Ministry Split to Foster Bigger Gov't Intervention: Opinion

EghtesadOnline: Economic expert Hamid Azarmand believes that the government’s desire to regain a tighter grip over local markets is the underlying motivation for separating the trade wing of the Ministry of Industries, Mining and Trade and establishing a new ministry.

News ID: ۷۸۴۹۱۳

05 October 2019

On Sept. 24, Iranian parliamentarians agreed in principle to the formation of the Ministry of Commerce with 132 votes in favor and 78 against, while eight abstained.

The decision is expected to be implemented by the end of the current Iranian year on March 19, 2020.

Once approved in its entirety, the separation of commerce department from the current ministry would reverse the decision of former president, Mahmoud Ahmadinejad, during his last days in office in 2012 to merge several ministries, purportedly to create a streamlined and efficient administration, according to Financial Tribune.

In a write-up for the news outlet of Iran Chamber of Commerce, Industries, Mines and Agriculture, Azarmand argues that the formation of commerce ministry might increase the government’s involvement in the economy. What follows is a translation of his opinion piece:

Over the past century, time and again, ministries responsible for the country’s industries and trade been merged or de-merged under different titles.

The governments’ inclination toward banding together ministries was stronger during a period of economic growth like the Iranian year ending March 1963, whereas they would place the bisecting of ministries at a time of recession and high inflationary episodes, such as the Iranian year ending March 1974 and the current year.

It seems that the government’s desire to regain a tighter control over local markets and keep inflation in check is the underlying rationale for separating ministries this time around. However, it should realize that the fight against inflation is not waged by controlling local markets.

Inflation is a monetary phenomenon resulting from budgetary imbalances and complications of the banking system. Rent-seeking practices, corruption in distribution system and price fluctuations are all outcomes of government interferences in pricing, its monopoly over markets and the multiple foreign-exchange rate system.

The government needs to work out a solution for tackling causes and the root of problems, instead of tackling effects and consequences.

Economic growth and price stability will be achieved only by reforming the budget and financial markets, minimizing government involvement, ending monopolies, promoting businesses or corporations owned by people (private sector), concentrating on producing high-quality public goods and services (since these are in fact the government’s main responsibility) and improving relations with the world.

A change in the government structure to tackle an effect without examining the root causes would result in unsustainable outcomes.

Trade is not isolated from industry. Trade policies are in effect complement its industrial strategies, paving the way for industrial development through exports.

In many countries, such as Japan, South Korea, India, Brazil and South Africa, the governmental body responsible for industry and trade are integrated. Of course, there are countries where economic affairs and local trade are separate from foreign trade.

What is a matter for concern about bisecting ministries, given the approaches adopted by the government over previous years, is exercising stricter supervisions, increasing pricing interventions, interrupting markets and consequently doubling pressure on the country’s fragile manufacturing sector.

The government should draw up long-term strategies for the industrial sector and, based on those strategies, design effective commercial policies.

Iran’s economy lacks an integrated industrial strategy and what is believed to be trade is no more than the management of local markets and supervision over goods distribution.

As long as this attitude prevails, whether it is by one ministry or more, the development of industries and exports is highly unlikely.