Monday, December 27, 2010

‎Dilemma of Iran’s Economic Reform Plan

Dilemmas of Iran’s Economic Reform Plan 
Ali Asghar Kazemi
December 201o
Nobody can logically contest the need for a major overhaul and structural change of the Iranian economy which suffers from a number chronic malaises inherited from wartime situation. The end of eight long years Iran-Iraq war was an opportunity to lead Iran’s economy to a rational and normal path that could promote productivity, efficiency and growth.  But, fear of social unrest and negative political ramifications impeded successive governments to embark on such a risky plan as to cutting subsidies or at least its faire distribution among needy layers of the society. Thus, during the past two decades, people got habituated to consume cheep energy resources in such a way unparallel in the whole world. (Average energy consumption in Iran is 6.5 times that of the world.)
Experts believe that previous pragmatic (Rafsanjani) or reformist (Khatami) governments could initiate such reforms more easily because domestic and international environments were somehow more favorable than today ’s hard-line president Ahmadinejad, who is engulfed with horrendous problems at home and abroad. However, this did not take place merely for the lack of insight and political expediencies. This has caused the nation as a whole tremendous loss because of the unprecedented waste of national resources.
At last, the Islamic government became conscious of the bitter fact that the continuation of this unfortunate trend could endanger the very survival of the regime. Thus, the restructuring of national economy found its way to the agenda of the decision-making apparatus of the system and the parliament voted for an economic reform plan and the executive decided to go for its implementation.
Despite the fact that most people see only one dimension of the scheme for which they feel most affected, i.e. energy, the plan has several aspects each of which is as important as the others. The plan calls for restructuring Iranian economy inter-alia in the following fields:  
  • Subsidy reform plan;
  • Reform in banking system and currency;
  • Reform in insurance  ;
  • Reform in customs control & excise;
  • Reform in taxation and wealth distribution ( V.A.T tax reform);
  • Increasing productivity – ( Internet and e-commerce in Iran);
  • Improving distribution of goods and services and the functioning of state organizations and privatization in Iran.

Without attempting to go into the detail of the above program, which is quite complicated and requires specialized knowledge, the objective here is to contend that the implementation of the economic reform plan needs a number of prerequisites without which chances for its failure are very high. We can summarize those preconditions tentatively as follows:
  1. A favorable domestic environment paving the way for people  bearing eventual economic hardship created due to inflation and price adjustments after the abolition of subsidies on energy and consumers goods;
  2. People confidence on the capacity, honesty and competence of the government.  This factor  has been under serious strains, especially after the alleged fraud and unconvinced presidential elections of 2009;
  3. A favorable international environment which facilitates foreign investments and transfer of technology. This dimension is seriously damaged due to the nuclear crisis  which has deprived Iran from all transactions  with the rest of the world through the adoption of four UN Security Council resolutions devising economic sanctions against Iran;
  4. A realistic understanding of the world’s rules of the game and a rational decision about friends and foes with a view to promote national interests in all circumstances and making Iran less vulnerable to outside threats;
  5. Transparency and truthfulness on all aspects regarding economic reform and sincere cooperation with the parliament with respect to the gradual implementation of the plan.
Political constraints of the economic reforms in Iran encompass social, cultural, psychological and human factors as well.  Handling the above requisites at present Iran seems rather difficult. Since, people have learned by experience during the past years that they should not rely much on  government officials whose  promises,    actions and intentions are not always genuine. This stems from lack of transparency and accountability which in turn gives way to rumors and negative information propagated by opposition groups inside and outside the country. Recurrent revelations about high level civilian and military corruption in various sectors of the society are indeed not helping the accomplishment of an unprecedented national plan for structural changes. Thus, people seem not prepared to sacrifice their short and long-run interests in situations that require devotion, dedication and support for those who have no true sympathy for them and their causes.
In order to gain support for its economic reform, the Islamic government has to convince people of its good intention and its capacity to cope with its adverse impact on people’s daily life. For that purpose it has to set up a parallel plan for confidence-building inside the country and with the rest of the world. Without fulfilling this requisite, the success of this bold and historic national scheme seems difficult to guarantee.
Two weeks after the official start of the initial phase of the economic reform plan, despite the fear of mass protests against ramifications of the scheme, nothing substantial has happened so far. This may mean one of the two things:
 - Either people are satisfied with the cash payment they received for subsidy compensation, which is an overly optimistic assessment, given the overall condition of the society;
-  Or they are waiting to see how the government will cope with price hike and inflation at least in the short-run, as repeatedly promised by the officials.
This latter hypothesis seems more realistic; since people are more or less skeptical of the success of the plan but they don’t want to be blamed for its failure and they are waiting to see its final fate without actively getting involved in its eventual crumple./

 ‎* Ali Asghar Kazemi is professor of Law and -International Relations in Tehran-Iran.
- Students, researchers, academic institutions, media or any party interested in using all or parts ‎of this article are welcomed to do so with the condition of giving full attribution to the author and ‎Strategic Discourse. ©All Copy Rights Reserved.‎

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