of expert advice - has triggered warnings of a financial crisis and spiralling corruption amid fears of a capital flight from the country's lending institutions.
Interest rates? Even kufr like me knows that the Prophet passed on the word from Allah that charging interest is a no-no. I am not sure whether the punishment is cutting off a hand, pushing a wall over on the miscreant, or gang-raping his sister. But it definitely is such a no-no that various "Islamic banks" have been set up with elaborate schemes of purchase and future sale-back at a fixed higher price to charge interest without looking like you are charging interest.
That little problem aside, the economic policy is madness.
The interest rate move theoretically helps the less-well-off, for whom Mr Ahmadinejad has pledged support with cheaper loans. But economists say cutting rates below inflation will scare investors into withdrawing their savings, thereby creating a black market in high interest loans. They also warn of higher inflation as investors redirect their money into property and push up house prices.
"Mr Ahmadinejad's argument is that the lower the interest rate, the more access people will have to money," said one analyst. "But you can't command interest rates down. They have to match inflation. To cut rates, the government has to balance its budget better."
Another economist, Saeed Leylaz, claimed the move was a reward to powerful groups who had supported Mr Ahmadinejad. "I believe the president knows the consequence of this decision but he doesn't care about the future."
Ahmadinejad may be figuring that since the Twelfth Imam is coming shortly, the future doesn't matter much. In the meantime, it is going to be very hard to find any money to borrow without going to loan sharks. Which means a lot of businesses will be closing their doors, and a lot more people will be unemployed. But his friends who have massive debts will get richer, and that's what really matters.
Hat tip: Joseph Crowley
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