The Ministry of Economic Affairs and Finance is preparing a bill to disengage from the harm inflicted on the economy due to years of government-dictated prices on goods.
“The law, on many occasions, holds the government responsible for compensating loss suffered [by producers] due to the mandatory pricing policy, which were unhelpful and imprecise.
"Therefore, we see it as a duty to support businesses, producers and exporters whose profits were compromised or made losses,” Economy Minister Ehsan Khandouzi was quoted by SENA as saying.
Khandouzi said that the Economy Ministry and the government’s Economic Headquarters are determined to put an end to the defective practices. The focus is on eliminating government-imposed pricing systems.
“In the past several months some manufactures were removed from the government’s pricing list and entered the stock exchange. We are in the initial phase and are committed to the task” of government delisting.
The minister said that the ministry is using on all economic tools it can to eliminate the apparently failed government pricing policy and manage the market.
The plan to intervene in the market and control, for instance, steel prices has emerged as a hot button issue among government officials, manufactures and the capital market.
A relic of the past, price controls have done more harm than help.
All said, mandatory pricing in Iran and in other countries has not helped in achieving the desired results and given rise to a chaotic and menacing market.
Automakers, steel producers, power plant owners and even hoteliers, among others, have for years called on the government(s) to stop dictating prices for the simple reason that such policies belong to the past and are far removed from today’s ground realities.
Yes, amid the strange practices, chaos and unhealthy market conditions one sector has benefited: avaricious middlemen.
In competitive markets, products are being sold at prices below the guild-mandated rates, leading to the formation of informal markets. Informal markets allow sales without value added tax and make competition difficult for reputable businesses.
Capital market officials continue to urge the government to put a permanent end to diktats for goods produced by listed companies because it is incompatible with competitiveness and market mechanisms where demand and supply rule.
Major Challenges
Shareholders have been at the receiving end of such unwanted policies and the visible outcome has been the pattern of decline in the bourse since the summer of 2020 as investors leave the market in droves and profit margins of listed companies take a drubbing as never before.
The head of the Security and Exchange Organization (SEO) Majid Eshqi recently listed eight major challenges the stock market is grappling with, namely mandatory prices on companies the negative impact on listed company profit margins due to the growth in energy prices and the endless increase in currency rates.
The official said that the SEO is working with government to create a new supportive package to address the major challenges faced by shareholders.
"Issues like removing European hub rates in pricing feedstock and energy and ending the government's pricing policy are among key issues that will be dealt with."
In related news, Mohammad Reza Pourebrahimi head of the Majlis Economic Commission, said that the government-imposed pricing policy has been one of the biggest economic challenges undermining industrial growth, harming production and inflicting loss on shareholders.
“The parliament is trying to end the government pricing policy and replace it with a logical pricing process in a transparent and competitive atmosphere.”
With government dictating prices, he said, neither the producer, nor the consumer benefit. What indeed emerges is rent-seeking from the difference between the dictated and free market prices with a select few lining their pockets.
“Mandatory prices led to corruption and over the past years have damaged industry and the stock market alike. This must end and the Majlis is pursuing it.”
