Economy, Business And Markets

Recession Woes Rooted in Manufacturing Loss

Recession Woes Rooted in Manufacturing Loss
Recession Woes Rooted in Manufacturing Loss

The ongoing recession in the domestic market is to a great extent the offspring of the plunge in production. Hassan Sobhani, a senior economist, listed psychological factors, the slump in international oil prices, persistent drought and economic sanctions as the causes behind the recession and the sharp decline in manufacturing.

He also referred to the unprecedented “-6.8 growth rate in 2012,” saying the economy had been unable to free itself from the yoke of stagnation since then.

Addressing the slide in manufacturing, the former lawmaker said lack of investment and liquidity in the industrial sector is “the worst calamity” plaguing production units big and small for more than two years, the Persian-language website reported.

“Liquidity is both a problem and an urgent need for the economy. When liquidity falls into the hands of merchants and middlemen it stokes inflation, but if allocated to manufactures it helps address the economic woes over a period between 6-7 years.”

This weekend the government unveiled a new stimulus package which outlines a plan of action to pump more liquidity into the economy. The package, among other things, intends to “curb inflation and stimulate growth” and augment demand for domestic goods, according to Mohammad Baqer Nowbakht, head of the Management and Planning Organization.

The package was released after long and controversial debates among economists as to whether easing monetary policies could reignite inflation after it has been tamed to a great extent by the government and its economic direction ever since taking office in the summer of 2013.

Sobhani warned that banks have gotten used to “trading money and refuse to lend to industries” at reasonable rates, leaving them cash-strapped and unable to function. He urged banks to address the issue of interest rates once and for all and abide by the laws to revive the flagging economy.

“Our banking system has flouted regulations for more than three decades…The time has come for lenders to change course. Proper implementation of laws can and will allow the flow of money toward factories, hospitals and farms,” he noted, echoing the views of respected economists and the academia who have been repeatedly warning about the malpractices in banks and lending institutions long oblivious to the laws of the land.

On the international economic and banking sanctions, he said the crippling bans created many problems for the economy, but warned that lifting of the sanctions would not be the “panacea for resolving major economic ills because that needs stimulation and movement” from inside the country.

 “Woes of our economy are specific to us and largely rooted in domestic issues and can be resolved only through internal reforms,” he said. Primary factors almost always attributed to Iran’s centralized economy are the seeping mismanagement, graft and lack of oversight.