High Prices, Inflation, and Economic Uncertainty

Hamid Ahadi, Rooz Online:

With a week before president Ahmadinejad’s first anniversary in the presidential office, and the noticeable rise of the cost of basic commodities, the government’s plans to begin gasoline rationing in less than two months is expected to add fuel to the rising costs. A group of economists, of which 50 prominent ones just last week wrote a letter to the president warning him that the new government managers were disregarding the permanent principles of economics believe that along with high prices, an uncontrollable inflation is on its way for Iran’s economy.

One of these economics who has signed the letter told Rooz what has caused turned into a key concern for the country is uncertainty. After being office for a full year now, it is clear that the many of the announced economic plans of the new administration are merely pipe-dreams. And in order to avoid being accused of not following the chain-of-command orders, ministers send all cases directly to the president’s office so he can decide and remain accountable. READ MORE

As an example, the comprehensive plans to solve the problem of cement which had been drawn up during the former government and after months of planning and consultations - which translated into minimum government interference- was declared null and void by the new administration during its first few days in office and this basic commodity too became subject to tariffs. But the market responded outrageously even before the fact and warning bells were tolled. Some became billionaires while inflation and stagnation loomed over the construction industry. Multiple reports went to the president so that finally it was announced that on his way to China, the president had to decide on a comprehensive cement solution. Soon after that the cost of cement increased, the commodity did not go to the Stock Exchange, the construction industry turned stagnant, the issue resulted in further inflation and things continue to look uncertain.

When two weeks ago the government announced that it was allocating a very large amount of money for “quick-return” projects, economist Hushang Pajuian wrote in an article that the term was meaningless adding that incomplete projects are either profitable or not. If they are profitable then they did not need the president’s new and additional budgets. If they are not, then their quick returns are questionable because they are not profitable. But the allocation of $8 billion by the government for development projects have failed despite the government public relations campaign emphasizing the importance of these projects and their completion.

At this point, what can alleviate the pressure on the government are increased imports. Imports during the first two months of 1385 (April and May 2006), include metals, electrical industrial goods, raw material for plastics, chemical material, paper and cardboard, sugar, corn, drug products, and chemical fertilizers which are imported from China, the United Arab Emirates (re-exports), Germany, South Korea, France, and Italy. Consumer goods constitute the largest chunk of these imports. Consequently, government circulars calling manufacturing facilities to utilize the allocated credits during the assigned deadlines have created a situation similar to the early 1970s so that in addition to middle-men, trips by government officials too have been on the rise.