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Successful Economies are Plan-free
Investment would not be triggered by a 1-2 percent reduction in the interest
rate. If obstacles to investment are removed, the result would be evident.
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Dr. Baqer Qadiri Asli,
Senior Economist |
Dr. Baqer
Qadiri Asli holds a bachelor’s degree in Law from France as well as a PhD in
economy from Paris University. He has worked as a researcher at the Economic
Research Institute of Tehran University as well as the Plan and Studies Bureau
of the Ministry of Economic Affairs and Finance and took part in formulating
the Direct Tax Law in 1966 and amending the Money and Bank Law in 1972. Dr.
Qadiri officially started to work as an assistant professor at the Faculty of
Law, Political Sciences and Economics of Tehran University, in 1965. He was a
professor at Tehran University and a founding member of the Iranian
Association of Economists, as well as dean of the Faculty of Economics. He has
written many books in Persian and French and some of his works have been
translated to English. We interviewed him on the country’s economic issues
including the reasons behind inflation and it consequences. The result
follows:
We are on the threshold of the approval of the Fourth Economic
Development Plan. What is your most important recommendation for drawing up
the plan, especially in regard to the monetary and financial aspects?
Successful
economies do not have planning and budget organizations. I do not like
centralized plans, especially in countries where they are being drawn up by
people who lack scientific qualifications. Anyway, to answer your question, I
simply say that with regard to monetary and financial issues, at the time that
there is a scarcity of knowledgeable men, please take advantage of people with
scientific qualifications and believe that inflation is a problem.
What is your main criticism of the past three plans?
My main
criticism is that despite all planning and despite 500 billion rials that was
earned through oil and gas exports, they failed to remedy inflation that has
been nagging us for 30 years. They not only failed to curb inflation, but
created two-digit unemployment. If the planning was correct, they could have
solved two big maladies of the Iranian economy; that is, inflation and
unemployment.
It is said that the Third Economic Development Plan reflected
the desires of a certain group and was not compatible with the realities. In
your opinion, what have been the positive and negative impacts of three
programs on the economic structure of the government?
The
negative impacts were inflation, stagnation and devaluation of the national
currency. Every country with a weak currency would be vulnerable. The positive
effects were construction of roads and bridges. As we see, a group of people
control a lot of money.
What is your opinion about the foreign exchange rate
unification policy?
Adoption of
this policy was originally correct because there were many rates for parity of
the dollar. Until 1988, apart from two official 70-rial and free 1,100-rial
rates for exchanging dollar there were other rates known as preferential,
non-barter export, barter export and service rates. Since foreign exchange was
allocated by the government, every organization that enjoyed more
administrative and political influence and higher bickering powers could get
more hard currency. Today, due to the implementation of the foreign exchange
rate unification policy and based on the budget law for 2002, since the
government is the sole source of hard currency, the Central Bank of Iran
applies the policy known as floating foreign exchange rate and by supervising
foreign exchange market, keeps dollar’s parity at the predetermined level.
However, the question is why the Central Bank changes dollar’s value in
comparison to the national currency in an “elevator” manner? Even when it
loses ground to other powerful currencies, its value in Iran increases.
During recent weeks we noticed a hike in the exchange rate.
What were the reasons? Could the Central Bank control the exchange rate?
The
increase in exchange rate could be due to various reasons. One of them is
publication of the deficit of balance of payments. Other reasons could be
inflation, increased imports compared to exports as well as rumors about
increased foreign liabilities that the government is unable to repay. Also,
remarks made by state officials regarding changes in the exchange rate,
foreign pressures from the International Atomic Energy Agency, slumping oil
prices and any other occurrence that would lead to capital flight from the
country could play a role. If foreign exchange fluctuations were limited and
controllable, the Central Bank of Iran with its vast capacities could control
them. But if our foreign liabilities were similar to 1995 and the government
would not be able to repay them, and rumors circulated in this regard, no
central bank would be capable of harnessing it.
What is your opinion about publishing participation bonds and
its role in collecting liquidity?
Publishing
participation bonds could be useful because it directs deposits toward banks
and production institutes, especially in a country where selling bonds and
treasury instruments is not allowed because usury is forbidden. However, if
the collected liquidity were used for productive investments to boost
production, they would be more useful. Even if the government published such
bonds through the Central Bank to compensate its budget deficit, it would have
been much better than borrowing from the Central Bank or the banking system in
general.
What are the major causes of liquidity growth? Is government
capable of checking it?
The causes
are increased bank credits, budget deficit, and increase in forex exchange
rate with the government being the sole supplier of foreign currency, taking
into account that, at least, 80% of our foreign exchange is earned through oil
exports. The Central Bank proves during its annual seminars that there is a
close relationship between volume of liquidity and inflation, however, it
increase liquidity volume by 20-30 percent per year which has led to two-digit
inflation. Of course, if the government and the Central Bank believed in
harmfulness of inflation, they could prevent unnecessary expenses and
obligatory credits and curb excessive growth of liquidity.
The government believes that price hike in the beginning of the
year is a result of liquidity growth. Is that true? How government can fight
high prices?
Prices only
hike when liquidity increases. When the government gets its budget bill
approved by the Majlis with a projected 30-40 percent increase those who are
engaged in businesses and economic activities brace for an increase in prices
since the beginning of the New Year or even earlier. The government adds to
this misery through its budgetary performance, especially that governmental
organizations and institutes increase liquidity by the year-end through paying
bonuses to their employees as well as their debts to contractors. Fighting
high prices cannot be accomplished unless through encouraging production and
providing suitable social grounds for investment as well as the establishment
of economic and social security. To fight high prices, we have got to curb
inflation and prevent a further rise in prices.
What is the main
reason for inflation in
Iran?
The main
reason for inflation is liquidity. When somebody has no money, he/she would
have no demand. Iranian economy is so complicated that a single reason could
not explain its developments. Inflation is the result of imbalance between
money and commodity currents. That is, if the liquidity circulating among
people increased, but commodities in demand remain unchanged, the imbalance
would perpetuate and a logical outcome of it would be increased prices. I
believe that there are other reasons for inflation save for liquidity because
there have been frequent instances when the volume of liquidity has increased
without fanning the flames of inflation. Inflation could be a result of high
demand due to increased investment compared to saving; increased general
expenses; general rise in salaries and private consumption; adventitious
causes such as war as well as natural disasters; and structural causes of
inflation, especially economic structure. In some countries, due to economic
bottlenecks, growth and development is so sensitive to inflation that the
smallest ripple in the society would increase foreign exchange rate and,
consequently the prices.
What is your opinion about bank interest rate and the necessity
of decreasing it?
The
interest rate is determined in relation to inflation; if inflation rate were
16%, the interest rate must at least be 3% higher, so that, people would be
willing to make investments and give their deposits to banks. If you could
harness inflation, even a 5% interest rate would be high. If not, the interest
rate would escalate automatically.
Are you in favor of decreasing the interest rate under the
current circumstances?
If you mean
reduction of profit on long- or medium-term deposits and the like, then the
answer is no. As long as you have not been able to keep inflation rate down
for a couple of straight years, it would not be a good thing to disappoint
depositors, given the fact that the profit granted on long-term deposits is
different from the interest rate in the free market or that of banks. Whenever
you could lower the inflation rate, you could talk about reducing interest
rate too. Investment would not be triggered by a 1-2 percent reduction in the
interest rate. If obstacles to investment are removed, the result would be
evident.
The government is considering joining the World Trade
Organization (WTO). Is the country capable of doing so in view of its current
economic structure?
Iran has
applied for membership in WTO for many years, but its request has gone
unheeded due to opposition from the United States. We cannot erect a fence
around our country and live in self-sufficiency. The time for self-sufficiency
and autarky is long past. When the majority of countries have either joined
WTO or have applied for membership, we must not lag behind. The economic
situation of the modern world is such that if a country intends to survive in
global trade and be able to export its surplus products to earn hard currency
and import goods at lower global rates, it would almost have no choice but to
become a member of WTO. However, we must prepare ourselves to take advantage
of this opportunity when the United States would unwillingly allow us to join.
Iran and Iranians have nothing less than other people. |
