What's new

When did Iran become the largest Economy amongst Muslim nations? (Nominal wise)

Indos

PDF THINK TANK: ANALYST
Jul 25, 2013
19,343
23
20,908
Country
Indonesia
Location
Indonesia
Except the calculation is based on the official exchange rate of the Iranian rial. Much like Sri Lanka before crisis, Iranian rial has multiple exchange rates which are detached from each other. As the table shows, IRR's official exchange rate has basically detached itself from market reality since 2010. Current figure is basically 6.5 time higher in the market. So if Iran's GDP is USD 1.7 trillion based on the official exchange rate, Iran's GDP is about USD 260 billions based on the free rate. This number is close to Iran's historical GDP growth from previous

The official figure is dangerous though since you are basically manipulating yourself because nobody in the market would exchange 1 USD for only 42000 IRR, they want to get 273000 IRR. If Saudi Arabia, Turkey and Indonesia are doing what Iran is doing, that would put their GDPs to USD 6.5 trillion, USD 4.5 trillion, and USD 8.5 trillion respectively by 2022. That would put us above Japan it seems, why arent we doing that @Indos? :azn:


View attachment 872809

We did the same I believe during Soeharto regime, during that time I USD equals to Rp 2500 while Today 1 USD equals to Rp 14.700 which is multiple times lower compared to regime Soeharto exchange rate. The different is that the peg was quite strong which make the value of Rupiah traded in open market will be similar with the one controlled by government.

Similar like Iran, Indonesia during Soeharto time is backed by oil money, we still produce oil at around 1.6 million barrel per day compared to Today just less than 700.000 barrel per day with domestic consumption in much higher rate, thus make us suffer from trade deficit in oil sector since 2003.

I see that our currency at that rate is important to keep inflation low as we can buy imported goods at lower price compared to Today value while government during that time also protect domestic market with higher tariff since globalization is not as strong as after WTO deal that limit on how much tariff can be imposed by any nation. So there is no significant tradeoff happening that can impact our domestic industry negatively with that peg system due to government domestic protection policy still give domestic industry room to grow through tariff protection.

The fall of Rupiah in 1997-1998 is due to government inability financially to back their Rupiah rate so that Rupiah should be floated in the open market where the value will be based on market system entirely, It makes our control is only limited to Central Bank market intervention and Central Bank interest rate plus Government USD denominated obligation issuance.

The fall of Rupiah in one hand damage our economy and industry but in the other hand give more competitive advantage for the surviving industries and also our new business players that enter the market after Rupiah is already traded at Rp 8000 (1998-2003) - Rp 14.700 (current price/2022).

--------------------------------------------------

I dont know what is the decision of Iran government to keep that government controlled price while the market price is already much lower in term of value. There is big cost being spent by Iran government to keep that rate as they need to compensate the different value between controlled price and market price.

One of the main reason they are doing so IMO is to tame their inflation which is stubbornly high for quite long term. Higher currency rate can tame the price of imported goods. Actually I dont know why Iran inflation is so high, but it could be caused by the economic ministers are not as strong as in many nations, just for comparison our Defense Minister program has been tame by both our Planning Minister and Finance Minister. I suspect their central bank do money printing at excessive rate for quite long time to back the regime politically amid low revenue from oil and gas sector after the sanction in 2008 due to Iran nuclear program.

Their Central Bank is likely not independent enough and can be interfered by their Supreme Leader (Ayatullah Ali Khameini) easily, as I think, similar like Pakistan, their defense budget is relatively higher compared to their overall government budget and some R&D program that doesnt have business feasibility is still pursuit in order to reach their ambition ( turbojet, UCAV program, and so on).

There is nothing wrong with high defense budget and high R&D budget, but it should be managed properly based on what our economy can afford and should have linked to the industry in order to make it business viable thus can make it an economically sustain R&D program with actual benefit to the real economy. For Indonesia case, I think our government still dont regard R&D seriously (they do understand about the important but it doesnt make them spend as much as other countries like India, Iran, Saudi, South Korea, etc )
 
Last edited:

nufix

SENIOR MEMBER
Nov 5, 2012
2,188
4
2,321
Country
Indonesia
Location
Germany
We did the same I believe during Soeharto regime, during that time I USD equals to Rp 2500 while Today 1 USD equals to Rp 14.700 which is multiple times lower compared to regime Soeharto exchange rate. The different is that the peg was quite strong which make the value of Rupiah traded in open market will be similar with the one controlled by government.

Similar like Iran, Indonesia during Soeharto time is backed by oil money, we still produce oil at around 1.6 million barrel per day compared to Today just less than 700.000 barrel per day with domestic consumption in much higher rate, thus make us suffer from trade deficit in oil sector since 2003.

I see that our currency at that rate is important to keep inflation low as we can buy imported goods at lower price compared to Today value while government during that time also protect domestic market with higher tariff since globalization is not as strong as after WTO deal that limit on how much tariff can be imposed by any nation. So there is no significant tradeoff happening that can impact our domestic industry negatively with that peg system due to government domestic protection policy still give domestic industry room to grow through tariff protection.

The fall of Rupiah in 1997-1998 is due to government inability financially to back their Rupiah rate so that Rupiah should be floated in the open market where the value will be based on market system entirely, It makes our control is only limited to Central Bank market intervention and Central Bank interest rate plus Government USD denominated obligation issuance.

The fall of Rupiah in one hand damage our economy and industry but in the other hand give more competitive advantage for the surviving industries and also our new business players that enter the market after Rupiah is already traded at Rp 8000 (1998-2003) - Rp 14.700 (current price/2022).

--------------------------------------------------

I dont know what is the decision of Iran government to keep that government controlled price while the market price is already much lower in term of value. There is big cost being spent by Iran government to keep that rate as they need to compensate the different value between controlled price and market price.

One of the main reason they are doing so IMO is to tame their inflation which is stubbornly high for quite long term. Higher currency rate can tame the price of imported goods. Actually I dont know why Iran inflation is so high, but it could be caused by the economic ministers are not as strong as in many nations, just for comparison our Defense Minister program has been tame by both our Planning Minister and Finance Minister. I suspect their central bank do money printing at excessive rate for quite long time to back the regime politically amid low revenue from oil and gas sector after the sanction in 2008 due to Iran nuclear program.

Their Central Bank is likely not independent enough and can be interfered by their Supreme Leader (Ayatullah Ali Khameini) easily, as I think, similar like Pakistan, their defense budget is relatively higher compared to their overall government budget and some R&D program that doesnt have business feasibility is still pursuit in order to reach their ambition ( turbojet, UCAV program, and so on).

There is nothing wrong with high defense budget and high R&D budget, but it should be managed properly based on what our economy can afford and should have linked to the industry in order to make it business viable thus can make it an economically sustain R&D program with actual benefit to the real economy. For Indonesia case, I think our government still dont regard R&D seriously (they do understand about the important but it doesnt make them spend as much as other countries like India, Iran, Saudi, South Korea, etc )

Yeah it seems Iranian government does not really bother pumping dollars to back up the official exchange rate because what is the point of having an official exchange rate that nobody adheres to? Like this travel agent listed 1 CNY as being equal to 42,900 IRR while 1 CNY is equal to USD 0.15 at the moment. So people need IRR 280,000 to get 1 USD in real life regardless what rate the Iranian government had set.

Iranian-Currency-Exchange-Rate-Updated-price-USD-to-Rial-Friendlyiran.png


As with Indonesian R&D budget, I could not agree more. Indonesia is punching way below its weight when it comes to its spending vs. its economy. But I guess it had more to do with the fact that Indonesia is still paying the heavy price of cooking up the numbers during Soeharto regime. RnD expenditure usually goes hand in hand with manufacturing output and growth in manufacturing is preceded by growth in infrastructure. For a country the size of Indonesia, infrastructure is still lacking here and there despite the fact that we are spending hundreds of billions in the last 5 years. I think the Government is correct in building the infras first since manufacturing and other numbers will follow afterwards.
 

SalarHaqq

SENIOR MEMBER
Dec 29, 2019
3,270
2
6,060
Country
Iran, Islamic Republic Of
Location
Belgium
Similar like Iran, Indonesia during Soeharto time is backed by oil money

The Iranian economy's no longer primarily relying on oil.

For several years now, the government has no longer drawn the majority of its budget from crude oil exports.

Even in terms of hard currency incomes, crude oil exports have fallen below 50%, whereas their share used to be 80% a couple of decades ago. In eleven months of the Iranian year 1400 (March 2021-March 2022), Iran's non-oil exports reached $43,5 billion, while oil exports stood at $38,723 for the entire year.

Sources:
https://www.farsnews.ir/news/14010502000299/رشد-4-درصدی-درآمد-نفتی-ایران-در-سال-400-ارزش-صادرات-به-39-میلیارد

This is

The fall of Rupiah in 1997-1998 is due to government inability financially to back their Rupiah rate so that Rupiah should be floated in the open market where the value will be based on market system entirely, It makes our control is only limited to Central Bank market intervention and Central Bank interest rate plus Government USD denominated obligation issuance.

On a different note, in the 1980's Indonesia operated a competitive devaluation of its currency (i.e. the government decreased the exchange rate on purpose). It's basically this move which fixed the so-called Dutch Disease issue and allowed the country to transition towards an economy that is no longer oil-dependent (a vast academic literature on the topic can be found online).

Their Central Bank is likely not independent enough and can be interfered by their Supreme Leader (Ayatullah Ali Khameini) easily,

The Central Bank responds to the government, the Supreme Leader doesn't micro-manage its policies.

similar like Pakistan, their defense budget is relatively higher compared to their overall government budget and some R&D program that doesnt have business feasibility is still pursuit in order to reach their ambition ( turbojet, UCAV program, and so on).

In fact Iran's military expenditure has been the lowest in the region, at an average of around 2,5% over the past three decades. That's more than Indonesia but significantly less than Iran's neighbors.


Moreover it has often been overstated by foreign sources:

 
Last edited:
May 22, 2022
801
-2
526
Country
Iran, Islamic Republic Of
Location
India
The Central Bank responds to the government, the Supreme Leader doesn't micro-manage its policies.
This myth the Supreme Leader sits and tells people what to do and what not to do needs to perish.

He is a trend-setter, policy-maker and course-corrector, not a general manager who gets things done.
 

Users Who Are Viewing This Thread (Total: 1, Members: 0, Guests: 1)


Top Bottom