COVID-19: Social Distancing and Cost of Economic Lockdown
EghtesadOnline: Workers and government employees have returned to workplaces, despite hot debates among economic analysts about the impact of new coronavirus pandemic.
Pedram Soltani, the former deputy head of Iran Chamber of Commerce, Industries, Mines and Agriculture, said economic losses resulting from the closure of businesses exceed the costs of treating the coronavirus disease known as COVID-19, Financial Tribune reported.
He lauds employers who have shouldered the responsibility of paying their taxes to assist the government budget and those who will not lay off their workers under the current economic conditions.
On the other hand, another group of economists believe that Iran is grappling with a serious inflationary recession and has nothing to lose even with total lockdown.
"The support the government is planning to lend to businesses is insignificant; in fact, it does not have the power to do so," Parviz Javid, a member of Iranian Economists Association, told the Persian-language daily Shahrvand.
“Other institutions such as banks and insurances have not taken the stimulus packages for businesses seriously. There is no option but to reopen businesses.”
As per the government plan dubbed Smart Distancing Initiative, low-risk businesses were allowed to resume activities on April 11 in all provinces, except Tehran, that can follow suit on April 18. Government offices will be open from 7 a.m. to 2 p.m. The scheme allows one-third of employees in each workplace to undertake teleworking.
“Economic activities and health protocols can be pursued alongside,” President Hassan Rouhani said during the coronavirus taskforce’s session last week.
“Businesses are to abide by health protocols set by the Health Ministry—the main entity in charge of supervising the implementation of the protocols.”
The government is planning to launch a public awareness campaign to inform business owners, employees and the general public of the Health Ministry’s protocols.
Rouhani said, “The opening of businesses does not mean we are ignoring the stay-home principle. Those whose outdoor presence is unnecessary should preferably continue to stay at home.”
His comments came, as manual workers have had to be present at work sites and employees of public and private sectors were also called to work right after holidays in shifts.
According to a survey by the Social and Cultural Studies Department of Tehran Municipality and the Iranian Students Polling Agency, 69% of the residents of Tehran cannot afford to stay at home in self-quarantine, as their savings won’t last longer than one month.
Findings by the Statistical Center of Iran show Tehran hosts the largest number of renters—about 51% of the residents of the capital city live in rented homes.
The Industries, Mining and Trade Ministry says nearly one-third of the country’s industries are in Tehran Province, which makes stay-at-home and social distancing impossible for workers.
It’s not an either-or decision between people’s livelihoods and health, Majid Reza Hariri, the chairman of Iran-China Chamber of Commerce, said, adding that we need to find a balance between the two.
“From people’s viewpoint, the government needs to lend more support to members of the public via cash subsidies like other countries. However, our officials do not approve of cash payment strategy due to its inflationary nature. But it might be necessary to accept a short-term increase in inflation and provide zero-interest loan to people, particularly those falling in seven low-income deciles,” Hariri was quoted as saying by Tasnim News Agency.
“However, a misguided approach would lead to hyperinflation. We need to arrive at a single solution by gathering the opinions of taskforces and committees.”
The government has approved a 750-trillion-rial package to help low-income households and struggling businesses impacted by the rapidly spreading coronavirus.
The loans will be given to small- and medium-sized enterprises hit hard by the pandemic, according to the website of the Central Bank of Iran.
The lending rate will be 12% to be repaid within two years, according to Abdolnasser Hemmati, the CBI governor.
Commenting on the interest rate, Hemmati said it will be "reasonable, given the high inflation rate" in Iran.
“Even if banks set an 18% interest on loans, the real interest rate would still be negative when compared to annual inflation … Any rate below 12% would apparently impose further financial strain on banks,” he said.
Hemmati said only businesses that did not lay off workers during the corona crisis would be eligible for the loans, as he instructed banks to process the loans soon and cut red tape.
Javid said the country is bound to face a serious inflationary recession in the coming months, given the falling oil prices and the outbreak of coronavirus.
“Due to US sanctions and complications associated with the FATF’s blacklisting, imports, particularly that of intermediate goods needed by factories, will become more difficult. Nearly 60-70% of Iranian factories rely on imported raw materials. In case these raw materials are not supplied promptly and adequately, the factories will be forced to reduce their production capacity and lay off workers.”
The Financial Action Task Force blacklisted Iran on Feb. 21 after Tehran failed to comply with its anti-terrorism funding norms. FATF had asked Iran to pass four bills as part of the “Action Plan” to escape the watchdog’s blacklist.
Tehran managed to approve and enact amendments to counter-terrorist financing and anti-money laundering rules. Two remaining bills, namely Palermo (convention against transnational organized crime) and terrorist financing conventions, failed to get approval from top legislative bodies.
"Economists forecast that Iran’s inflation rate will grow 45% and unemployment rate will exceed 18% in the new Iranian year. All these make it impossible to implement quarantine in Iran," he concluded.