The Need for Economic Solutions in Iran

Soheyl Asefi, Rooz Online:

Just last week, 50 Iranian economists wrote a letter to President Mahmoud Ahmadinejad warning him of serious problems. The president and his team, on the other hand, interpreted the letter to be an insult and a threat. Dr Hadi Zonooz, one of the authors and signatories of the letter told Rooz that the administration responded to the letter politically, and not economically. He added that the current policy of the government is a populist one and leads to unprecedented rates of inflation. The following are excerpts of the interview. READ MORE

Rooz ®: What was your motivation for writing the letter?

Hadi Zonooz (HZ): We are economists and our job is to monitor the economic activities of the country. We believe that if the current economic policies continue, the government will have very critical issues will exist for the country’s economy.

R: President Ahmadinejad recently publicly responded harshly to the letter. His aides too said the authors were those who had been hit by the ideologue movement, liberals and those whose interests had been cut off. What do you think?

HZ: The fact is till today we have not received any economic or scientific response to the contents of our letter. Most of the responses have been political. In the letter, we have identified 10 problems that exist with the economy right now. We have not said when these problems were created or who is responsible for them. What we have argued is that these are structural problems that must be addressed. We are concerned that with the current economic policies, and unless measures are taken to solve its problems, the situation will get even worse.

R: Some of the signatories of the letter are liberal economists, which has given credibility to claims that the purpose of the letter was to cleanse the criticized economic policies of Rafsanjani’s and Khatami’s administrations.

HZ: Our purpose is not to cleanse any body’s policies. We had criticized Mr. Rafsanjani’s economic policies at its time. We had done the same during Mr. Khatami’s administration. Now it is time to look at Mr. Ahmadinajed’s economic situation and we have presented our beliefs.

R: The letter states that there have been wide and hurried official interventions in the money market, the capital markets, commodities markets etc. Could you be more specific?

HZ: Among the best examples is the price interventions to stabilize prices of goods, cement and government services. Another one is the decree issued by the High Labor Council and the Ministry of Labor regarding the increase of wages and salaries of the workers by 40 percent. The results of those decisions were so bad that the ministry had to rescind from its decision. Monetary policies in the fourth development plan are another example. In this area, the government must actually pursue monetary austerity policies and set a ceiling on how much the government can borrow from the foreign exchange reserves. Unfortunately the opposite was done which led to an inflation rate of 36 percent. Regarding inflation we are not alone in our warnings. Local commissions too are battling with the issue. The fact is that we have a two-digit inflation rate. These problems show the unnecessary intervention of the government in the money, capital, labor, and commodities markets. We have the experience during the Shah’s period when in 1973 the oil shock brought the country new petrodollars. The shah thought that using that money would bring the country closer to the gates of the Great Civilization, as he put it. What everyone soon discovered and witnessed was that the economic imbalance that was created shortage of labor and shoo the foundations of economic. All of that led to a negative balance of payments which finally led to political problems and a crisis, all of which were negative. Oil income is not like regular income and does not lead to productive activity. In fact this is just the sale of wealth.

Our contention is that merely pumping more money into the economy not only does not solve the problem of poverty or create economic growth, but actually creates just the opposite. Two-digit inflation rates are the product of the government’s expansive economic policies. The same warning was issued at a recent seminar held by the Center for Strategic Studies (belonging to the State Expediency Council). The Majlis Plan and Budget committee too has issued the same warning. You yourself can witness the impact of high inflation. These indices have not been published yet because they take time. In conclusion, we expect inflation rates this year to be higher than what they were last year.

R: Some political circles have accused Ahmadinejad’s administration and his economic policies to be leftist. How realistic is this?

HZ: It is not. I believe Ahmadinejad acts in a populist manner. His government has created a lot of expectations among the masses by making promises of justice and kindness, especially among the poor. It plans to implement its ideas by manipulating prices and intervening in different markets and cashing the oil income.