Economy, Domestic Economy

Will It Help End the Recession?

Will It Help End the Recession?Will It Help End the Recession?

It can be said with a degree of fairness that curbing the disturbing rate of inflation is among the major achievements of the Rouhani administration after it took over the reins of power in the summer of last year.

Carving a realistic policy has indeed cleared the way for less inflation and decline in the ‘point to point’ inflationary pattern over the short-term. After the appointment of the economic team and announcement of the new monetary policies of the Central Bank of Iran, a rather disciplined monitoring system was adopted and new curbs imposed on the monetary base.  Redefining the sources for acquiring capital for the massive but controversial ‘Mehr Housing Project’ (low-priced housing) helped reverse its huge inflationary impact as the result of which the galloping inflation rate has been relatively  contained.

Furthermore even after implementation of the second phase of the Subsidy Reform Program which initially was expected to have an impact on the commodities and productive services price index, did not reverse the declining inflationary trend. It is an established fact that President Hassan Rouhani’s and his team has done a relatively good job in arresting the rising Inflation. Despite the fact that there is still a long way to go before we register a single digit  inflation rate which is the desire of many if not all struggling economies ,  the government has demonstrated a keen desire to do that to the best of its ability.

However, government critics claim it has not yet done enough to improve the climate for domestic manufactures and create jobs for the army of unemployed. Although they concur without reservation with the economic policymakers that the gains in minimizing inflation have been substantial but to witness its positive impact on the people’s livelihood one must wait and see that jobs are generated and the domestic production sector given a new lease of life. The essence of this critical view is valid; after all there is no viable alternative to ensure the wellbeing of the society at large except to facilitate decent levels of GDP growth.

By the same token, policymakers can claim that the wellness and wellbeing of the society is on track only when economic growth overtakes population growth. In economic terms, the overall income growth should follow a positive and sustained path. Official data hardly shows that the government is on this track.

To be fair in their outlook and assumptions, critics should not overlook the following points.   

First: There is a difference in the nature of growth in domestic production which is not similar to decline is inflation.  The former is subject to long-term planning whereas the latter can be addressed in a shorter timeframe. GDP is influenced by a variety of trends and variables whereas the latter’s resolution may be feasible by implementing a monetary single cause strategy.  

Second: Several elements with a direct impact on economic growth do not actually fall under the government auspices. Growth is a function of market behavior and often manipulated by market mechanisms. The government can prepare and develop the required policies. Whereas in the case of troubled economies saddled with high inflation, the monetary policymaker possesses the power to curb inflation by controlling the cash flow policies.  

Having said that, criticizing the government for its inability to improve and augment growth would be unreasonable. Especially in light of the bitter reality that the economy has not been in a normal state of affairs for almost a decade due, in part, to the political and international risk factors. Although these tribulations have been partially addressed and reduced by the government, problems linger on.

In the past week, the government took a bold step and announced its plan of action on how to put an end to the recession plaguing the economy.  In no uncertain terms it made known that it regards important not only the monumental challenges in two key sectors, namely  production and employment, but knows better than most of its pronounced critics the appropriate exit mechanisms.

 Anti-Stagflation Policy     

Having established that to foster economic growth the government will be adopting only those policies which are not inflationary in nature, was seen as a remarkable achievement because it provides the government the authority to shun policies that  are not anti-inflationary in nature. This progress demands mention also because the government will be capable of resisting pressures from those seeking loans under the false pretext of underpinning the domestic production sector but actually fuel inflation.  

With such a strategy the government makes the point that lending that supplies oxygen to the burning fires of inflation are indeed a thing of the past. In the mean time it also addresses the concerns of those economic pundits who give importance to the inflation issue and believe in paving the way for economic stability in the long-run which ultimately leads to decent growth figures and an end to the recession. This indicates that the state still adheres to anti-inflationary targets and does not intend to loosen its grip over its gains. The recent roadmap indicates that policymakers are aware of the fact that the state’s primary duty on the road to helping ensure the prosperity of the masses is to provide a suitable environment and space for businesses. The government should not act as a producer or storekeeper, rather it should offer assurances and create the instruments for sustainable macroeconomic growth and minimize risks for the market by means of which the future economic growth can and should be anticipated for employers who create jobs and help cut the dole queues.

Even though creation of such an environment, which is said to be the major highlight of an anti-recession strategy, normally responds favorably over an extended period of time, but in short- term could well be effective and produce the desired results. Hence, the economic variables could be influenced by the same strategies in remaining part of 2014 and the year to come.

Needless to say, all the variables of the economy will start responding positively if and when the undeniable right of ownership (enshrined in divine faiths) is respected and granted by the state. This will prevail when the state upholds the freedom when it comes to pricing mechanisms, stops interfering in the market, and not operate as one of the market-led employers. It should demonstrate the much-awaited willingness to allow the actual producers to enjoy the fruits of their own hard work. In short, it is the responsibility of the state to ensure that all necessary steps to underscore a free and competitive market are taken and adhered to.