The Iranian Economy during the Second World War: The Devaluation Controversy

Abstract

A hotly debated controversy in Iranian history is the devaluation of the rial immediately after the occupation of Iran by the Allied forces. Dr Mosharraf Naficy, the finance minister who is associated with this devaluation, is criticized severely and even branded a traitor and foreign agent. He, on the other hand, has defended his decision with regard to the exchange rates and claimed that there was no devaluation. The Second World War as an episode in the modem history of Iran has received little attention.' In particular, the economic condition of the country is rarely mentioned let alone studied. The present article aims at making a small contribution to the subject by studying the controversial issue of the devaluation of the rial. Aside from shedding light on the economic history of Iran and contributing to the history of the Second World War in Iran, this article will be of interest for two additional reasons. First, as will be seen, opponents in this controversy played prominent roles in Iran in the years following the war. Naficy was the first head of the Plan Organization in Iran while Dr Mosaddiq, who was most vocal in criticizing Naficy, later on led the oil nationalization movement to a disastrous conclusion for Iran. More generally, they stood for two different types of policy and conduct of public affairs, the first based on rational reasoning and practising the art of the possible, and the second on whipping up people's emotions, making exaggerated claims, and branding every opponent a foreign agent. In the extreme the latter policy rests on demagoguery. Mohammad Ali Forouqi who became prime minister after the invasion of Iran and was able to negotiate favourable terms for his country during a most difficult time, and Ahmad Qavam who single-handedly saved Azerbaijan for Iran practised the first type of policy. A prominent practitioner of the second type of policy was, of course, Dr Mosaddiq. Needless to say, in Iran, and perhaps in the whole of the Middle East, the second group have always been most popular. The investigation of the devaluation controversy sheds light on these policies, the personalities of different players, and their knowledge of economics.