Mandatory pricing triggers impulsive demand in the market just like demand for cars in recent years, which is a kind of domestic sanctions on industries, the only winner of which are middlemen, says Abbas Argon, a member of Tehran Chamber of Commerce, Industries, Mines and Agriculture, in an article for the Persian economic daily Donya-e-Eqtesad.
A translation of the text follows:
The Iranian year 2021-22 was eventful in many respects: presidential election was held, the new administration was inaugurated in August and the former head of judiciary moved to the executive branch and then there was a rapid turnover of administration personnel, hence the suspension of some projects is to blame on this matter.
The fifth wave of Covid-19 pandemic showed its devastating effect in the middle of the year; the new government took practical measures regarding mass vaccination and reduction of fatalities.
Sanctions were among other economic issues. The former and current administrations held negotiations to remove sanctions and revive the Joint Comprehensive Plan of Action, which are still underway.
Iran’s foreign trade grew in the past year, thanks to the reduction of US maximum pressure and global vaccination, such that foreign trade reached $90 billion during 11 months, registering a 38% and 12% year-on-year increase in exports and imports, respectively.
The rise in oil price and exports also improved the country’s foreign revenues compared with last year. The government’s economic team also eagerly strived to resolve problems.
Mandatory pricing is one of the hurdles in the way of production and investment in Iran because more production brings about larger losses and reduces the quality of products, rendering it uneconomical. The wellbeing of people is conditioned upon the launch and expansion of economic enterprises; a sustainable economy relies on production. Command pricing triggers impulsive demand in the market just like demand for cars in recent years. It is, in fact, a kind of domestic sanctions on industries, the only winner of which are middlemen; it benefits the middlemen and increases income gap and unemployment.
Policy Challenges and Bureaucratic Hurdles
The excessive rise in money supply has always been one of the country’s challenges, as it has had negative effects on the economy. Since liquidity outweighs economic growth, it leads to inflation and consequently a production decline.
Inflation drives up prices, devalues the local currency and lowers the purchasing power and welfare of the people, posing major challenges to the government and economic policymakers.
The poor performance of the government, unnecessary interventions and lack of essential infrastructures, including electricity, hit shareholders and capital market players and eroded their trust in the market. The capital market’s capacity to finance and direct money to productive sectors was left untapped.
The government needs to make tough decisions to improve the country’s economic affairs in the coming years, otherwise employing the same old policies will not lead to better results.
The termination of subsidized foreign currency policy, unifying the foreign exchange rate, reforming hidden subsidies, controlling inflation, managing the country’s money supply, directing financial resources from non-productive sectors to productive sectors and liquidating assets via the capacities of capital market are among tough decisions that should be made.
Also, repealing disruptive business laws, stabilizing economic rules and regulations and reducing uncertainty, boosting the predictability of markets to provide more investment opportunities in the country, avoiding mandatory pricing and creating transparent and competitive markets and giving support to competition and pricing based on market mechanisms (supply and demand) would improve the optimal allocation of resources to productive and real sectors of the economy.
Steering clear of politicizing economic activities, formulating plans based on facts and acting on plans, making use of the latest technologies in the world, developing economic diplomacy, tapping into up-to-date management knowhow in the world to increase productivity, making the government small and expanding the private sector should be prioritized.
