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Iran's
economy: No quick fix
By Syed Saleem Shahzad
TEHRAN - If the recent spark of political
turmoil in Tehran ignites into mass agitation, the
reform-minded President Mohammad Khatami need not look
far for a reason.
Even commoners on the streets
view his feeble attempts at promoting economic reform to
have been no more than a game of "ping pong" with
government hardliners whose anti-West philosophy has
always included a large dose of paranoia about foreign
investment.
But foreign investment - or lack of
it - isn't the problem in Iran. The problem is the
economic repression that has grown up in the country
over the past 20 years.
Even official graphs
show that before the revolution of 1979, annual per
capita income stood at US$100. It dipped after the
revolution to $24, and at present stands at about $61.
Before the revolution, the unemployment rate was 2.9
percent; now it is 12.5 percent. Before the revolution,
average investment growth was 20.8 percent. Immediately
afterward, it turned negative. In the recent two
"reformist" terms of President Khatami, it has improved
to all of 2 percent.
These few "official"
snapshots of the Iranian economy clearly illustrate the
gloomy picture of Iranian society. The Iranians are a
very politically enlightened people. Everybody - every
taxi driver, student, bookseller, teashop owner and
hotel manager in the country - reads newspapers and
makes his or her own political analysis. The old
generation that supported the present revolution seems
frustrated because of price increases and bitterly
remembers the days of the deposed Shah.
"The
Shah's period is like a dream," said Saeed, an average
Iranian senior citizen. "I was a clerk in a government
enterprise, and I used to earn a salary which made ends
meet with also some savings. Now the price hikes have
forced me to work after retirement because the pension
is insufficient. Because of high inflation, my salary is
insufficient to fulfill my needs."
Until a few
years ago, the new generation that was born and raised
after the revolution remained tight-lipped about the
state's economic troubles. But now, faced with an
employment crisis that threatens their careers, they
overwhelmingly support Khatami's reform programs - which
initially were more about economic reform than social or
political freedom.
However, Iranians now
generally feel that even the reformists have failed to
deliver, and they blame a strong lobby within the
reformists' ranks themselves that does not want reforms
extending beyond certain limits.
The coalition
of reformist parties is headed by the Islamic Iran
Participation Front, which is the closest faction to
Khatami. It also includes the Association of Combatant
Clerics, the Workers' Union, the Organization of
Mujahideen of Islamic Revolution, the main student
organization and the Servants of Construction Party.
In this coalition, there is basically a radical
or left-wing trend represented by the Participation
Front and a centrist trend represented by the Servants
of Construction. In general, radicals prioritize social,
political and economic freedom, while centrists focus on
economic matters.
However, when the question
comes to giving a free hand to foreign investors, even
centrists generally side with conservatives. As a
result, despite all the attractive slogans, the reforms
have not succeeded, and in the eyes of the general
public there is hardly any difference between reformists
and conservatives.
Iranian
decision makers are not
ignorant of this situation. The ground realities are in
front of them. But they have political considerations to
look after and balances to strike in their policies. On
one hand, they do not want to annoy conservatives; and
on the other, they are faced with the challenge of
repairing a collapsing economic system.
It was
with this perspective that Asia Times Online spoke to
Eiraj Nadimi, an Iranian member of parliament and a
member of the committee for economic affairs of the
Islamic Consultative Assembly. The interview took place
in the building of the Iranian parliament in Tehran with
the help of an interpreter.
ATol: The
Iranian government now seems to be very keen on foreign
investment. What are the main fields?
Nadimi: Gas, petroleum, refining and oil
exploration are the main areas where we want foreign
investment.
ATol: Critics of Iranian
foreign investment policies are of the opinion that
these policies are loaded with so many restrictions -
local partnership requirements, etc - that foreign
investors do not see any attraction.
Nadimi: Yes, it is true that we aim for
local participation in every foreign investment.
However, still we have devised plans - for instance, in
the energy sector - under which we have given autonomy
to foreign investors. For example, in the refining
sector the foreign investor would have complete freedom
to export Iranian petroleum products single-handedly and
the freedom to make remittances.
ATol:
International financial institutions such as the
World Bank have reservations about the Iranian banking
sector. These institutions are highly critical of high
interest rates on deposits and markups on loans.
Similarly, the process of lending is also not viewed as
being transparent as far as professional banking norms
are concerned.
Nadimi: Iran has a
different Islamic banking system. The system is not
based on the concept of riba [usury]. Thus there
is no fixed interest rate on deposits. Here banks invest
depositors' money in trade and business. Whatever profit
is earned is distributed among the depositors. Similarly
the concept of loans is also based on different
principles. For instance, for marriages, banks provide
interest-free loans, but on house building, trade and
business financing, banks have different formulas to
recover their charges on financing.
ATol:
Another objection is perceived overstaffing. What steps
is the government taking for right-sizing?
Nadimi: We realize this problem and have
undertaken certain steps; for instance, in the last few
years Iranian banks have very rapidly switched from
manual banking operations to computerized operations [he
shows a swipe cash card.] In the presence of cash cards,
there is no need for too many people in the cash
departments. Now, in the first phase we have introduced
special retirement plans in the specialized banking
sector to gradually reduce the manpower. Those who have
completed 30 years' service are offered some benefits on
early retirement. These are the steps we have taken in
public sector banks. In private banks [the Iranian
government has allowed three new banks to operate] we
have given a free hand to entrepreneurs to adopt the
management policy they want to adopt.
ATol:
The Iranian government aims to bring Iranians back
from abroad to invest in Iran. Do you have any idea how
much investment to expect from Iranian expatriates?
Nadimi: There are no exact figures
available, but Iranian expatriates in Europe, the United
Arab Emirates, Kuwait and the US have roughly about $400
billion in capital.
ATol: What practical
steps is the Iranian government taking to attract this
capital?
Nadimi: In the last year, we
have take maximum steps to open Iranian markets to
Iranian expatriates. Maximum flexibility has now been
introduced; for instance, any Iranian expatriate can
continue to live abroad but he can purchase property in
Iran and freely launch a business whether in partnership
or independently.
ATol: And the results?
How much capital has come to Iran?
Nadimi: No exact figures are available,
but there are certain indicators which show that foreign
investment has come - for instance, property prices have
risen.
ATol: There is a
general perception that conservatives are not in favor
of foreign investment and they can disturb the process
in midstream. What steps has Iran taken to safeguard
the interests of investors, whether they are Iranians or
non-Iranians?
Nadimi: We have set up an
autonomous body called the Organization for Foreign
Investment. This body has been established by
legislation in parliament, and nobody can retract the
steps which are approved by the legal system. The head
of this organization is a seasoned financial expert who
also served in the World Bank.
ATol: The
people of Iran are upset over high inflation and price
hikes. What steps you have taken for their relief?
Nadimi: There are areas in which
government can play its role, and there are areas where
everybody is helpless. The government provides utilities
at cheaper rates. Electricity, water and gas are heavily
subsidized by the government for the general public.
Similarly, food items such as rice, cooking oil and
sugar are also available at subsidized rates. Petrol is
also subsidized for the public. However, there are other
factors, like drought and wars in the region, which have
an impact on the economy.
ATol: Does Iran
bring some flexibility to its trade policy with other
countries of the world?
Nadimi: Iran is
trading all over the world without any problems, except
in Israel and the US. However, we have indirect trade
ties with the US - we export US-branded computers, but
through Malaysia, we purchase Boeing aircraft, but
through England.
(©2002 Asia Times Online Co,
Ltd. All rights reserved. Please contact content@atimes.com
for information on our sales and syndication policies,
or to submit a letter to the editor.)
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