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Government’s economic stimulus package and private sector

Two important questions

Only one week before the enactment of the economic stimulus package by the cabinet, private sector has posed two important questions with regard to “prioritization of stag - exit policies” and “time frame for the implementation of the policies in order to achieve desired results

Translated by: Nooshin Rahgozar

DONYA-E-EGHTESAD: Only one week before the enactment of the economic stimulus package by the cabinet, private sector has posed two important questions with regard to "prioritization of stag-exit policies" and "time frame for the implementation of the policies in order to achieve desired results".
Government's economic stimulus package and stag-exit policies have come under increasing scrutiny by private sector in the 44th Tehran Chamber of Commerce representative body conference. As stated in the report published by the Chamber, the written word is a positive aspect of the government's package. Although administration's economic team has adopted comprehensive policies to tackle the issue of stagnation, it has attracted criticism. According to the secretary-general of Tehran Chamber of Commerce, benefits of second phase of Subsidy Reform Plan are not fully taken into account and exporters must be able to take full advantage of credit lines. The report poses two important questions with regard to "prioritization of policies" and "time frame for the implementation of the policies in order to achieve desired results".

Pros and cons
Head of Tehran Chamber of Commerce, Yahya Al Eshagh began his remarks by condemning bombing of Gaza Strip and Israel war crimes." Tehran Chamber of Commerce is determined to fulfill its duties to help Palestinians." He said.
He then talked about government's economic stimulus package and policies towards non-inflationary exit from recession. According to him, Iran's economy has experienced both rampant inflation and recession and a coherent policy to tackle the issue has never been formulated. Mr. Al Eshagh added that making decisions and developing policies have always been behind closed doors and government's decision to get feedback signals a constructive collaboration between government and private sector. He further mentioned that there are certainly pros and cons; SME's working capital and liquidity issues has not been properly addressed, implementation of policies has fueled speculation among experts and parliamentary approval poses a real challenge to the government. Meanwhile most of economists are pro-government policies and believe in potentials of the package. "The package will be carefully analyzed by special commissions and panels of experts in Tehran Chamber of Commerce, then our views will be summarized and the government will be informed" he said.

Non-inflationary exit from recession
Secretary-general of Tehran Chamber of Commerce, Ebrahim Bahadorani, provided an analytical report on government's economic stimulus package and non-inflationary stag-exit policies. Mr. Bahadorani grouped government's policies into four categories:" Macroeconomic policies", "enabling business environment", "financing (capital and financial markets)" and "the catalysts". According to him, with respect to monetary policies, the priorities are: "monetary discipline" and "control of the monetary base" in order to achieve economic stability, predictability and curbing the inflation.
On fiscal (currency) policies "decline in exchange rate fluctuations", "strengthening domestic manufacturers", "establishment of single-rate currency exchange regime by the end of 2015" and "providing foreign currency services" are top priorities. The government also pursues policies towards tax reforms (incentives and exemptions) to boost up GDP. With respect to budget, Mr. Bahadorani added that government tends to stimulate various sectors of the economy by construction budget. He further mentioned that policies towards enabling business environment include "ease of doing business", "development of trade activities in existing entities" and "reduction of government intervention in the economy and pricing". He then pointed at government's determination to reform financing mechanisms, proper orientation of existing financial resources and boosting banks' lending power. "Government follows policies on channeling financial resources into manufacturing plants, monetary discipline and enhancing Central Bank's systematic supervision for banks and financial institutions, expansion of interbank markets and financing SMEs" he said. The government has also plans to create and design innovative financial instruments and support the capital market.

Suggestions
Making his closing remarks, Ebrahim Bahadorani put forward some suggestions for further reforms of the economic stimulus package. He stated that Article 25 (tax policies) is fairly ambiguous. The Chamber suggests that companies pay tax on dividends. The term "tax credit" for foreign investors needs to be clarified in Articles 28 and 29. He then mentioned that with respect to Article 34 (state budget), investment incentives and securing investments are of crucial importance.
Regarding government debt clearance, with respect to paying fines and compensation, discrimination in favor of private sector is not acceptable.
Bahadorani suggested plans to cut government intervention in the market by the end of 2014 (with the exception of basic goods and monopolies). With respect to Article 3, extended tax exemptions must be clarified. He then offered a suggestion of forming a working group collaborating with Judiciary Branch to tackle the issues of banking system (credit ratings, making loans etc).
Regarding article 39 and establishment of Capital Market Development Fund, the term "fund for stabilization of national currency" needs to be clarified. On energy, separating oil and natural gas has not been addressed and the government should officially announce natural gas price for 2014. With respect to industry and mining sector, Ebrahim Bahadorani called for transparent quantitative indicators and prevention of extension of issues of one company to others with same shareholders. The government also needs to exploit the potential of National Development Fund and Iran's assets in China.
Secretary-general of Tehran Chamber of Commerce further emphasized the crucial importance of exploiting the potentials of the second phase of Subsidy Reform Plan and providing credit lines for Iranian exporters. On the other hand, prioritization of policies and a time frame for implementing them are absolutely crucial. Bahadorani added that providing a comprehensive "written" report on stag-exit policies is a considerable achievement for the government.

Deadline set by the government
Representative body of Tehran Chamber of Commerce is mostly pro-government policies to encounter stagnation, yet the report came under criticism with regard to not paying undivided attention to the second phase of Subsidy Reform Plan. Deputy Minister of Industry and Mine said that the deadline approaches and ten days would be enough to study the report. According to Mr. Mehrizi one-star articles (related to the ministry) and two-star articles (related to the cabinet) will be enacted by the end of the following week. He added that there are 26 three-star articles (19 of which to boost up GDP) which require parliamentary approval. In his remarks, member of the board of Tehran Chamber of Commerce, Hamid Hosseini referred to government's package as a referendum. "Private sector has reached a consensus on the majority of articles" he said. Mr. Hosseini further added that moratorium on outstanding debts of manufacturing plants needs to be addressed by policy makers and there are no plans for deploying National Development Fund resources. Asadollah Asgaroladi who holds the Presidency of several international Chambers of Commerce believes that solutions are not transparent. According to him incentives are not offered to boost non-oil exports and the package has not gone into details. Nonetheless Mohammad Mahdi Raeeszadeh, the head of the investment and finance commission of the Chamber of Commerce of Tehran believes that the package paves the way for competition among banks which, in contradiction with government's stag-exit policies, is currently only focused on interest rates. Pointing at the positive aspects of the package, Mohammad Mahdi Rasekh former secretary-general of Tehran Chamber of Commerce said that it is unlikely to implement all the policies within 18 months.

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