Economy, Business And Markets

Stopgap Measures Have Short Life

Stopgap Measures Have Short Life Stopgap Measures Have Short Life

The government should allocate resources to improve the basic economic infrastructure to be able to improve growth rates, said Shahin Shaian Arani, a former senior at Goldman Sachs. Failure to do so would very likely create major challenges in the future, he warned.

“Trying to boost consumer demand through loans may have short-term benefit, but it is illogical, unsustainable and ineffective in the long run,” he was quoted as saying by Fars News Agency.

Arani pointed to the recent government stimulus package that focuses on auto loans and credit to buy home appliances saying that these measures can deliver in a normal and balanced economy and not in an economy hard-hit by recession.

 “Pumping money into a few sectors is viable when the economy as a whole is not in recession. If the conditions are otherwise, it would be a waste of resources and not contribute to growth.”

The senior analyst commended the government for curbing inflation in the past two years but warned against hasty injection of money into the economy because it “could stoke inflation.”

Arani referred to the government’s plan to ease the recession, which he said had resulted from contractionary policies, by opening up to international trade. “The uncertainty as to when the country will reconnect to international markets has impeded growth and worsened the recession.”

He, however, noted that absorbing foreign investment, decreasing international tensions and normal relations with the outside world would “help stimulate growth.”

Echoing the views of many independent observers , the said interest rates should be compatible with the inflation rate in a balanced and logical way.

“As long as inflation and interest rates move in opposite directions, economic growth will remain a far cry because the two diverging rates render the economy weak and vulnerable.”

The former banker called for  balanced interest rates. “Balancing is to consider inflation rate as the basis and set inter-bank rates in tandem with it.” It also means that lending rates should be 1-2% higher than the inflation rate, he concluded.