Economy, Business And Markets

Plight of Contractors

Plight of Contractors
Plight of Contractors

Economists define two types of functions for public institutions which either manifest themselves in the form of budget policies or monetary policies.

The main purpose of budgetary policies is to secure the annual budget for institutions and organizations such as the army, police force, fire service, subsidized public transportation and public areas, according to a Donyay-e Eghtesad’s editorial on Wednesday.

Keynesian economics suggests that governments need to intervene during a country’s recession, the newspaper said. “When a downward economic trajectory temporarily creates potential surplus in the private sector, the government must introduce new measures in the budget plan and call upon private contractors to take over many large projects until the economic recovery begins.”

The second function which is related to a government’s monetary policy, it said, is to be in accordance with curbing inflation through controlling the money supply in circulation, which is traditionally carried out by the Central Bank of Iran (CBI).

Whether it is to fill in vacancies or to create more joint assets, the government then relies on private contractors for the implementation of budget policies, the newspaper noted.

It has taken several years in Iran and cost the government much to establish private contractors, who play a significant role in creating jobs and adding value to goods and services domestically produced. The editorial underlined that the contractors are considered as national assets.  

The problem, which the private contractors (whether in petroleum, energy, or civil engineering) are now all facing,” is a delay in payment from the government.”

Ever since the subsidy reform plan began, the government ministries, which relied on the payments of consumers’ bills for their revenue, have relied solely on the treasury, as the money from bills now goes directly to the treasury coffers, the editorial argued. “Previously, each organization would rely on the earned revenue to pay the secondary contractors. Currently, however, if the treasury does not transfer money, the contractors are not going to be paid.”

The newspaper noted that the Rouhani administration inherited “an empty treasury” from the previous government.

“Income no longer flowed into the government, thus payments to contractors were almost nonexistent. What happened might have been justifiable during the first months of Hassan Rouhani’s presidency,” the editorial said. However, after taxes rose and the Geneva interim agreement was reached between Iran and the P5+1 (the US, Britain, France, China, Russia and Germany) in November 2013, which eased western sanctions against Iran, “the previous argument no longer holds.”

The only justification for sustaining this contradictory policy might be, as some economists suggest, the government’s successful attempt to curb high inflation. According to the newspaper, the central bank is primarily responsible for controlling inflation using monetary policies. Budget policies do not yield long term results in curbing inflation especially during recession, it said. “Second, budgetary policies can control inflation while the economy is growing and the private sector is largely involved in economic activity. However, the same policies which are meant to pay down government debt would result in less new projects and leave existing projects often unfinished.”

Contractors who have fulfilled their duties and are paying wages off their own assets and savings are also hoping for a miracle to get paid by the government. As the editorial noted, to keep the private contractors afloat, the government needs to avoid damaging them by delaying their payment; otherwise, “in the future once again we will have to finance their formation, which will be a lengthy process.”

Approximately 670,000 job opportunities were lost last summer, the newspaper noted, arguing, “This is undeniably a result of the critical situation of contractors. If the core reasons underlying these statistics are not attended to, the job market and the economy overall will continue to deteriorate. “