Page 2 of
2 Ahmadinejad stages a bureaucratic
revolution By Kaveh L Afrasiabi
approach, its "unworkable"
inflation-reduction scheme, its lack of attention
to the "informal economy", its unrealistic "export
leap" of 36%, and its "multiple" exchange-rate
policy that encourages black-market revaluation
and rent-seeking.
From the outset, one of
the major problems with the planning scheme has
been how to reconcile it with fluctuating and
hard-to-predict oil income, in light of the
government's dependence on oil
revenues for more than 80% of
its annual budget. Thus, for instance, the
conservative estimate of a benchmark oil price of
$12 a barrel by the Planning Bureau's Third Five
Year Plan turned out to be woefully below that of
steadily rising oil prices, in turn causing havoc
on the government's fiscal and other priorities
set by the relatively static planning model. So
given the difficulty in gauging volatility on the
world's oil market, Iran's economy is structurally
ill-suited to the five-year planning model and
works more smoothly under a shorter duration of
planning.
With respect to the
still-unfulfilled "privatization" agenda, Iran's
Supreme Leader Ayatollah Ali Khamenei recently
issued a directive to revise Article 44 of the
constitution pertaining to the economy's
tripartite - state, private and cooperative -
sectors, as a timely boost for the latter two. In
this connection, Ahmadinejad has stated the
government's intention to set up a new cooperative
bank.
A key aspect of economic planning
that may be lost pertains to the advance of women
in the economy. Their participation in various
aspects of economic life has grown noticeably,
partly because of economic planning, and without
it it may be difficult to maintain this trend.
It is noteworthy that Item 34 of the third
plan pertained to the privatization of the oil
industry, in tandem with Article 44, which
unconditionally supports the state oil monopoly.
Given the oil sector's dire need for investment
and restructuring, this neglected aspect of the
five-year plan requires urgent attention, yet it
may be a casualty of the president's anti-planning
drive. Breaking the monopoly of the oil-and-gas
sector is long overdue, yet it is such a sensitive
national issue that it can only be managed through
constitutional revision.
Other
"unfulfilled" aspects of the five-year plan need
equal attention, such as its non-oil export
targets, which have fallen short of the predicted
$8.8 billion for 2006, or foreign investment,
which fell to the paltry figure of $500 million in
2006, per a recent Work Bank report on Iran. The
report, based on the opinion of six economists,
gives Iran credit in several instances, such as
inflation reduction, currently above 13%. However,
Iran's annual economic growth rate of 5.8% in 2006
was slightly below the 6% estimated by the
planners, yet hardly a confirmation of a "stagnant
economy" charged by the government's critics.
Iran has a robust set of laws for the
protection of foreign investment, but the problem
is less with Iranian laws and the government's
preferences and more with United Nations and US
sanctions discouraging foreign investment because
of Iran's nuclear program.
A fundamental
problem of the government's economic policy
relates to expensive subsidies, highlighted
recently in its decision to ration gasoline
consumption and to reduce subsidies in energy
consumption. The Iranian welfare state is
resistant to any structural reform, given the
political dividends of a public legitimacy and the
like, thus putting a premium on Ahmadinejad's
reform agenda, and it comes as no surprise that
the latest plan's call for the elimination of
subsidies has not materialized. In the
agricultural sector and the powerful sector of
sprawling "para-statal" corporations, Iranian
economists' visions of an innovative policy
collide with the continuing logic of subsidies for
Iran's growing population of nearly 70 million.
At present, an important prerequisite for
sound reform of the welfare state, namely adequate
oversight and supervision of the semi-public
conglomerates known as foundations and the
(largely unprofitable) state corporations, is
sadly lacking. A new tax policy is necessary that
would subject both the foundations and the state
corporations, which consume the bulk of the
government's budget even though their overall
profit rate is less than 1%, to the requirements
of disciplined tax extraction that would be tough
on tax evaders and which also grooms the
government's woefully inadequate use of
professional auditors.
The president's
promise of "economic justice" lacks a sound tax
dimension, and yet too much emphasis on tax
justice can also be a hindrance to the hitherto
sluggish private sector, which must be promoted
through new and innovative incentives. Ahmadinejad
has belatedly given this some attention by
focusing on capital circulation, the stock market
and reform of the electronics trade that is in
dire need of new regulations. The latter moves are
a part of Iran's bid to join the World Trade
Organization (WTO).
Concerning Iran's
membership in the WTO and the welter of economic
adjustments necessary to remove existing
obstacles, in light of a WTO working committee on
Iran's application, the United States' objection
is perhaps the biggest obstacle. This will not
change as long as the US gatekeepers to the WTO
are not convinced of Iran "playing up to par" with
economic adjustments, not to mention political and
other considerations.
With a tiny share of
world trade, less than half a percent, Iran has
been focusing on trade promotion, in part through
free-trade zones, such as on the islands of Qeshm
and Keesh, which have enormous potential.
In conclusion, the good news is that
finally someone in Iran is doing something about
the traditional commitment of resources through
the five-year plans. The not-so-good news is the
expected resistance of vested interests and the
powers that be to the president's bureaucratic
revolution and the weak organizational dimension
of this revolution in the making.
Instead
of issuing judgments on Ahmadinejad's experiment,
Iran's economists and others, some of whom have
been highly critical of the government's
performance and policies, may need to focus on the
need for the time and space necessary to allow
these important changes to have an effect. One
thing is certain: the option of recycling the
outdated five-year plan mechanism is a road better
not taken.
Kaveh L Afrasiabi,
PhD, is the author of After Khomeini: New
Directions in Iran's Foreign Policy (Westview
Press) and co-author of "Negotiating Iran's
Nuclear Populism", Brown Journal of World Affairs,
Volume XII, Issue 2, Summer 2005, with Mustafa
Kibaroglu. He also wrote "Keeping Iran's nuclear
potential latent", Harvard International Review,
and is author ofIran's Nuclear
Program: Debating Facts Versus Fiction.
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