Making exchange rates and inflation predictable is a necessity to direct resources towards production.

According to Ashura News, citing Mehr News Agency, Davoud Manzoor, former head of the Planning and Budget Organization, Ruhollah Abu Jafari, a member of the academic staff of the Presidential Institute for Technological Studies, appeared on the special news talk program, and Mustafa Taheri, a member of the Industries and Mines Commission of the Islamic Consultative Assembly, answered questions about solutions to strengthen production financing and exchanged views in a video link with the program.

The full text of this program is as follows:

How many percent of the challenges, how many of the problems, and how much of the importance of the production sector has the issue of financing in our production sector been allocated to itself, and then let's move on to what tools the government has in the next steps to prepare for this challenge and important issue?

Meaning: The slogans of the year, especially after the second sanctions, i.e. from 2018 onwards, are mainly aimed at using all the country's capacities to improve production and reduce the impact of sanctions. In a way, we can say that all these measures are within the same approach that the Supreme Leader stated in the second step statement of this slogan. In the economic sector, he said that we have one percent of the world's population, but we have 8 percent of the world's mineral resources, natural resources, and valuable underground resources. Of course, the geopolitical opportunities that we have are along the east to west or north to south, climatic opportunities, and all other capacities that exist. In order for us to be able to practically improve our position in the international economy and increase our rank, currently, according to some estimates, our economy ranks 25th in the international economy. Of course, how we determine the exchange rate will raise or lower this rank, but with the same exchange rate that is the basis for comparing countries, we are approximately 25th in the world.

The question is, if we have this high capacity in production, in natural resources, human resources, and especially specialized human resources, why have we not been able to adjust our economic rank to the country's dignity and position? Of course, in the past few years, we have also experienced a decline of 4 to 5 ranks, especially after the sanctions of 2018. The Supreme Leader says that we are ranked first in the world in terms of opportunities and untouched economic capacities.

But let's go back to this year's slogan. This year's slogan emphasizes one of the important components of production, which is the investment component, investment for production. Look at where production takes shape. Production has a number of components that must be put together, which we say in economics, forms our production function.

This production function has three important components; one is capital, the second is human resources, and the third is technology. Of course, materials and natural resources, and these can also be classified as natural capital in a way, in addition to capital. In order to grow production, we must place greater emphasis on the capital component. That is, if this capital component is not placed alongside human resources and technology, production cannot actually take shape or accelerate.

Unfortunately, the issue of investment in our country does not have very good statistics. That is, if you look at the 20 years ending in 1400, that is, ending in 1399, from 1381 to 1399, the rate of fixed capital formation in the country, gross fixed capital, which is one of the investment criteria or indicators, the growth rate it has had is minus 3/10 of a percent. That is, not only has our capital not grown, during these 20 years we have had a capital decrease of 3/10 of a percent almost every year.

In the 10 years of the 90s, this situation was much worse, this number was minus 7 percent, meaning that 7 percent of capital has decreased every year, the total capital of the economy. The capital we are talking about is machinery, buildings, and also the inventory of property, the sum of which we call gross capital.

During the short period of Shahid Raisi's government, in the 3 years that his government managed the country, the rate of capital formation in our country grew by approximately 6 percent per year. It would not be bad to pay attention to the economic growth rate here. In the same 3 years that Shahid Raisi managed the economy and the country, the economic growth rate was an average of 5 percent. In those previous periods, in the 20 years leading up to 1399, the economic growth rate was 2.7 percent, and in the 1990s, the economic growth rate was less than one percent, that is, 7 percent. So this is the importance of investment, meaning that if we can encourage, support, and shape investment, it will lead to production growing and we will have economic growth; of course, along with economic growth and production, we will definitely have improved household livelihoods.

You raised several important issues. One was the rhythm of decrease and increase and the issue of capital and capital components, and that the investment sector in production is a very important sector. The next question is that an investment sector can be government, but the more important part is the entry of the private sector, the entry of people to solve this challenge, to solve this issue and to highlight it in production. In order to be able to strengthen the rhythm of production, the issue of economic growth, what are the common paths we have to make the entry of people, the entry of the private sector more prominent?

Mir Jafari: Look, the point I want to emphasize is that when 4 years of investment were chosen for production, one point that occupied my mind was that everyone goes to investment and that word investment becomes very prominent. Whereas in previous years, the Supreme Leader's emphasis has been on production, and in this new year, this field of production should be looked at in a different way. It was mentioned what tools, what methods do we have so that people can invest in production. My question is whether production in this country is healthy, is production in this country taking shape within productive frameworks.

The point is that this production itself is the source of economic reform. Production in our country, because investment has not been formed, the statistics indicated, the formation of the country's gross domestic fixed capital has been negative. We also have depreciation. When this happens, we are seeing its output in the imbalances that have occurred, in the motivation to invest in production. First, we must make production itself economical, make production itself economical and productive.

One of the serious challenges that has been in the Iranian economy over the past years is the existence of unproductive markets, the existence of speculative markets. The formation of gross domestic fixed capital that has occurred in the past years was a high percentage of it in land and construction. When we talk about production, the issue is that we can develop our factory production, develop technology, and increase exports.

In each of these investment opportunities, the private sector, which was asked, has what tools it needs to invest or finance. The previous question is whether the economic opportunities that exist in Iran, are these opportunities that we are talking about in the productive position, economic or not. In my opinion, the answer is no. No matter what issue you touch, there are all kinds of obstacles to investment, there are all kinds of pricing, there are all kinds of other attractive opportunities that we create in the economy, in different areas, due to inflation, due to instability. Business environment surveys until 3 or 4 years ago always showed financing as the first obstacle to production. Recently, infrastructure has become the main issue for our production. For example, the situation with gas, the situation with electricity, and the second issue is the instability of the laws. Finally, in every field in which the government intervenes, the laws and regulations that are created all cause the production that is supposed to increase the quality of our economic growth, when this production does not create investment attraction and motivation for our investors, then it must first focus on production and how to make investment production healthy. The government, the private sector and other institutions must intervene in this matter, then let's look at what tools are available for investment.

It was mentioned that there are no fixed and certain statistics in the field of investment in the country, which itself can create challenges. There is a law in the parliament called the Financing Law. What is the current status of this law, the implementation of this law, and the supervision of the parliament over the implementation of this law? How many of the financing problems in the field of production have been solved and are being solved, and what issues are our country's productive sectors facing in implementing them, and how is the monitoring of implementation?

Taheri: First, let me give an introduction. The first introduction is 3 charts explaining why the slogan of the year is. The first chart shows gross capital formation. If you look at depreciation, the difference between these, fixed capital formation, shows that something very bad has happened since almost 2019 and has made this number negative, meaning that investment has lagged behind depreciation, meaning that we could no longer protect our assets. The revolutionary sage has pointed out that this literature should be careful that net investment, meaning if we lose things, those things that are added, if we subtract the days we lose, should still be positive, it should not be negative. Therefore, this process should be reversed.

If we want to calculate fixed investment based on the 1990s and before, the next chart shows how much investment has decreased. This is why the slogan of the year is something I wanted to explain very briefly with these 3 charts.

The next point is the slogan of the year for production, we want to increase production. What can we do to achieve increased production? One way is investment. The point is that without investment, we must first compensate for that step backward in the current situation. The country's loss from the power outage in the summer of 1403 for industry and mining was about 173 thousand billion tomans (Hemat). This is apart from the agricultural sector and other places and small industries.

In this winter, our loss is 130 Hemat, meaning we have invested over 300 Hemat, but we have not produced. That is, without the need to make new investments, build buildings, or manufacture machinery, we have damaged the country by 300 Hemat in this way. I have noted 4 things that we can achieve the goals of the slogan of the year without investing, one of which is the issue of increasing productivity and intelligence. The next point is to activate semi-active units and 3 Hemat active units. It seems that if about 20 percent of our production works in 3 shifts, we have made an investment. The factory and the hall are ready, the machine works 8 hours a day, if it is 3 shifts, the result is that we can fully produce while maintaining the previous capital, we have increased productivity.

That is, if we are going to make a new investment, let's go and fix those areas where we have a gap that has caused previous investments to not be fully activated. For example, exports, let's make the government and the private sector direct their investment in this direction, that is, to the end of the chain that will support a market of more than 80 million so that we can maximize the current production that we have.

I asked about the financing law of the parliament and wanted an answer?

Taheri: The financing law has not yet been implemented, the government needs to write its regulations.

What have been the follow-ups of the representatives of the House of Representatives on this issue?

Taheri: At least after several correspondences, they have said that this law can solve a large part of the financing, the traditional method of financing where the bank gives money, we go and finance with this money has been abandoned and said that this is one of the methods. The rest of the detailed financing methods have been seen in the law from the various capacities that exist in the country. If the government makes the effort, it can do a large part of the financing in this area.

A very important point is to make the production sector attractive for investment so that we can achieve the goals we want to achieve in production. What are the solutions that we can use these tools to make our production attractive, to compile statistics so that we can make appropriate investments?

Meaning: When we invest, we must provide an environment where capital is directed to productive activity. It is said that an important characteristic of capital is that it is very volatile and reacts very much to an environment that feels dangerous, meaning capital moves from relatively unstable environments to environments where there is more peace or security. So if we are looking for capital to come to the production sector, we must create a safe environment for production.

The first condition for a safe environment is that the economy is predictable, meaning that someone who wants to invest can calculate at least the next 5 years to take risks and secure capital. What does an entrepreneur do; he brings in other people's capital, or takes deposits from banks or brings in human resources from other investors who become shareholders, puts these together, produces, and accepts the risk, so he must be sure that if he wants to equip resources, pay a financial cost, he can repay this financial cost and make a profit.

Under what circumstances does this occur when it can plan for at least a medium-term horizon of 4 to 5 years with certainty? Can an investor make predictions when the exchange rate experiences such fluctuations? In the space of 8 months, the exchange rate has gone from about 58 tomans to 103,000 tomans. In such an environment, can an investor predict what will happen in the next 6 months? Another indicator is the inflation rate. We have been experiencing high inflation for several years now. When Shahid Raisi took over the government, producer inflation was 54 percent. Can a producer plan with 54 percent inflation? Efforts were made to bring producer inflation to less than 30 percent in the past 3 years; of course, in the last 8 months, the producer inflation rate has been increasing again, because it follows factors such as the exchange rate. Therefore, does a producer who cannot plan on the inflation rate and high inflation rates are repeated have the incentive to provide resources? Regardless of whether these resources are available to him or not, sufficient financing resources are provided or not. He must accept this risk. Investment means that we must decide between risk and return, that is, we must know that this activity of ours will yield this amount of return. Can we count on the return on our investment in high inflation conditions? Can we count on the cost of financing?

Unfortunately, in our country, 90 percent of production financing is done through the banking system, meaning our financing system is bank-based and we go to a capital-based sector or capital market, etc. less often. This is also a reason why we need to talk about it. Now, how does the banking system do it when it wants to provide capital? Approximately 3,000 efforts of the banking system are going to finance or provide a little more this year, or in other words, provide facilities. We will allocate a large part of these facilities to production.

Should this bank-based path be corrected?

Meaning: It is an economic issue that we need to pay attention to, that is, banks should come in to provide financing in certain cases, but unfortunately, at the moment, our pressure to provide financing is on the banks. My point is that these are about 3000 hemat or more of the facilities that we are giving and we want to give a large part of it to production, how do we give it?

A large part of these are the same facilities that we gave in previous periods, we recalculate all of them, we calculate its arrears, we pay a new facility to the same person as before, in other words, a large part of our facilities are renewed. We pay the same previous facilities to the same person again with new conditions. So what will happen to the new investment? That is, what do we want to do with the new investment, what plan do we have for creation investments or development investments, this is our serious problem. Another issue is the financing rate. Of course, because inflation is high, our financing rate is apparently 23 percent, but when you look at it in different ways, they keep a part of the facilities on deposit, block them, and this rate is above 30 percent.

The financing rate in the capital market is above 40 percent, meaning those who regulate government bonds in the capital market pay a financing rate above 40 percent. My question is, in an economy where we are supposed to pay 40 percent of the financing cost, which production activity will be profitable? So, in order for our production activity to be efficient and able to manage itself, regardless of the risks it has, we must be able to provide financing with appropriate conditions and rates. Our banking or capital market colleagues say that inflation is high, we must provide financing at a high interest rate. We say yes, but does this financing serve production? Can we invest in production? It definitely cannot be our story, the story of the chicken and the egg. What is the source of the country's large part of inflation? The large part of inflation has a foreign exchange origin. Currency is the anchor of expectations in society. When we stimulate such economic conditions and the exchange rate grows, inflation grows as a result. Another issue is the source of inflation in our country, that is, banking indiscipline, overdrafts that banks are making, the money creation that the banking system is doing, intensifies inflation. As a result, inflation increases financing. Who will ultimately suffer? Therefore, if we are looking for financing to be organized, we must carry out serious structural reforms in the banking system.

Our task is to create conditions in the field of production so that investors can come and invest. We have a series of laws in the country called the Law on Removing Barriers to Production or the Law on Financing. Is there a need to enact a new law in this regard?

Abu Jafari: First, in order for production to become attractive, we must have healthy production. One of the global experiences is the experience of Greece, whose economy went bankrupt. One of the reasons was that there was a lot of investment in the direct field of real estate and properties. This is a damage that we have had in our country for more than 50 to 60 years. People and investors are looking for security. Security comes first, then profit.

We invest a lot in real estate and many resources are locked up there. On the other hand, when we talk about production, the economic opportunities that need to be created for production come from two aspects: the field of technological development and economic activities. The comparative advantages of our country, for example, in the fields of agriculture, tourism, mining, and the value chains that we have. A very important part that I emphasize is the purchasing power of the people; that is, if production is going to be attractive, how will it be attractive? When it can sell. How can it sell so that people have purchasing power.

One of the tools that is perhaps forgotten in the discussion of investment is that in addition to strengthening the financing of production, we must also have financing for people's purchases. In my opinion, we have an inflation of laws, meaning that the law is overwritten. The laws that were written were not implemented, no one supervised their implementation, and those who did not implement them were not held accountable.

In the production financing process, one of the tools we have is the guarantee area. We raised the issue of security. In the law on financing, production, and infrastructure, we have non-governmental funds that created a guarantee tool. Also, in the field of knowledge-based investment, a good capacity was created that people were able to trust and come to invest in this field. Why? Because these funds were funds that professionally evaluated projects and issued guarantees, and this guarantee made people feel comfortable entering this field. There is an article in the law on financing production and infrastructure that allows commitment guarantee funds. Its regulations have also been written. Some of these regulations have been written and approved by the Ministry of Economy. The implementation process is being followed. In order for people to enter the field of investment for production, we need to be able to guarantee at least the principal of the capital of dignity and these guarantee funds for the implementation process of dignity should be carried out more quickly, which has been somewhat delayed.

When do you think it will be done?

Abu Jafari: I have asked my colleagues at the Ministry of Economy that the system of licensing commitment guarantee funds will be implemented by the end of spring, because its regulations have been approved by the Cabinet and requests are coming in. Commitment guarantee funds are not only in the field of knowledge-based research, they are also in the field of technology. But my suggestion is that, in addition to the assumption that we talked about that we control inflation, we should try to create this security for the economic insecurity for the discussions of laws and regulations, the discussions of international challenges that we are having, so that production can be organized, as the saying goes. Now the financing space is created, where does the financing space come from? To be able to cover the minimum risk of the people in the form of these guarantees, which we had a successful experience in previous years.

In this field and crowdfunding in the Fara Borsa, we licensed 44 crowdfunding platforms, which last year provided financing for more than 10,000 projects and more than 10,000 people came and invested in this field. Why? We tried to design this chain so that they can be placed together and this investment can happen in this space.

This is a very important point, because people may not know how and through what path they can enter the production sector, they have little capital, now with any amount, due to this lack of awareness, due to the lack of necessary information, they enter other sectors, such as the gold market or other risky markets. I want to talk about the paths, how ordinary people can get acquainted with the production sector and get in touch. To what extent has the Islamic Consultative Assembly been able to facilitate production in the areas of laws, infrastructure and the supervisory area?

Taheri: There are two issues. First, what we have done in legislation and supervision of implementation so that financial resources are not directed towards unproductive ends. I will mention four important topics in production. First, a law must be passed in the parliament under the title of the Regulatory Taxes Law or the Capital Gains Tax Law, this has not yet become a law.

Its generalities have been approved by the Industries Commission. This law must be approved and implemented this year in line with the slogan of the year. There is a gap in the implementation of some laws, for example, the law on official documents. One of the reasons why there is no financial transparency and the wealth of society is going to the unproductive side is by order of His Majesty the King, stating that the policy and the definite interest of the country is that these official documents, although they have been made into law by the Council of Experts, have not yet been fully implemented in the judiciary and are very backward, must be implemented quickly.

The next discussion is the fight against smuggling, and the next point is the stability of policy and rates.

I will also present 4 points here, the headings of which are for directing wealth and financing to the productive ones. Some need a law, some need a law with more supervision. One of them that needs a law and input is the discussion of writing a document on the country's industrial development. Currently, there is a lot of money and small capital in society, funds have been created, we have rich people who are looking for investment. The country's resources are also limited in electricity and gas, etc. Now, what areas should these people invest in? What are the industrial policy, priorities, and government support? The task of the Seventh Plan Law is that the government must quickly formulate this and approve it in the Council of Ministers. This has not been done yet and is in progress.

Also, the law related to issuing licenses and facilitation must be monitored more. Its first phase has not yet been completed, let alone the 10 phases it has. The next issue is the expansion and diversification of financing, which was written by the parliament, and to be fair, seeing almost all the variations, the government should quickly write its regulations.

Therefore, in the area of ​​law, we need about 20 percent of legislation. To summarize, in these two parts, the parliament should increase its monitoring by 80 percent. With the government's efforts, it is definitely possible. I said that a large part of the investments have been made, but we are not using them optimally due to the imbalances and the sectors that this discussion first came up with. If we facilitate the conditions and show that it is in productive sectors that people can make more profit, the current practice will be reversed.

The situation of unproductive markets, where there is currently a lot of investment, for example in the gold and foreign exchange markets. What is our task in making the various dimensions of productive markets attractive or explaining them?

Meaning: Look, the banking system definitely needs to be discussed specifically. In this short time, it is not possible to open up too much of the issue, but what is important is the effective supervision of the central bank over the entire bank system in the matter of money creation. If we can solve this issue of bank overdrafts and the irregularities that banks are carrying out, especially two or three very risky banks, these irregularities will be regulated and we can determine this situation and the rate of liquidity growth and money creation will be managed, it will definitely help control inflation. And this is one of those missions for which we have sufficient tools in the Seventh Plan Law and in the Central Bank Law. The discussion of reforming the banking system has a specific heading in the Seventh Plan, and we have given all the tools, instruments, and authorities to the Central Bank, beyond what is stated in the Central Bank Law. However, the point I want to make is that in the banking system, we must move towards directing credit, meaning reliable credit that will hit production, and at least a major portion of the credit should be directed in this direction.

Another point is that we must use other financing methods such as chain financing, factoring, and in fact, the Gam tool and other tools that can help finance the banking system more effectively. Their regulations have also been written, and it is hoped that banks will put these on their agenda.

The capital market must also take the burden off the country. Unfortunately, the majority of capital market activity is focused on secondary transactions. That is, if I buy a stock with my bank deposit, in our economy we do not call this investment, we must go to the initial public offering of shares. We must guide, support, and increase them, and more countries must enter the stock exchange and have their shares offered. We must go to financing through project funds, which has a law, financing through public financing companies that can be done on the stock exchange, and it was mentioned that financing through crowdsourcing can use small capital for specific projects on the stock exchange; Therefore, we have a lot of room for the capital market to come to the aid of financing, and of course, this also requires that people trust and believe that the resources they take will be preserved and protected, and they will not suffer losses.

Unfortunately, in the capital market, a large part of people's funds have been withdrawn from banks and put into gold funds. Then look at the growth rate of gold funds. The rate of return has been about 15 to 20 percent in the past two months. In these circumstances, who is willing to invest their financial resources in long-term bank capital with a profit of 20 or so percent? Financial institutions are an interconnected complex. Our banking system, capital market, and real production sector must be integrated.

We also made a provision in Article 3 of the Seventh Development Plan Law that every year the government is obliged to prepare, approve, and announce a growth financing plan at the beginning of the year. After the holidays, the first order that the government must make is this production financing plan, as well as other capacities that we saw in the Seventh Plan Law for financing growth.

But the important point is that we have a lot of laws. In order to be implemented, laws need regulations and guidelines, which unfortunately are usually ignored. There was a law in the Tax Organization that was approved for two years and not implemented. First of all, the software platforms were not provided for the implementation of the law on store terminals and the taxpayer system. It took about 9 months to create, test, and launch this system. Writing its regulations and guidelines took about 6 to 9 months.

This same law on financing production has many regulations, and a year and a half has passed since the approval of this law, but it has not been implemented yet. I will give another example, the Seventh Plan law itself is very rich in all issues, especially the issue of growth and investment. It starts with the discussion of growth in investment and financing. The Court of Accounts had recently published a report that out of the 50 regulations that should have been approved and promulgated in a specific period of time last year, only 50 of them were drafted and promulgated. This means that one year after the Seventh Plan, out of the 50 regulations that the Court of Accounts has counted, 10% have been promulgated. The result is that if we move forward at the same speed, the Seventh Plan law will also suffer the fate of the Sixth Development Plan law. That is, we will reach the third and fourth years, but a large part of the regulations have not yet been implemented. We saw that 35% of the Sixth Plan was implemented. This requires that the regulations be approved and promulgated quickly. It also requires that our supervisory agencies, the Court of Inspection, the Court of Accounts, which are fairly following up, follow up with more seriousness. The Parliament, the Article 90 Commission, the specialized commissions, the Economic Commission follow up. It is not enough to just write the laws, promulgate them, and say they are implemented. We must follow up to ensure that the law is implemented, its regulations are drawn up, and then see if the schedules and... are moving forward correctly.

Therefore, as the Speaker of the Parliament stated, we are suffering from over-legislation in the country. It was stated that a good program has been developed to refine the laws. This means that many laws, which are sometimes intertwined, need to be organized.

The last thing is that investment has obstacles, we must remove these obstacles to investment. A major part of these obstacles goes back to the law enforcement system, for example, governors, executive agencies, each of which must fulfill their roles and obligations, and a part goes back to the judiciary. For example, suppose we currently have lawsuits related to investment issues and cases that the production sector has, these are very many cases. The head of the judiciary stated that they have decided and ordered that these cases, which have been pending for years and have not been resolved for several years, be resolved quickly. We definitely need special courts for the production sector. Special courts must resolve issues related to producers, otherwise the producer issue will remain unresolved and the dissatisfaction that producers have with the administrative system will continue. Unfortunately, sometimes they complain about bribery, delays in completing tasks, and slow issuance of licenses. We must address this complaint. The Research Center of the Islamic Consultative Assembly publishes a report every 3 months under the title of Investment Security Monitoring. They measure all these different indicators, and these measurements should lead to actions that improve the business environment and the investment environment.

Mirjafari: Three categories of the country's financing sector require planning. One is the financing of individuals and households, where there is a lot of potential. Production financing, the issue of credit assessment, and the issue of a comprehensive collateral system have been seen to provide a credit life for individuals that can compensate for people's purchasing power.

There is only one serious issue here, which I wanted to emphasize, and that is the emergence of fintechs, financial technologies that create a huge opportunity for the country so that people can invest. An example of this in the country is in the form of crowdfunding, which the Central Bank unfortunately does not have an active approach to supporting.

The second area is financing small businesses that require bank and capital market financing. Various tools are provided for them, and large projects in the country require implementation, which requires large project investment packages. Doing so also requires the government's determination for inter-sectoral coordination.