Anti-Recession Package May Be 'Inflationary'

The critique and review of the government's anti-recession policy package, unveiled this week, was the main focus of analyses by economic experts and commentators in Iranian publications and media. Ali Mirzakhani, editor-in-chief of the newspaper 'Donya-e-Eqtesad', criticized the new policy package in a note he wrote for the newspaper. Mirzakhani stated that the two fundamental assumptions of the package's drafters were the lack of effective demand for goods and high bank interest rates, and then questioned whether these two assumptions of the government's economic team were correct. According to this journalist and economic analyst, the overly optimistic yet incorrect expectations of society regarding economic developments after the JCPOA have delayed their demand, which does not mean a lack of effective demand. He wrote that the solution to this problem is to correct societal expectations. Mirzakhani believes that there has been no effective action by the government in the area of 'correcting public expectations' regarding the post-JCPOA period. The editor of Donya-e-Eqtesad further explored the lack of demand in the market for durable goods such as housing and automobiles, which were particularly emphasized in the government's policy package, and sought the cause in 'demand suppression', stating: 'The source of demand for these types of goods is 'future savings' or loans, which have long been faced with severe prohibitions and restrictions in Iran.' He criticized the second assumption of the package, namely the high bank interest rates, arguing that an immediate reduction in bank interest rates due to falling inflation is incorrect. According to Ali Mirzakhani, economists agree that the determination of bank interest rates should align with the rate of 'future inflation' or expected inflation, not 'past inflation.' In conclusion, this economic journalist emphasized that 'if expected inflation remains high in people's minds, it is due to a lack of trust in the policymaker's commitment to monetary discipline, and deviating from monetary discipline towards monetary expansion can exacerbate this lack of trust.' Demand stimulation is insufficient. Bahman Arman, among the economists who criticized the government's policy package this week, wrote an analysis published by the newspaper 'Etemad'. He believes that the unveiling of this policy package has 'diminished hopes for a transformative movement.' According to this economist, this policy package shows that 'the government does not have a truly coherent program for the economy.' Bahman Arman emphasizes that the government's anti-recession policy package 'does not actually consider any structural reform or significant transformation and only focuses on one factor, which is demand stimulation.' According to this economist, 'Another issue that has become problematic for the country is that Iran is by no means self-sufficient in production and, in fact, the Iranian economy is in a very poor state compared to global statistics.' Bahman Arman further identifies one of the most significant problems in the industry and even the economy of Iran as 'the majority of economic activities being conducted in small and medium enterprises,' which, according to this economist, do not organize production in 'industrial dimensions,' and 'for this reason, their economic justification is very low and negligible.' This analyst of Iranian economic issues believes that adopting a demand stimulation policy will likely lead to 'increased inflation and imports.' He considers another problem and consequence of implementing this policy to be forcing people to buy low-quality goods at high prices. Bahman Arman reiterates at the end of his analysis that 'one cannot be hopeful about this program because implementing measures such as withdrawing from the foreign exchange reserve fund and converting it into rials will not only make economic growth unlikely but will also reveal inflation in the outlook.' Cautious implementation. Hadi Haqshenas, an economist and university professor, described the reduction of inflation over the past two years as 'the most important action of the government in the economic sector' in a note published in the Iran newspaper, believing that if this achievement is maintained and leads to single-digit inflation, it would be 'an unparalleled achievement in the three decades since the revolution.' He then referred to the anticipated items in the government's anti-recession policy package and speculated that 'the anti-recession package may affect the government's significant achievement of reducing inflation.' According to Hadi Haqshenas, 'the Iranian economy needs a hard economic surgery and a shift from a state economy to a private economy with a greater share of the people in the economy.' This economist emphasized that 'the implementation of the package should be cautious, and alongside the implementation of the anti-recession package, the government should pay serious attention to productivity.' Haqshenas concluded his note by recommending that 'the implementation of anti-recession policies should be accompanied by increased productivity.'