EghtesadOnline: The managing director of the Securities and Exchange Organization has urged the government of President Ebrahim Raisi to avoid setting price ceilings for goods and commodities produced by listed companies.
“This [not imposing prices] would be beneficial for manufactures, the stock market, investors and the economy in general. It should be on top of the priorities of the incoming administration,” Mohammad Ali Dehqan-Dehnavi was quoted as saying by imereport.ir, the news agency of the Iran Mercantile Exchange.
“If the new government, as the regulator and policymaker, avoids the interventionist approach to the economy, particularly regarding prices, loss-making companies will start making profit and the stock market will revive,” Dehqan-Dehnavi said.
Successive governments in Tehran have always been urged to focus on policymaking and supervision and leave other issues, namely pricing, to the market. They ignored such appeals and were largely busy intervening in the markets, Dehqan-Dehnavi said.
“We are very hopeful that such wrong procedures will be shunned in the new government.”
In his inauguration earlier this month Raisi pledged to support the stock market get back on its feet.
In the past few years many listed companies failed to generate net profit due largely to obligations to sell at prices set by the government. The senior capital market official said scrapping mandatory prices will have an immediate positive effect on the financial performance of such companies.
Regarding industries that have fallen victim to government pricing restrictions, he pointed to the electricity industry where prices are subsidized by the government.
“Mandatory pricing in the power sector has made investment less appealing and one outcome was the recurring blackout this summer,” he said, calling on the Raisi administration to let market forces determine prices.
Case in Point
The issue in recent months has become a topic of hot debate among government officials, manufacturers and capital market authorities. It attracted the attention of the media and stock market investors late last year when the Industry Ministry set a price ceiling for steel sold in the Iran Mercantile Exchange.
The controversial decision at that time spurred renewed sell-off in the bourse led by the plunge in giant base metal and mineral companies. The auto, cement, dairy and tire industries have had a similar fate.
Last December the Industry Ministry said steel products must be sold at the IME at prices equivalent to 70% in the Commonwealth of Independent States (CIS) markets.
Policy and decision makers argue that such measures help “reduce the final price of steel in the domestic market and support end consumers.”
But there is serious concern such policies in essence have had the opposite effect and in the past filled the coffers of avaricious middlemen.
Stock market authorities are of the opinion that such rules are incompatible with competitiveness and market mechanisms where demand and supply determine prices.