Thursday, June 15, 2006

Iranian Economists Caution President Over Inflation

Yahoo News:
A group of 50 prominent Iranian economists have written an open letter to President Mahmoud Ahmadinejad, criticizing his government policies for promoting skyrocketing inflation. The Central Bank of Iran has put the inflation rate of last Iranian fiscal year (ended March 20) at 12.1 percent, while the unofficial sources estimate the figure is close to double the bank's said rate.

Ahmadinejad's policies are "lacking scientific and expertise basis, with such haste as to cause persistent inflation," leading university academics wrote in a letter printed in Iranian press Thursday. READ MORE

The experts also criticized a governmental order to cut bank interest rates regardless of its consequences.

Ahmadinejad's government "has been adopting an expansive monetary policy against the state macro policies... This, combined with political instability, international threats, and decreasing interest rates can wake up the sleeping inflation beast."

The letter described the effects as being evident in "deteriorating foreign and domestic investment... escape of human and financial sources from the country and the consequent falling rate of economic growth."

Despite pressure from the United States, Iran refuses to give up sensitive uranium enrichment, which it says it is doing as part of a civilian nuclear power programme, but its actions have raised fears that the Islamic republic could be trying covertly to build a nuclear weapon.

During his electoral campaign in June, Ahmadinejad vowed to reduce poverty, stop corruption and share oil wealth more fairly, bringing "oil money to (Iranian) tables", a promise he less than one year later denied having given.

Instead, Ahmadinejad's first annual budget sought more control over the spending of oil revenues that are supposed to be saved in the country's Oil Stabilization Fund (OSF) for rainy days and to support private sector.

The letter said such "expansive policies" led to greater inefficiency for state companies and banks.

The letter also referred to rising oil prices which have brought more oil income, warning that the resulting 34 percent rise in liquidity could lead to higher imports and spell trouble for production.

The experts said government authority in the economy should be downsized in favor of greater investment in production projects and to help private businesses.

"Bottom line, we understand that the economic problems have not been caused overnight, but it should be said that if your government's policies continue, they can only worsen the situation and lessen people's trust in the government after all those promises to improve the people's welfare."