Dr. Seyyed Shams al-Din Hosseini, the Minister of Economy and Finance of I.R. offered 14 proposals to mitigate the detrimental effects of the global financial crisis and announced that, according to the latest IMF report, world's economic growth has plummeted from 3% in 2008 to -0.8% in 2009.
According to the Public Relations Department of the Organization for Investment, Economic & Technical Assistance of Iran (OIETAI), Mr. Hosseini inaugurated the "Global Financial Crisis; Lessons Learned and Experiences Gained by ECO Member Countries" Conference in Tehran and made mention of the global financial crisis and emphasized the necessity of strengthening regional cooperation and presented 14 proposals to alleviate the destructive impacts of the crisis.
He added: "in the tenth ECO Summit Conference that was held here in Tehran last year, upon a proposal made by H.E. Dr. Mahmood Ahmadinejad, the honorable President of the Islamic Republic of Iran – which met with the approval of the attending heads of state and mentioned in the Summit’s final communiqué – it was decided that in the first possible opportunity, and with the attendance of high-ranking economic officials of member states, a meeting was to be organized to study the impact of the global economic crisis and devise possible strategies. That is why we have gathered here".
He also said that according to the latest IMF report, world's economic growth has plummeted from 3% in 2008 to -0.8% in 2009 and according to UNCTAD, although the entry of foreign investments was on the rise between 2000-2007, the trend reached -14% and dropped 30% in 2009. The international trade has also plunged from 2.8% in 2008 to -12.3 in 2009".
Mr. Hosseini referred to attendance of numerous high-ranking officials from the Islamic Republic of Iran in the meeting and said that it demonstrates the importance that the Government of the Islamic Republic of Iran attaches to this organization and the further strengthening of regional cooperation – especially in the economic field. He expressed hope that the meeting will be able to assist member states to attain their developmental goals and find ways to face the many challenges and crises that presently bedevil the global economic order.
He went on to say: "The global financial crisis is the end result of a faulty and unfair architectural foundation that ended in the failure by financial markets to correctly identify the risks of financial transactions, risky and phantom assets, incorrect US Federal Reserve monetary policies and disregard for the inherent danger that lied in the unchecked transformation of assets into securities and trading them on international markets. These on the one hand resulted in a huge increase in credit risk and on the other, endangered loan standards. The crisis – in tandem with the merging of international financial institutions – easily engulfed the world and consumed European and Asian financial markets. Because of the nature of the relationship between financial markets and the real segment of the economy, this financial crisis turned into a global economic and developmental crisis of such proportions that now questions the possibility of meeting Millennium Development Goals".
He reiterated: "This crisis, because of the immense burden it has put on the global economy, has turned into a huge challenge. To meet this challenge governments and nations – especially ECO states – need to collaborate and exchange information and experiences. The situation also calls for the adoption of consistent and calculated measures by all regional countries".
The Iranian Minster of Economy said: "ECO states, with the three following characteristics, have been hardest hit by the global financial crisis. A-Drop in oil prices for regional oil exporters and importers. B-Reduction of global demand for traded goods and services, tourism, and financial and hard currency transactions.
C- Scarcity of international credit – which led to risk aversion by investors and the subsequent reduction of incoming capital flows, asset values and investment.
ECO countries, proportionate to their economic makeup – including whether they import or export natural gas, oil or the degree of their economy’s openness – have been affected by the global financial crisis in different degrees. Most oil exporting countries have been able to weather the global crisis and in comparison with other member states, reach higher degrees of growth. Most of these countries, because of previous oil windfalls, hold relatively good levels of hard currency. Therefore, it is easier for them to deal with the impact of the crisis".
He added: "By and large the financial sectors of most ECO region countries, because of their light connection to international financial markets were not hard-hit. However as far as the real economy is concerned and because of lighter volumes of trade, lower export goods prices, reduced direct foreign investment, and diminished remittances from their work force working outside the country, they were also affected".
Although the global outlook, compared to the early days of the crisis is being reported as more optimistic, but the global economy remains fragile and unsustainable. Under such conditions we must first closely study the chain of events that led to the crisis and later take appropriate national, regional and international measures to deal with such crises and their fallout. With what has happened, excessive faith in market forces has come in question. Experts are now talking about the need for governments to assume greater control and responsibility in drafting and implementing regulations and regulating financial markets. The debate is no longer about governmental presence -- or lack thereof -- in the economy; it now rather revolves around the effectiveness of such presence. In this context, governments must now work to maintain and fortify the motivation of economic performers and prevent market failure. Governments have taken different tacks and measures to deal with the crisis; including guaranteeing deposits, stimulating demand, injecting capital, buying stocks, toughening regulatory supervision and devising new precautionary regulations.
He went on to present a number of lessons learned and submit proposals to help regional convergence:
1-The financial crisis justifies a greater government role in the economy. However such presence must not replace or impede the private sector. Rather, the government should assist and better protect the private sector. For example instead of buying company stocks, by postponing repayment of loans, governments can help enterprises to stay afloat.
2-Helping the banking system to provide adequate financial resources for economic enterprises and business persons can create economic prosperity and stimulate general demand. In the same context, the development of capital markets and the facilitation of the inflow of foreign capital, work in a similar fashion.
3-Guranteeing people’s deposits in banks helps maintain public trust in the monetary system and financial institutions. Therefore government officials must work to maintain public trust and push back a climate of hopelessness and disillusionment.
4-Improving the business climate and facilitating the inflow and utilization of foreign capital can set the stage for a greater usage of domestic capital, economic growth and create new jobs.
5-improving productivity to help reduce prices of finished goods, improve quality, and increase competitiveness. All of these can assist with decreasing the impact of the financial crisis in different countries.
6-Member states can prevent oscillations in financial and capital markets by regulating the market, and improving and amending extra-territorial and extra-organizational supervisory mechanisms.
7-By encouraging their larger banks and enterprises, member states – in collaboration with the enterprises of other members -- can establish “joint capital funds” to stave off the adverse effects of possible future crises.
8-In view of the fact that ECO’s chamber of commerce is a symbol and the manifestation of cooperation between the private sectors of member states and keeping in mind that chambers of commerce act as the parliament of the private sector, its strengthening will help expand trade between member states.
9-I propose that member states draft new financing models and instruments for the implementation of infrastructural and developmental projects.
10-With reference to the fact that the “ECO trade development bank” and “ECO insurance” symbolize the spirit of cooptation between members, I first stress the need to bolster the two organizations and call for the establishment of another organization to foster interaction and collaboration between the securities and bonds organizations of member states. Such an effort will hasten convergence and strengthen the financial and economic sectors of member states.
11-As you know, 16.8 percent of exports and 10 percent of imports of ECO member states takes place inside the territory of members. The share of member countries from global trade is also about 2/2 percent. Therefore, we need to increase trade between member states and subsequently increase their share of global trade. To do that, financial incentive mechanisms and a bolstering of financial and insurance infrastructures is needed between member states and the way must be paved for a larger and more influential role to be played by the private sector.
12-To establish a safe atmosphere for trade and investment between member states, we propose that member states should study the possibility of establishing a hedging fund.
13-To utilize all existing and potential capacities of member states in monetary and financial bodies and a unified defense of their interests, member states – as a collective – must present and follow a unified set of policies and positions in such forums so that God willing, members will be able to optimally utilize the capacity of such bodies.
14-Islamic banks and other financial institutions – such as bourses with Islamic financial practices -- damage have been spared the crisis. A prime example would be Iranian banks and Tehran’s capital market. Despite the bankruptcy of numerous US and European banks and the fall of their indices in bourses, Iranian banks not only continue to steam ahead but three have also been privatized and publicly offered. Also a number of new banks – using private capital – have opened their doors for business. Tehran’s capital market index and Tehran’s bourse return have shown growth for the 08 period. In this context I propose to member states to study and utilize Islamic economic concepts, market mechanisms, Islamic financial instruments and organizations.