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Liquidity Trap |
The private sector
expects the government to move for reduction of inflation and control of
liquidity and provide conditions to increase employment and production.
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Yahya Alees-hagh, Head of
Tehran Chamber of Commerce, Industries and Mines |
“Liquidity has exceeded 171,000 billion tomans by the
beginning of winter 1387 (2008-09).”
This was announced a few days earlier by the CBI and caused
economic activists to become more concerned about future outlooks of the
Iranian economy. In reality, liquidity is like the blood in economy, but if it
becomes unproductive, it can bring any economic system to its knees. This is
an outcome of Iranian economy’s overdependence on oil revenues in the past
four years. At the beginning of the ninth government, liquidity stood at
68,000 billion tomans, but it is 171,000 billion tomans now and ironically,
more industrial units have been declaring bankruptcy mostly due to shortage of
liquidity.
This has emerged as a serious challenge to the Iranian
economy and the question is why unproductive liquidity has gotten close to
200,000 billion tomans while poverty, inequality and low productivity is
plaguing the economy? It would be better for state officials if they gave up
their populist slogans and thought about the above question. Many economic
activists believe that production is the only sign of a dynamic economy and
nothing out of the realm of industry can be taken as a good measure of
economic ideals. Therefore, the main conclusion is that the Iranian economy
does not conform to international standards. When a government relying on oil
revenues, expands liquidity by more than 100,000 billion tomans in a matter of
four years while more and more industrial units are hamstrung by lack of
funds, we will have to doubt about existence of a logical economic trend.
Last year, Tehran Chamber of Commerce released an alarming
report in which experts had noted that 183 industrial units were in for hefty
losses due to lack of cash. The Majlis Research Center also announced last
year that industrial investment and investment in industrial machinery has
been at its worse in 2006 and 2007 as viewed in a 10-year cycle.
Massoud Nili, a prominent economist and researcher on
production, announced in a conference that industrial investment index has
been zero in 2008. Nobody knows what is going on in the Iranian economy. It is
not beyond doubt that you cannot bypass economic theories; otherwise, you
would end up where the Iranian economy stands now. On the one side, there is
171,000 billion tomans in unproductive cash afloat in the market, while on the
other hand, industries are weaker than any time before.
An industrial expert has noted that, for production, all
days are Friday in Iran. That is, standstill is the rule. He is right because
as long as the government pursued old policies, no serious change in
industrial economy can be expected. According to recent dispatches, imports
grew by about 16 percent in 2008. The growth has happened at a time that
economists stressed on direct relationship between rising imports and falling
domestic production. Of course, under the current circumstances, the
government has no choice but to allow imports. During the past four years,
government officials flushed the economy with cash in order to gain adequate
political clout. Now, runaway inflation is nagging them, on the one side,
while on the other side, they are trying to find a remedy for industries.
Imports will be the easiest way to get out of the current dire straits, but it
will also bring industries sooner to their doom.
It seems that alarms should be sounded for the Iranian
economy and statesmen should notice the crisis. Producers ask how liquidity
has reached 171,000 billion tomans in four years while cash-strapped
industrial plants are making loss.
Chairman of Iran Chamber of Commerce, Industries and Mines
has noted that liquidity trap should be taken seriously and this has been
confirmed by other experts. The government, however, has increased liquidity
through oil revenues to 171,000 billion tomans. But has the ninth government
thought of remedies for this situation?
Yahya Al-e Eshaq, chairman of Tehran Chamber of Commerce
also stated that liquidity shortage in many economic corporations has already
sounded the alarms for them. He mentioned unemployment and inflation as the
most important challenges facing the country and during past years, one
challenge has been sacrificed in favor of the other.
Al-e Eshaq maintains that providing cash for corporations
is the most important duty of domestic banks.
“The private sector expects the government to move for
reduction of inflation and control of liquidity and provide conditions to
increase employment and production. Production in the Iranian economy needs a
miracle which can be only worked through rationality and proper thinking,” he
said.
But will that miracle happen in the foreseeable future? |
