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What's behind Iran's massive capital flight?

While a large amount of hard currency has left Iran in the years since the implementation of the nuclear deal, the picture is more complex than a simple case of investors rushing to move their capital outside the country.
An Iranian woman pays a 20000 rial banknote (around 70 US Cent), bearing a portrait of Iran's late founder of islamic Republic Ayatollah Ruhollah Khomeini, to a grocer in Tehran on September 30, 2012. Iran's currency, the rial has lost over 60 percent of its value since the end of last year, as draconian Western economic sanctions take effect that has spurred already high inflation to even greater heights, with food costs soaring more than 50 percent. AFP PHOTO/ATTA KENARE        (Photo credit should read A

A prominent Iranian member of parliament's recent statement about a significant outflow of capital from the country has raised eyebrows. Commenting on the foreign exchange fluctuations in March, parliamentary economic commission head Mohammadreza Pourebrahimi said some $30 billion of capital had fled Iran in the final months of the last Iranian year, which ended March 20. To assess such a phenomenon, it is necessary to grasp the parameters that lead to capital flight and their impact on the Iranian economy.

Within a theoretical framework, there are several key causes of capital flight in national economies: exchange rate misalignment; political and economic instability; general policy shortcomings in the protection of investments; financial and capital account deficits; corruption; and major foreign debt. With the exception of foreign debt, the current state of the Iranian economy offers all of the above, and these factors, especially political instability and corruption, can motivate economic players to move their capital abroad. However, one needs to be careful with classification of all flows in Iran as “capital flight.”

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