Coll 30/9 'Persian Gulf: Administration Reports 1926-1938' [‎343r] (690/1028)

T
With a view to arresting the depreciation of the Kran the Government decided
arbitrarily to fix the rate of exchange, and transactions at other than the official
rate were made illegal. From the very inception however of Government control
Foreign Exchange proved unobtainable at the official rate of GO to £, except by
resort to clandestine and illegal methods and it became quite impossible for either
the Imperial Bank of Persia or the National Bank to obtain sufficient exchange
even to meet the requirements of merchants with outstanding commitments. These
latter not unnaturally in the majority of cases pleaded force majeure and refused
to honour their commitments abroad. Goods continued to pile up in the customs
already full to overfiowing and foreign trade wag*nt a standstill.
The Government, whose motives in attempting by drastic measures to maintain
the value of the Kran may partly have been due to misguided pride, but were also
attributable to the desire to avoid any curtailment of their purchasing power
abroad, soon found however that no foreign exchange was coming in and that it
was quite impossible to check illegal transactions in the bazaars. It was presum
ably for this reason that the original exchange control law was modified in July
when it was decreed that exporters of the more important Persian products—opium,
gum, carpets, also demonetized silver—would be obliged to sell 90% of the foreign
exchange proceeding from their sale to the Government. Exporters of other
produce were to be exempted for six months from compliance with this rule so long
as the}’ could prove that the proceeds were to be devoted to the liquidation of pre
vious engagements, or alternatively, were to be allowed to retain 60% of their
exchange for the importation of goods not figuring in the exchange control commis
sions’ list of articles (motor vehicles, luxury articles, foodstuffs, alcoholic drinks, etc.)
for the importation of which, from the outset, foreign exchange was not to be made
available.
This amendment may have had the efiect of easing the exchange situation for
the Government slightly. On the other hand, it led to an acceleration of the rise
in price levels and in the fall in the Kran Sterling bazaar rate, since, owing to the
lack of demand for Persian produce in foreign markets, exporters were forced to
sell at a loss and endeavour to recoup themselves on the enhanced prices of their
imports or the bazaar Kran rate obtainable for the foreign exchange acquired on
their exports.
By the end of August the Government were in a very bad way financially.
The Banks’ purchases of exchange were only averaging some £20,000 monthly
instead of some £50,000 exclusive of the Anglo-Persian Oil Company’s sales of
exchange, while revenue was short and the pay of ordinary civil servants in Tehran
in arrears. There was talk of endeavouring to ease the situation by allowing the
rate to go to 80 and of the Government putting £500,000 of their gold reserve on
the exchange market. However, other counsels prevailed, and it was decided to
borrow three million tomans 10,000 Persian dinars, or a gold coin of that value. from the National Bank instead.
Towards the autumn the position became worse and worse. The de facto
Kran rate diverged further and further from the official rate. The eagerness of
importers to jointhe export trade and so obtain sterling caused all exportable com
modities to soar in price, while their price on foreign markets continued to depre
ciate in sympathy with the world trade slump. Meanwhile the price of all im
ported goods was rapidly rising and economic pressure making itself acutely felt
by all sections of the people. Still the Government refused to take any appropriate
steps to remedy the situation. It’s pet projects—the railway and the introduction
of the gold standard—were still obstinately adhered to, while there was no thought
of returning the Anglo-Persian Oil Company royalties into circulation. On the
contrary a large proportion of them was expended on the purchase of military
equipment. Apart from a further modification in the law, introduced in Septem
ber, whereby exporters of opium, etc., were to be allowed to retain up to 20% of
the proceeds, to be devoted to the purchase of imports, and exporters of inferior
produce up to 90% on similar conditions, no attempt was made to help the
trade of the country to its feet.
The fact of the matter was that high-placed officials were drawing far too much
benefit from the existing state of affairs to wish to see them altered, while the
German and Belgian advisors, of whom the Exchange Control Commission was
largely composed, were naturally loth to suffer a decrease in their salaries paid in