Establishing a Debt Market: A Non-Inflationary Exit from Recession

Establishing a debt market is a non-inflationary exit from recession. Every week, in 'Amid Notes', we review several analyses and notes published in the field of economics in Iranian publications. This week, we begin by examining the analyses and economic views of experts and analysts in this field with an open letter from six Iranian economists who offered suggestions for a non-inflationary exit from recession to monetary policymakers in Iran: the debt market, the missing piece of Iran's economy. Six Iranian economists in an open letter published in the newspaper 'Donya-e-Eqtesad' proposed the 'establishment of a debt market in Iran' to monetary policymakers. These economists have described their proposal as a way to non-inflationarily exit the recession. According to these six liberal economists, the 'debt market' alongside the 'stock market' and 'derivatives market' forms the three main pillars of the capital market, aimed at creating a mechanism for financing short-term, medium-term, and long-term expenditures of the private and public sectors. In the debt market, bonds issued by the government and companies are traded. The main goal of the debt market is to provide a mechanism for financing short-term, medium-term, and long-term expenditures of the private and public sectors. Mohammad Tabibian, Mosi Ghaninejad, Parviz Aghili, Mohammad Mehdi Behkish, Jalaluddin Jalali, and Abolqasem Hashemi are the signatories of this open letter, which highlights the 'significant share of debt instruments in the total capital market worldwide' and 'the role of this instrument in accelerating the exit from recession in countries after the global crisis of 2008'. The signatories of this letter identified seven main achievements of establishing a debt market: 'preventing the locking of banking resources and settling government debts to contractors', 'discovering interest rates based on supply and demand', 'attracting idle liquidity from asset markets', 'dividing financing responsibilities in the money market and capital market based on the size of enterprises', 'injecting non-inflationary financial resources into the economy', 'reducing the central bank's responsibility in financing and focusing this institution on controlling inflation', and 'increasing transparency in the business environment'. These economists considered the establishment of credit rating institutions necessary for the evolution of such a market to validate companies and improve regulatory laws. In the short term, due to the absence of these institutions, bank guarantees can be used, and in the long term, this responsibility can be assigned to activated rating institutions. According to the proposed framework of these six economic experts, the establishment of a debt market alongside the stock market can provide a non-inflationary exit from the current credit bottleneck, and as they wrote, a complete market will form that will best facilitate financing for both the private and public sectors. These six economic experts also acknowledged that 'the debt market is not a new invention but a tested tool in many countries that has not only stimulated the economy but also facilitated greater independence for monetary policymakers.' These economists believe that 'by establishing a debt market, monetary policymakers can focus on their main missions, and financing, like in advanced economies, will be done through the capital market.' The six economists, who believe in the free market mechanism, also emphasized in their letter the 'correct establishment and implementation of it based on successful global experiences' and warned that 'improper management of this plan could thwart the repetition of this successful global experience.'