News ID: 153816
Published: 0748 GMT June 24, 2016

Economic growth requires settling debts, single-exchange rate system

Economic growth requires settling debts, single-exchange rate system

By Tahmasb Mazaheri

The Statistical Center of Iran eventually announced the rate of inflation on Tuesday which has fallen to a single-digit figure. This is a real blessing much yearned by any government as high inflation not only reduces investment motivations but also suppresses production.

Bringing inflation down is inherently a significant achievement of the Rouhani administration in the past three years. Nevertheless, given that major economic indices are impacted by each other, to gauge the extent of economic improvement, indicators of economic development, such as inflation and employment rates and gross domestic production, must be measured in tandem.

Although, some experts maintain that anti-inflationary policies lead to the deepening of recession, the author of the present article holds that the former does not necessarily result in aggravating the latter.

Iran's present high economic recession is the heritage of the past government, which has not ended yet despite the efforts of the incumbent administration.

Nonetheless, the present government failed to pursue such policies in letter and spirit to stimulate the stagnant economy while endeavoring to curb inflation. The 11th government took office at a time when economic growth stood at minus 5 percent due to the steep recession in the financial system. This is while, at present, this index of economic development has risen to 2 percent. To achieve economic prosperity, the government requires an economic growth of 8 percent. Unless the Rouhani administration seriously enacts anti-recession strategies, the desired rate will be a distant dream.

Therefore, the first step towards economic prosperity would be settling state debts in cash or by issuing bonds as each $1 paid by the government would lead to a six-fold increase in monetary turnover.

Following this, the government should initiate reforms in the banking system and set up a single-tier exchange system as multiple-rate exchange systems normally bring about economic rent and corruption and, thus, harm production and investments. A single-rate exchange system will support domestic producers, help combat smuggling and guarantee the flow of foreign funds. At present, Iran requires $30 billion in foreign investments per annum which would be almost impossible without a single-tier exchange system.

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