Mohammad Jahromi, Minister of Labor and Social Affairs in an Interview expressed his viewpoint about economy policy, inflation and the unusual growth in liquidity as below:

I still believe that bringing a balance to the labor market is directly related to money and capital markets as well as commodity market, exports and imports. Naturally, if we wanted to succeed in job creation, we would have to adapt our economic policies to that goal. This is especially true about monetary and banking policies, tax policies as well as support for production and exports and prevention of excessive imports. Since 2005 up to now, although we have not achieved all our goals, we have been successful in relatively reducing unemployment rate. Part of that success was thanks to a twofold increase in facilities allocated to the private sector which has both downsized state-run economic system, and empowered the private sector.

Unemployment and inflation are not two separate issues in the world though there are different theories. One of those theories is that if you want to reduce inflation you must go for contractionary monetary and financial policies or if you want to create more jobs you should plan more investments and adopt expansionary monetary policies while reducing interest rate. There are many economists who have questioned this relationship.

I do not want to confirm or reject this or that theory, but I believe that all state-run institutions and organizations should have a comprehensive plan according to advantages of this plan and the country’s needs. That is, this should be done before formulating five-year development plans. Government plans do not allow every sector to have its own plan. A comprehensive plan is only effective when sectoral plans have been integrated into it and it should then be decided whether unemployment rate is to be reduced to a one-digit figure by the end of the plan, or what amount of investment is needed for industrial and agriculture sectors or where the needed money should be provided from.

The ratio of liquidity to gross domestic product in Iran is much lower than other countries. In some countries, liquidity even exceeds GDP.

You are right. I believe that if the Fourth Economic Development Plan has announced that unemployment should go below 8.4 percent, but the then Management and Planning Organization announced that 1.2 million job seekers are added per annum, we must, at least, create 1.2 million jobs per year to keep unemployment unchanged. We need about 600,000-700,000 billion rials for investment in different economic sectors in order to achieve this goal. Providing this money, in a way that would not worsen inflation is the task of the Ministry of Economic Affairs and Finance, the Central Bank of Iran, government’s economic commission, and all other parts of the government.

I believe that the monetary base should not be increased before the whole economy has grown. We can adopt other approaches in order to expand the monetary base to bring prosperity to the economy and we can manage our plans according to the existing monetary base. I strongly believe in productivity, of course, on the basis of the Fourth Economic Development Plan. If our investments were based on regional and national advantages, it would be better and we would achieve better results. During the past few years, our investments have not been based on regional and national advantages.

Under good management, we would not issue permits and then have the applicants to form lines at ministries of industries and mines and agriculture to get facilities. Facilities should be provided at the same time that permits are issues. Such factors are related to management. How many monetary and credit specialists are currently working at state-run and private banks in order to evaluate economic feasibility of plans and projects? Why we do not organize advisors to use them in nongovernmental sectors. If we managed the existing liquidity in a correct manner, inflation would have reduced while production and job creation would have increased.

I think during the whole post-revolution era, changes have been made in affluent, middle and lower deciles of the society. The lower and middle deciles have grown better but the number of people in the upper deciles or the affluent people has decreased. What I say is based on figures produced by the Central Bank of Iran and the former Management and Planning Organization.

Now that you put such emphasis on economic theories, you should also pay attention to Keynes theory and measures he took to get the United States out of economic recession. Keynes adopted expansionary policies in order to bring prosperity to the economy. When you say the demand has risen, you should also note that what commodities are demanded by lower and middle classes and in what direction production has moved in our country. At present, many commodities are produced below the existing demand. We had a meeting with producers of food products whose production capacity had decreased; that is, there was demand in the market, but due to low capital to buy raw materials, they could not meet that demand.

Foodstuff is among commodities for which there is demand from both rich and poor deciles and everybody needs them. Every year, about 800,000 marriages take place in the country, which increases demand for housing. Our problem is not merely a rise in demand, but the fact that we have not been able to correctly manage that demand. Our food industries are operating at less than 50 percent of their capacity. However, we can even produce more than the existing demand. Take the number of poultry farms as an example. We are capable to double our capacity for breeding chickens. In early years after the revolution, we had to import one-day chicks, but we are now capable of exporting them as well as chicken eggs. So, what problem has caused our production to fall?

I don’t think that there is a single reason for inflation and there are many reasons behind it. I think part of price hike is due to a general rise in global prices. Two years ago we could purchase wheat from different countries at 150 dollars per ton. However, that price has increased to 450 dollars per ton. We bought steel for 5000 rials per kilogram, but the figure has now reached 12000 rials per kg. Every ton of copper has been priced at 8000 dollars per ton while we used to buy it for 2000 dollars. Therefore, international price hike is a reason for increased prices inside the country. In poultry breeding, for example, we need to import maize, fish powder, and vitamins.

Medicines needed to breed poultry should be imported. These factors affect inflation. We must determine how much of inflation is due to global economic reasons and how much related to increased liquidity, capital mismanagement, and low productivity of labor force. We must even clear the share of psychological inflation and inflationary expectations. At present, since we can produces in excess of our needs, the existing production is low and inflation rate is above 20 percent. These problems mostly stem from mismanagement of the above factors.

Although I believe in the role of increased liquidity in inflation, I don’t think that it is an all-powerful reason. I think a collection of reasons are present and high liquidity is not the sole reason. You compare the number of existing industrial parks with their number in 2005 to see how many new industrial parks have been established and how many have been revived. During the past three years, 20000 permits have been issued for new plants and we have about 23000 half-finished plants across the country whose physical progress has been reported from 20 percent to 90 percent. In early 2005, the number of half-finished plants stood at less than 14,000.

Therefore, investment has increased, but these plants need facilities, or else, they would not be able to pay installments. This is a cause for inflation. Delayed construction and annual inflation has increased construction cost of a plant from about 500 billion rials to 1000 billion rials. To make up for the difference, the plant doubles price of its products and this worsens the inflation. Why more than 70 percent of outstanding claims of banks are related to production plants and economic corporations? Why don’t we ask them about the reason behind delayed repayment of loans? Have they spent the money elsewhere? In this case, we can punish them.

However, we know that the value of euro has doubled in the past three years and most of our imports are in euro and yen. We even import Chinese and Korean products from the United Arab Emirates by paying in dirham. We do not usually deal in US dollar for imports. Substituting euro for the dollar in imports has dealt heavy blows to us. In four years, our national currency has devaluated by 50 percent. If I were in place of the Central Bank of Iran officials, I would not have allowed our economy to suffer from the difference between the dollar and euro. Devaluation is so critical that importers have to pay 14 billion rials to import commodities worth one billion euros while they had to pay only 7 billion rials in the past. Whence this money should be supplied? It should be supplied through domestic turnover.

I believe that liquidity does not play the biggest role in inflation. I don’t mean that it is ineffective, or that liquidity has not increased, but its role is not very remarkable. I think growth in liquidity only accounts for a maximum of 30 percent of inflation. If our inflation is currently 20 percent, only 7 percent of it is related to liquidity. Now is it better for us to adopt expansionary policies and a 7-percent growth in inflation or adopt contractionary policies and accept the consequences? I want to ask a question from the economists who follow the monetary school. I always say that total liquidity of a country should be evaluated according to gross domestic product of that country. How many countries are there in the world with a similar difference between GDP and liquidity? The ratio of liquidity to gross domestic product in Iran is much lower than other countries. In some countries, liquidity even exceeds GDP. You cannot find a country with the same difference between gross domestic product and liquidity as Iran. Economists say liquidity is high. I ask them what that figure should be? How have they reached the conclusion that liquidity is high?

I accept that liquidity has greatly grown in the past three years, but I also emphasize that the difference between liquidity and gross domestic product in our country is very high.

You tell me where our liquidity should be standing now according to economic logic and in view of an 8-percent economic growth and in view of investments made thus far as well as stipulations of the Fourth Economic Development Plan? How much investment should be made per year? How much of that money should be made through money market, how much through capital market, and how much through importing foreign capital? Just saying that liquidity is high would not solve any problem. We cannot blame high liquidity alone for the existing inflation.