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The interest group economics wreaking havoc on Iran's currency

Absent tackling such root issues as banking and financial sector reform, Iran’s political economy is likely to continue to shape government policy to the detriment of the economy and the society as a whole.

While the Iranian rial has appreciated in recent days, its drop in value of more than 50% since March has undermined the country’s economic well-being and led to popular protests. Some experts have pointed to sanctions, internal mismanagement and political uncertainties as the causes of the massive devaluation. Others have underlined that the huge differential between the official and open market exchange rates allows for corrupt practices centered around state structures. There is, however, another dimension to developments on the foreign exchange market: Iran's political economy. In this regard, one should ask which segments of society lose out and who wins, and what do economic shifts mean for political power in the country?

For the past four decades, the overall pattern of the Islamic Republic’s political economy has focused on shifting wealth and economic assets from society to the state as a whole, in particular to economic interest groups. These shifts have taken place through dispossession and confiscation of the assets of various social groups, waves of privatization in which state assets have mainly been transferred to the semi-state sector, corruption emanating from the two-tiered exchange rate system, massive embezzlement, commoditization of natural resources, sanctions busting, smuggling and financial corruption.

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