Injection of Liquidity Is Not the Answer to Economic Crisis!
There is no need to emphasize that the ambiguity in the conditions
for choosing the units that are eligible to receive the facilities
plus lack of expert view will boost the market for recommended
selections upon “favoritism” and rent seeking.
Not long ago, the daily “Donyay-e Eqtesad” published an alarming article
under the title of “Repeating the Experience of Quick-Impact Projects?” in
which the plan for allocation of 16 thousand billion tomans in loans to
boost production was evaluated. As we know, the plan was implemented with an
aim of activating 7500 troubled corporations; though up to date, the number
of applicants for this facility has increased to 15 thousand.
Perhaps such a dramatic difference arises from the imprecise estimation of
the relevant authorities of the number of “qualified” corporations and
perhaps after a short time everyone realized that a certain “condition” is
not involved and thus more corporations applied for the facilities.
The truth is that the selected criteria of the qualified corporations to
receive the facilities have not been specified and no expert study has been
conducted in this regard. The truth will be unveiled in the selection of the
units which had been practically paralyzed, for reasons separate from
liquidity shortage, and will be paralyzed again in not too distant future
with most certainty (and foreigners call them “zombies”).
There is no need to emphasize that the ambiguity in the conditions for
choosing the units that are eligible to receive the facilities plus lack of
expert view will boost the market for recommended selections upon
“favoritism” and rent seeking. No wonder that in the article of “Donyay-e
Eqtesad” and also in the discussions among producers, mention is made of
repetition of the experience of “quick-impact projects”. The similarity
between the two plans is not perfectly accurate. In the “quick-impact”
projects, of course, the selections were done without observing any
regulations; but under the government pressure, the banks were forced to pay
the loans to the selected ones. The damage which was inflicted on the
economy was the result of the compulsory and irregular payment of facilities
to the applicants which caused an unprecedented wastage of national
In the new plan however, there is no trace of pressures and compulsions. In
fact, those groups of justified companies (and qualified in all respects)
which have received positive responses from the “loan committees” and have
received “the letter to the bank”, in referring to the banks are encountered
with conditions they are not ready to accept and finally receive no money.
In some cases, parts or whole of the facilities allocated to the applicants
are collected to make up for their previous debts (which is contrary to the
instructions of the “plan for allocation of facilities”; but is fully in
practice). Statistics on bank “payments” in line with the new plan also
include such displacements.
Given that these same displacements are in need of offering stronger and
more practicable securities by the applicant, some of the manufacturers
evaluate this whole event as a trick by the banks “to stabilize” their
demands. This cynical interpretation of the motivation under discussion
might perhaps be untrue; but the fact that a large number of categorized
companies as the “loan recipients” have not received part or the entire
allocated sum is not a matter of question.
In the opinion of most of the big shots in the field of industry,
implementation of this plan would neither lead to a significant increase in
employment nor would solve the dilemma of the present stagnation. In fact,
if the implementation of this plan is not considered politically motivated
in the remaining months to the elections and if the mentioned plan is truly
the outcome of analysis of the government’s economic team of the reasons for
the widespread recession in the industry, and if the economic authorities
really consider implementation of this plan a curing prescription for the
salvation of the industry from the abyss it has been caught in, producers
are then right to be concerned about their future. From their perspective,
resort to such plans is an indication of unawareness of the economic
authorities of the roots of the recession governing over the industry and
their confusion in how to deal with such a dilemma.
The reality that confusion exists cannot be denied. The fact that we do not
ask ourselves why the industry has been stuck, why domestic production has
lost its competitiveness, why most corporations cannot make their ends meet
and why owners of micro and macro capitals are reluctant to invest in their
manufacturing areas and instead of trying to solve these key predicaments we
see the remedy in merely injecting money among applicants, are not signs of
Undoubtedly, most of the manufacturing corporations are suffering from
shortage of working capital and some of them become profitable through
injection of liquidity. Of course, assisting them is an appropriate action
but who have exactly identified these groups of corporations? We know the
“loan” workgroup neither enjoyed expert tools for the exact survey of the
current status of the applicant corporations and their future perspective
nor had enough time to take such a measure.
Apparently, the main responsibility for identifying the justified applicants
is delegated to the banks and they make the decision on the basis of their
own interests which is of course understandable. But the fact that those
interests are in conformity with the intension of the economic authorities
(that is to say to turn the rusty wheels of the industry by injecting the
resources in qualified and needy corporations), is a shot in the dark.
However, why the economic team of the government does not target the main
issue? There is no expert who would not know that production in our country
is not profitable. The return of investment in productive activities is low
and the best sign of this reality is the declining trend of investment in
the industry sector. According to statistics announced by the Ministry of
Industry, from 1385 (2006/07) up to 1393 (2014/15) investment in the
industry sector experienced a significant drop which can be interpreted as
the declining attraction for investors to make investment in the industry
sector. The drop in attractiveness was as such that between 1387 (2008/09)
and 1393 (2014/15) investment in the industry sector (at current prices)
reduced about 60%. It is not irrelevant that the head of the Institute for
Commercial Studies and Research has described the situation as “free fall”
of investment in the industry sector.
According to another official report, the share of the industry and mine
from the total fixed gross capital in the country has taken a downward trend
since 1383 (2004/05) which “shows that investments have relatively been
withdrawn from the industry and mine sector and made in other economic
sectors of Iran.”
It would have been better if the officials in charge of the economy looked
for an answer to this question that why the potential investors who would
naturally go everywhere for more profits, are keeping away from the industry
sector? If they do they would inevitably come to the same conclusion that
industry in our country is a challenging and loss making activity with low
return and as a result has no attraction for investors. If they truly came
to this conclusion, logic dictated that instead of resorting to immature and
tested plans of this kind, they should place solution of the main dilemma,
that is to say reduction of challenges and costs for production and making
industry profitable, on their agenda.
Of course, we know that the government’s hand is empty, but if the
government intended to inject the 16 thousand billion tomans into
production, would it not be better if this money were spent on improvement
of the business environment and reduction of the obvious and clandestine
costs of production (insurance, tax, bank interest rate, the crippling
penalties, the invisible but real costs) so that the paralyzing pressures on
manufacturing corporations would slightly be eased? In that case, the real
producers, those who have employees and pay for insurance, tax, interest
rate and penalty, would take advantage of government’s assistance and their
production costs would reduce. Then there would be no “favoritism” and the
rent seekers would receive nothing. More importantly, wastage of resources
would be prevented.
The reality is that many of the companies receiving these loans are
corporations with obsolete technology and old and inefficient physical
capital that would resort to more loans out of desperation in order to
survive. Liquidity injection would not relieve their pain but rather would
add up to the load of their debts. Would it not be better if they were
offered an honorable and less problematic way to halt operation without the
fear of scandal and devastation and evaded more losses and debts? Do not the
economic authorities know that “facilitating conditions for halting
activities” is one of the necessities of the market-based economies and is
considered one of the 10 criteria for making an assessment of the business
environment? Injection of liquidity to the “zombies” would only postpone
their inevitable fate and waste the unique and valuable resources.
The manufacturers are reluctant to criticize the 11th government. They know
that this administration has inherited a crisis-hit economy and has an
acceptable work report on diminishing the problems and creating social calm.
We have not forgotten that only during the last two years of the previous
government, the per capita gross domestic product in our country reduced by
about 11%, national income dropped by 20% and inflation rate jumped to 40%.
Even imagination of that condition, together with the sharp fall in oil
revenues, is truly alarming. The stoppage of that trend has not been a small
achievement. Aside from this, producers sustained severe losses as a result
of the imprudence of the former government and paid a heavy price and for
this reason they understand the difficult circumstances of the government.
However, as long as the “loan plan” proves to be a symbolic movement and a
sign of the government’s goodwill for relieving the pains, the implications
can be ignored and forgotten. The main concern of the manufacturers is that
the economic team of the government would truly consider plans of this kind
as a remedy for the industrial stagnation and in the future too, after
overcoming “financial bottleneck”, resort to such solutions for the
salvation of the industry. This is a matter of real concern!