Development plans, reform packages, investment forums and partnership seminars have been launched one after another in the recent years to ease the burden of Iran’s ailing economy. However, an evaluation of the country’s economic situation based on such indicators as human resources, industrial productivity, agriculture and services provides a realistic account of what has been achieved so far.
Some veteran Iranian economists believe that should the current status continue, the economy is unlikely to see any remarkable improvement in short or mid term. The economic reform plans which started following the end of Iran-Iraq war came to a standstill in 1994 and the country’s economy has been subject to daily fluctuations ever since. Rather than systematic solutions, in most cases, daily remedies have been adopted to deal with these daily fluctuations.
The Second Five-Year Socioeconomic Development Plan which was to be completed by 2000, did not accomplish all of its far-reaching objectives. Moreover, the newly-started Third Development Plan still needs clarifications in some areas. This plan faces a huge job-seeking population who is expected to press the market in the next 5-10 years. For one thing, the public sector looks incapable of job creation since it is already overstaffed. The government, then, is not going to be the main job creator. Policies adopted by Iranian decision-makers during the recent years have resulted in the expansion of the services sector which is short on employment opportunities. In addition to unemployment, the Iranian economy suffers from the low productivity of the employed population.

Hurdles: Ideas account for the biggest problem of Iran’s economic development. For 20 years, Iran has experienced a state-owned economy with low productivity. After the war, the decision was made to establish a free pricing system, privatize industries and companies, eliminate subsidies and create one single rate of foreign exchange. Unfortunately, this economic liberalization policy was not backed by clear strategies and strong theories. Furthermore, economic reform was given to hands of anti-reform authorities.
As a result, economic restructuring failed to keep going. Once the government was faced with inflation and foreign debt, it withdrew from the liberalization agenda. This kind of setback led to a misunderstanding in the society: some put the blame of hardships on economic reform measures. This misunderstanding still exists. The truth is that underdevelopment of Iranian economy has not been caused by economic reform measures; it has been caused actually by a stop to economic reform. All the government had to do back then was practicing liberalization before privatization while revising the monetary policies. As long as there are no strong monetary and financial institutions and private banks, privatization is threatened by corruption. Remedies for achieving real economic reform are still the same: Elimination of subsidies, minimizing the state ownership and establishing a single exchange rate system.

Fuel Subsidy: Each year, the Iranian government expends $12 billion on fuel subsidies. Economists point to the vast purposes that this amount of budget could serve if applied in some other areas. Statistical data show that 10% of the most underprivileged people consume only 1% of all the fuel in the country while 10% of the rich classes burn 30% of the fuel. Therefore, the subsidies are going to the rich, not to the poor.
Based on this judgement, many economists support the government in raising the fuel prices to a justifiable level to ensure a fair distribution of income. Inflation, they argue, is a result of irrationally high liquidity. Therefore, elimination of fuel subsidies won’t make inflation any worse than it already is.

A Better Status: Economic reform is a long road ahead of Iran. Nevertheless, Iran has its hopes to achieve a better economic status within short and mid terms. The remedies don’t seem to be numerous: establishing a free, competitive economy.
All economies that banned a free system have failed in one way or another. Meanwhile, there is not one accomplished economy that has taken any road other than that of free, competitive economy. Iranian decision-makers must be assured of the fact that allowing such a free system does not mean a Westernization of economy.
Stress must be made here that economic reform is a package of social, political and cultural considerations. Accomplishment is unlikely unless all ingredients are included. A modern society is based on free economy and liberal democracy; lack of any one will ruin the other one. If a country fails to achieve both these on time, it will be marginalized in the “global village”.
All scholars agree that Iran possesses the potentials to grow. The only thing it needs is a framework that would organize production factors and resources. Economic security and a guarantee of capital turnover are two different things. As a matter of fact, economic security is regarded as a predictable reaction of government and institutions toward a development. As long as regulations change due to variety of tastes and the next developments remain unpredictable, Iranian economy is not ranked as secure and risk-free. Establishing a rule of law seems like the only key to economic security, and the rule of law is against the excessive number of rules and regulations. Greater transparency of the Iranian economic system lies in minimizing rules and regulations.
Lack of competition is another issue that has harmed the Iranian economic system. Formation of monopolies in both the state and public sectors is a major cause of low productivity of the economic system. Iran’s economy must start appreciating the fact that “competition” is a “value”.

* A viewpoint by Dr. Moussa Ghaninejad, senior economist