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Huge cash supply contributing to steep price hikes in Iran

The huge supply of cash circulating in the economy accompanied by huge allocations to state bodies have, among other factors, fueled price increases in most commodities and public services in the first quarter of the current Iranian calendar year (March 20-June 20), IRNA reported on Tuesday, quoting "Iran Daily."

Commenting on the issue, Management and Planning Organization (MPO) head Mohammad Sattarifar said that the current situation obliges the government to again distribute food coupons to 10 million of the country's economically vulnerable citizens who are beneficiaries of the Imam Khomeini Relief Committee and the State Welfare Organization, in addition to distributing rice coupons to citizens in the northern provinces.

"This has strained the government's financial capacity not to mention the huge amount spent each year in milk subsidies," the daily quoted him as saying.

The government's top financial planner reaffirmed the government's obligation to balance its budget and avoid huge budget deficits this year, "otherwise, it will have to cut down on expenses and save funds."

Last year, the government had a deficit of some 28,000 billion rials while this year an additional rls 11,000 billion is expected which could force the state to spend less, he said.

He said the government initially decided to maintain prices as they were last year but has now decided to reverse the decision because of compelling considerations such as the need to subsidize wheat farmers.

Also commenting on the issue, MP Nematollah Ali-Rezaie said government control of prices could could further increase the budget deficit which initially was placed at rls 20,000 billion.

"Under present circumstances, an unreasonable reduction in prices contrary to parliament ratifications will create an unprecedented shortage of funds for the government," the paper quoted him as saying.

Therefore, before taking any action (to reduce prices), the government needs to create alternative financial resources so as not to disturb development and/or production plans or disrupt the inflow of foreign investments, he suggested.

And, price increases that violated sound economic principles should be reversed, he advised.

Increasing liquidity, drop in production account for price hikes

Minister of Economic Affairs and Finance Tahmasb Mazaheri said in Tehran on Tuesday said that not only increasing liquidity but also drop in supply of goods and services are mainly responsible for price hikes, IRNA reported.

He told IRNA that banking facilities and credits, state resources supplied via the existing funds without creating revenues for the government and exclusive rights are among the main factors contributing to increasing nationwide liquidity.

Stressing the need to fix the growing liquidity rate at 23 percent, he noted, "Given that a fixed liquidity growth rate plays a decisive role in facilitating the national financial and monetary trend, the government has optimized its budget and financial regulations to materialize it."

Concerning the impact of recent unrests on increasing prices and foreign investment trend, he said that any special nationwide political situation will not only affect foreign investments, but will also impress all domestic economic activities including price hike.

Mazaheri called on those opting for the national growth and development to make effort towards establishment of tranquility, as a main factor for attraction of domestic and foreign investments.

He dismissed the possibility of budget deficit exceeding the figures declared by the government for the current Iranian year (started March 21) and noted, "Given that this year's expenses are predicted to exceed the allocated budgets by rls 11,000 billion, the government will make adjustments by reducing its expenses on the current affairs and construction projects to curb further price hike.

The minister reiterated that once an eight percent economic growth rate is materialized, in addition to providing 904,000 jobs predicted in the Third Development Plan, nationwide employment crisis can also be curbed.

He referred to increased saving, investment, production, employment and provision of facilities for foreign investment as the factors effective in materializing an economic growth rate of eight percent in the current year.

"Diversity in foreign investments, continuous drop of tax and tax aggregation rates, expansion of stock market and formation of metal and agricultural stock markets are among the strategies to be effected by the government to attain the targeted rate.

Explaining the latest developments in foreign investment, he said that proposals for dlrs 4.2 billion investment have so far been received and that the license for investment worth dlrs 1.7 billion has been issued.

Turning to the foreign investment by-law, Mazaheri said that new foreign investment trends will be announced shortly and added that meanwhile attempts have been made towards developing the former direct approaches to indirect participation in investment.

Referring to six projects based on indirect participation by foreign investors in the production and service sectors, which are approved by the cabinet, he said that they comprise contracts ranging between dlrs 300,000 and dlrs 60 million.

He dismissed the possibility of presenting any participation bonds and hard currency bonds by the government to make up for the budget deficit in the current year.

The minister said that domestic companies with clear, transparent and profit-making balances capable of attracting the clients' confidence will not only receive domestic facilities but can issue hard currency bonds and present them in international markets.

Pointing to the upcoming visit of a Spanish delegation to Tehran within a few days, he noted that ways of expansion of joint investment, trade exchanges as well as joint production and sale of the products in other countries will be high on agenda.

Concerning privatization, he said that investors from the private sector are now authorized to establish private banks.

"Meanwhile, the shares of a number of banks and insurance companies will be converted to joint stocks and will gradually be extended to clients via stock markets," he concluded.

... Payvand News - 6/24/03 ... --

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