0313 GMT October 16, 2019
Governments turn to specific approaches to weather recession notably by boosting demand.
Central Bank of Iran (CBI) officials have concluded that bank loans can stimulate both the production sector and demand. Bank loans can offset the decline in investment and the rise in unemployment. They can also provide a much-needed fillip to the production of high quality domestic commodities.
However, Iran's economy is not just beset by lackluster demand. Inadequate supply also poses a major challenge. Hence, both supply and demand must be addressed seriously.
Nevertheless, Iran is still importing many commodities. Thus a boost in demand will also encourage imports. This necessitates that the government devise approaches to boost investment.
The government should spare no efforts to channel liquidity to the production sector. This will strike a serious blow to arbitrage.
State banks have failed to provide loans in the past years since they have been short of financial resources. As a result, the banking sector needs to boost its capital.
State banks are hindered by bureaucratic procedures for increasing their capital. However, private banks do not have such problems. Consequently, private banks should be ordered to increase their capital to grant more loans. Since private banks do not hold more than 12 percent of the country's liquidity, increased efforts are required to boost their capital to give rise to bank loans.
Private banks should take on an effective role in grating loans. Once banks can attract more capital, industrial enterprises can become active in the bourse as this will ease pressure on the banking sector. This will enable banks to focus on providing small loans to individuals.
If banks grant loans to support the purchase of Iranian products, the manufacturing units can help overcome recession.
On the whole, banks can help bring economic prosperity by extending loans. If the loans are spent on purchasing Iranian products, domestic manufacturers can help weather an economic downturn.