As his second and final term draws closer to its end, President Mohammad Khatami is looking back on the economic achievements of his time in office. His government has dragged the economy through many ups and downs over the course of six years and despite some remarkable successes, the President still talks about Iran’s ailing economy in many of his speeches. This Q&A seeks to let the President elaborate on the nature of the ailment and ways he proposes to treat it.

Today, our economy is not dynamic and productive, although it could have been so and we are determined to make it so

Our economic problems are rooted in the past. I don’t mean the past few governments, but the root cause should be sought in political and economic history of the country. Today, our economy is not dynamic and productive, although it could have been so and we are determined to make it so. Infrastructural economic problems can be mentioned as dependence of government’s revenues on oil, dependence of the country’s economic growth on foreign exchange revenues earned through crude oil exports, lack of varied financial and monetary markets, lack of a logical and coordinated connection with global monetary markets, low non-oil exports, state-run economy and the like, in addition to daily problems such as high price of public goods and housing in comparison to income of households, and unemployment.

Every one of these problems has its own solution. The government has always tried and will continue to try to correct the existing conditions through finding legal solutions including obtaining necessary permits, approving laws and regulations through concerned bodies, supplying resources, management of economic resources, attraction of domestic and foreign capital and directing them toward production.

Of course, it must be noted that solving infrastructural problems, at times, leads to creation of temporary hardships for people. My government has always tried to identify these problems and make compensatory decisions to minimize pressures on low-income strata. The existing structures have become institutionalized in our minds and any effort to change them is generally faced with resistance. The important point is how we approach such resistance and treat it. We have tried to minimize this resistance through census and reduce friction by getting the agreement of legal authorities and people’s representatives (in the Majlis).

However, people are continuously grappling with everyday problems. They include some shortages, high prices, as well as low quality of some goods and services. We must work harder to solve these problems. Although to solve the problems facing the current generation, a consumption model should be formed in such a way as to pave the way for attraction of capital to all economic sectors and prosperity of non-governmental and especially private corporations. Economic dynamism and job creation would be impossible without investment.

Based on studies, the Gini index, which is an index of income distribution among various social strata, has greatly improved compared with pre-revolution period. However, we must be aware that there are various tools for equality of wealth distribution. Perhaps the most important of those tools are taxes as well as the social security.

Taxes can play a pivotal role in distribution of wealth in the country and preventing amassment of wealth through exacting surplus revenues of people. The new law of direct taxes and its modern approach will help he government take basic steps for correcting the Gini index and encouraging equitable wealth distribution. Good developments have taken place with regard to social security during past 5-6 years and I hope they would continue in the future.

The class differences are not exclusive to our country or economy and are not a new phenomenon of our time; rather they have been present in all societies and the main concern is the depth of those differences.

As I said before, based on studies class differences, as determined by Gini index, have lessened during past 25 years. The same is true about economic corruption, which is a common phenomenon in all societies. Of course, we expect more from a religious democracy and our norms should be higher than those of other societies.

By organizing economic activities in the country and improving structures, many current problems can be solved and I emphasize that social problems (including structural economic issues) cannot be solved through approving a single law or a taking a single measure, but time is needed before they come to fruition. More supervision by the government on the executive bodies, elimination of legal obstacles, amending financial and managerial regulations, downsizing the government and going on with privatization drive are major measures, which have been or are being taken by the government.

Smuggling must be divided in two categories. One is entry to the country of illegal commodities while the other one is entry of authorized goods through illegal channels. The first category should be fought by boosting supervision over borders and seriously punishing smugglers. The government has taken positive measures in this regard by supplying equipment, tools and other necessary facilities for legal authorities including the police force. Due to laudable efforts made by the police and other authorities, I believe that smuggling is declining.

However, the second type of smuggling; that is illegal entry of authorized goods, must be prevented by making domestic markets competitive compared to foreign markets both qualitatively and quantitatively.

A step taken by us has been removal of tariff obstacles for import of goods and considering suitable tariffs for imports and we have been partly successful in this regard. In other words, competitiveness of the economy, unification of foreign exchange rate and, finally, preventing establishment of illegal entries and exits at border points and making economy competitive will reduce motivations for smuggling.

Iran is a potentially powerful and wealthy country that enjoys exclusive advantages and young manpower is our most important capital. Iran enjoys all prerequisites of a rapid economic growth. The 20-year strategy delineates a large scale context for putting potentials into action.

We are among the most ancient nations in the world in scientific, historical, social, political and economic terms and still need science and perseverance. Praiseworthy economic growth, developments in industry, mines and agriculture as well as boosting services and the ability to do great works have been achieved during recent years and raised our hope in the future.

Of course, achieving those position needs prerequisites that would be realized during the Fourth Economic Development Plan and everybody should to anything they can in this regard. We hope to achieve those goals during the five-year development plan.

Passing though a state-run economy dependent on oil to a private one is not a simple task. Naturally, if there has been resistance to privatization, it has been largely eliminated. A list of companies has been drawn up and executive mechanisms have been determined. The government has not considered privatization a source of budget, but it is an approach to downsizing the government, people’s participation and materialization of sustainable development.

One of the most important and infrastructural moves of the government was to make a balance between its expenses and revenues. We could inject surplus oil revenues into the economy. This trend had been rife throughout our history and it led to political and social popularity of the governments too. However, the government preferred to settle surplus oil revenues to the Forex Reserve Fund and not the Treasury.

The needed revenues of the government must be supplied by from other sources, the most important of which is direct taxes. In the future we would witness the effects of the amended tax law, especially when the bill for added value tax is ratified and enforced. I and my government emphasize realization of other revenues projected by law. Of course, we must not forget that budget is only a projection and its realization requires suitable conditions.

During the past 25 years, our country has passed through many junctures and crises and has been generally successful. Naturally, we have adopted various policies and strategies in the face of every crisis in line with the basic principles of our revolution. For example, the war required a kind of policy, which was different from the policy adopted during the reconstruction period.

The present government has always stressed boosting public participation and civil society to promote the Islamic Republic of Iran’s standing in the international arena. We achieved this goal last year and many countries tried to mend fences with us. This achievement was reflected in the country’s trade figures as well as growth of foreign direct investment and tourism, apart from temporary period that coincided with wars in Afghanistan and Iraq.

Therefore, continuation of those achievements requires success of the whole system in promoting civil society. The more we would be successful in this regard, the more successful would be our foreign policy. Although hostilities are high, if the trend initiated by this government had continued and numerous obstacles were not created, we would have been much more successful today.

The dialogue among civilizations and détente, although are not contradictory, are of two different types. Dialogue among civilizations is a general solution that depicts a paradigm whose international aspect is more important than its domestic aspect while détente directly affects our country.

Dialogue among civilizations was proposed under conditions that tendencies resulting from the theory of clash of civilizations had bedeviled the international atmosphere to the extent that any kind of cooperation was close to be replaced with hostility and unilateralism. This message assumed an international aspect before long and a kind of census was reached over it by the international community. It also played a great role in boosting our country’s standing with the international community.

Of course, the main addressees of dialogue among civilization are thinkers and cultural people and not politicians, though when it spreads, it would affect politicians too. However, this theory has strong enemies the most important of which has been reflected in two kinds of extremist views that lead to the most destructive form of terrorism, on the one hand, and to war, invasion and destabilizing international atmosphere, on the other hand.