News ID: 168681
Published: 0711 GMT September 14, 2016

Government's economic approaches in spotlight

Government's economic approaches in spotlight

The first term of President Hassan Rouhani's tenure as the chief executive of the Islamic Republic ends in less than a year.

Rouhani's supporters and critics are closely monitoring his economic performance to determine whether he will be able to implement his economic plans in the remaining months of his presidency.

The government has pledged to unify foreign exchange rates, keep inflation rate down to under 10 percent, combat recession and boost economic growth as well as foreign trade.

Some analysts say if the Rouhani administration unifies forex rates, the prices of commodities will rise and push inflation up. Others believe the current dual-exchange rate system can easily be replaced by a single system based on comprehensive planning.

In the global economy, a unified forex rate system paves the ground for boosting economic transparency which is considered as essential for luring foreign investment.

The administration has also introduced plans to combat recession.

Based on these plans, financial resources must be directed to the production sector. These resources can be obtained by selling bonds, increasing oil revenues by raising crude exports, and releasing Iran's frozen assets following the lifting of sanctions.

Government critics say the allocation of such financial resources can increase liquidity which will fuel inflation. However, the proponents maintain that management and disciplinary monetary policies can cushion the blow of impending troubles.

Nowadays, upstream and downstream industries require financial resources to either resume or expand their production.

Over the past three years — since President Rouhani took office in 2013 — officials have shown that they weighed up the pros and cons of their plans before implementing them.

Since the removal of sanctions in January 2016, the government has been deeply involved in planning to materialize its promised economic plans.

Analysts have welcomed the motion but they expect that inflation will climb to a two-digit rate after next year (which begins in March 2017). They say this is because the government will take an expansionary monetary policy to realize its plans.

Meanwhile, the government has not specified how it seeks to unify forex prices.

Currently, each US dollar is traded at around 35,000 rials in the open market, while the official rate is about 31,000 rials against the greenback.

No one knows yet whether the government wants to increase the official rate or adopt approaches to reduce the open market prices. This gap can directly affect inflation since certain basic commodities and machinery used by factories depend heavily on imports.

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