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January 2020, No. 93


Budget & Planning

We Need to Make Up Our Mind


If we want to think of other economic capacities instead of oil, we have to make all the necessary preparations, and if the sanctions cannot be thwarted domestically at least there will be no new problem for producers so that we can pass through this difficult time.


Dr. Mehdi Karbasian

In the calendar year 1397 (2018/19), a number of major shocks hit the Iranian economy: The US withdrawal from the Iran Nuclear Agreement (formally known as the Joint Comprehensive Plan of Action) led to new sanctions and the governmentís decision to multiply the forex rate led to a state of security over the foreign exchange market; on the other hand, the contradictory and problematic circulars and directives also created a state of confusion in the market and made economic decision making a difficult task.

The new conditions led to the empowerment of the brokers and speculators so that personal interests of certain individuals along with some wrong economic decisions by the government imposed heavy costs on the economy. Putting all this together, it is clear what a crisis and big problems the Iranian economy wrestled with and the pressure that was put on the people came out of these factors.

The problem of sanctions has remained in place over the past months, but significant changes were made in other influential factors the results of which are obvious today. After last yearís mistakes, the government has managed to fix the foreign exchange rate at a stable level with no shocks and security approaches. On the other hand, contradictory and problematic guidelines have also been significantly reduced. Although some decisions still hurt exporters and cause them problems, in a macro point of view many of these decisions have been cut and the stability that the Iranian economy is facing today comes from changes in these factors.

It should be noted, however, that despite some problems being resolved, many indicators still face problems that require macro planning. Inflation in the Iranian economy is still at the 40% range which means commodity prices continue to put serious pressure on people. To control the foreign currency, the contractionary policy of imports is projected to be one of the options available during the sanctions, but perhaps a little change in this area will help the economy. The government should use the views and capabilities of experts and make the best decision by taking into considerations all the viewpoints.

On the other hand, for the past 40 years, Iran, for various reasons led by the sanctions, has been facing severe problems in inflationary recession, and each time has been trying to find a coherent solution to overcome them. In addition, the experience of foreign countries that have faced inflationary stagnation in the past decades can also help us to find new ways to cope with the conditions. There is no doubt that going through the inflationary recession is a serious matter, but using the expertise and opinions of academic circles will help the government.

For example, the foreign exchange which faced serious problems since months ago, eventually led to relative market stability through consultations made with experts and economic activists. We must also note that the United States and others who have sanctioned Iran are becoming smarter and more assertive, and any decision we make can be countered by their decision. Therefore, it would be best to use specialized committees and workgroups that work seriously in this area and provide the best solutions. We have to admit that employment creation is important; we need to make the most of todayís capacity to generate employment.

Although at times of recession one cannot expect new investment, under the status quo measures can be taken to increase employment. Unemployment can be reduced by supporting existing manufacturing units and providing them with productive plans. Managing subsidy resources and moving in a direction that the government subsidies would go to real needy is also crucial in this juncture of time. Because on the one hand, the government has less financial resources and on the other hand, the pressure that has reduced the purchasing power of different classes of people has increased. So how to manage the subsidy resources and allocate them to the target population is a key issue in managing the current situation in the country.

In spite of the efforts we have made in recent years, we have overlooked many capacities. One of these options is the capability of Iranians abroad. Today we have Iranians in many countries around the world who have great capital and are passionate about their country. If their presence in the country were to be met and their investment capacity and technical know-how were to be utilized, there could be a great deal of hope to create huge capacity in Iranís economy. Some developing countries have pursued such programs in previous years, and a similar strategy can be pursued in Iran too.

In recent years, investments have been made in some sectors to show what capacity exists in the Iranian economy. One of these areas was mining. We were importers of many minerals in the early 2010s, but with the investment made in this sector today we are exporting many of these minerals. However, sanctions and some wrong decisions, especially in 1397 (2018/19), created problems in the production and export process that eventually led to pressure on economic activists.

We need to make up our mind: If we want to think of other economic capacities instead of oil, we have to make all the necessary preparations, and if the sanctions cannot be thwarted domestically at least there will be no new problem for producers so that we can pass through this difficult time.

 

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  January 2020
No. 93