The Forum for Partners in Iran's Marketplace

May 2004 / No. 29


Shuffling the Surgeon of Iran’s Economy

There was no doubt that our ailing economy was in desperate need of attention and a surely painful operation, but with Tahmasb Mazaheri gone, one cannot help feeling that the surgeon has left the bedside.

Tahmasb Mazaheri, Former Minster of Economic Affairs and Finance

After weeks of discussion and political predictions, President Mohammad Khatami finally announced his cabinet reshuffle on April 18th. Iran’s parliament formally approved the minor cabinet reshuffle, confirming the new appointees to the ministries of labor and finance. In the reshuffle, Khatami—surprisingly—replaced finance minister Tahmasb Mazaheri with former labor minister Safdar Hosseini, who in turn was succeeded by cabinet newcomer Naser Khaleghi, a Majlis deputy from the central city of Isfahan. Both appointments were approved with an overwhelming majority of votes in the Majlis, which will be held by reformists loyal to the president until its mandate expires at the end of May.

Hosseini, 50, is from the southwestern province of Khuzestan, and holds a BA in agriculture from Shiraz University and obtained a PhD in the same field from Canada. He had been minister of labor and social affairs since 2001. Nasser Khaleqi, 55, a member of the Majlis Presiding Board, has a BS degree in mechanical engineering.

Dr. Mehdi Karbasian, Deputy General Minster of Economic Affairs and Finance

Cabinet members have attributed the changes to a need for better coordination between the Ministry of Economic Affairs and Finance and the state Management and Planning Organization. The changes come just a month before the new parliament dominated by conservatives takes over. In contrast to the incumbent reformist-held assembly, they have vowed to prioritize the economy amid complaints that Khatami’s allies have placed too much emphasis on social issues.

Vice-President for Legal and Parliamentary Affairs, Mohammad Ali Abtahi, said that these changes were taking place at this time because "the government needs coordination and unity in the last year" and added that this change would be the last in President Khatami’s cabinet, stressing that Interior Minister Abdolvahed Moussavi Lari will hold his portfolio. Despite Khatami’s respect for the two bodies, a change can speed up the results of the government’s efforts, he noted. However when the new Majlis begins its work, more cabinet changes are expected, with hardliners and conservatives keen to see the back of some of Khatami’s more left-leaning cabinet colleagues.

Today, our economy is not dynamic and productive, although it could have been so and Tahmasb Mazaheri—with the help of his right-hand man, Dr. Mehdi Karbasian—was determined to make it so.

The newly appointed Minister of Economic Affairs and Finance, Safdar Hosseini, stated that he will fully support the development of capital markets in his new position. Speaking during a visit to Tehran Stock Exchange (TSE) facilities, he added that the expansion of capital markets is one of the primary priorities of the fourth five-year development plan (March 2005-2010).

Safdar Hosseini, New Minster of Economic Affairs and Finance and Former Labor Minister

Promoting savings and increasing investments are among the priorities of the capital markets. Developed capital markets are effective instruments in inducing greater public participation in the overall economic development of the country. The recent law pertaining to the capital markets is an important step in removing obstacles and snags facing the markets.

Deputy General of Minister of Economic Affairs and Finance, Dr. Mehdi Karbasian, has previously said that the stock market has been experiencing a boom with the market capitalization rising from $13 billion to $40 billion since last March. He also reckoned that market capitalization will top $10 billion by the end of the next Iranian year (March 2005).

He stressed the need for garnering small and unorganized capital to the stock market and therefore "fostering a savings mentality among the public and boosting production and employment."

Dr. Karbasian further touched on the government policies to boost private sector investments. "In addition to the provision of over $3.5 billion of credit from the Foreign Exchange Reserve Fund for the private sector to the end of January, the private sector has infused $1.5 billion of capital in the markets, which is a satisfactory figure." Over 9,000 billion rials worth of shares of state-owned firms have been ceded to the public and the sum is expected to rise to 22,000 billion rials next year.

So far, investments proposals to the tune of 25 billion rials have been presented to TSE. These proposals have been partially made by Arab countries and some others by Iranian expatriates living in Spain and Britain which are being evaluated.

One of Mazaheri’s main determinations was to see the government through its privatization drive and has called it "the remedy for the Iranian economy".

Mazaheri a Man of Economic Might: It is most unfortunate to see Tahmasb Mazaheri go from his position as the Minister of Economic Affairs and Finance. There has been much talk about Iran’s ailing economy during President Khatami’s time in office, but most of our economic problems are rooted in the past. Today, our economy is not dynamic and productive, although it could have been so and Tahmasb Mazaheri—with the help of his right-hand man, Dr. Mehdi Karbasian—was determined to make it so. The problems he has faced over his seven-year tenure have been largely infrastructural, such as the 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 so on, in addition to daily problems such as high price of public goods and housing in comparison to income of households, and unemployment.

Mazaheri had shown unwavering resolve in finding a solution for every one of these problems and tried to correct the 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. It goes without saying that solving infrastructural problems, at times, leads to the creation of temporary hardships for people. Mazaheri always tried to identify these problems and make compensatory decisions to minimize pressures on the low-income strata, but he also had the courage to make the hard decisions when it was needed. This appears to have cost him his job, because he was working in a place where the incorrect existing structures have become so institutionalized in our minds that any effort to change them is faced with fierce resistance. That is not to say he made no attempt to minimize this resistance; he did, through census and reducing friction by getting the agreement of legal authorities and people’s representatives in the Majlis.

Mazaheri never turned a blind eye to the continuous grapple of people with their everyday problems, which included some shortages, high prices, as well as low quality of some goods and services. He work hard to solve these problems, but to do so a consumption model had to 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.

Moreover, the Gini index, which is an index of income distribution among various social strata, has greatly improved during Mazaheri’s time in office. There are various tools for achieving an equality of wealth distribution and perhaps the most important of those tools are taxes and social security. Taxes, although unpopular, can play a pivotal role in distribution of wealth in a country and prevent the amassment of wealth.

Mazaheri sought to organize the economic activities of the country and improve its structures; but such a task cannot be accomplished quickly or single-handedly, especially in a country which is renowned for its many parallel institutions. Supervision of executive bodies, elimination of legal obstacles, amending financial and managerial regulations, downsizing the government and going on with the privatization drive were the main steps Mazaheri took to address these concerns.

Another issue which has been crippling Iran’s economy has been goods smuggling. Mazaheri confronted this issue by attacking its root cause, and making domestic markets competitive compared to foreign markets both qualitatively and quantitatively. This included the removal of tariff obstacles for import of goods and instating suitable tariffs. The competitiveness of the economy, unification of the foreign exchange rate and preventing the establishment of illegal points of entry and exit at the border have all been steps taken to reduce motivations for smuggling.

One of Mazaheri’s main determinations was to see the government through its privatization drive and has called it "the remedy for the Iranian economy". However, privatization goals have been largely unrealized and this is because the transaction from a state-run economy dependent on oil to a private one is not a simple task. Naturally, there has been resistance in the government bodies, but Mazaheri did his best to largely eliminate them. He drew up a list of companies and determined executive mechanisms to achieve the privatization goals. He never looked upon privatization as source of revenue, but as an approach to downsizing the government, boosting people’s participation and materialization of sustainable development.

Finally, one of the most important and infrastructural moves of Mazaheri was to make a balance between the country’s expenses and revenues. Surplus oil revenues could have always been injected into the economy and this would have been in continuation of the trend rife throughout our history and it would have led to Mazaheri’s political and social popularity. But Mazaheri took the hard decision and decided to settle surplus oil revenues to the Forex Reserve Fund and not the Treasury. The needed revenues of the government must be supplied from other sources, the most important of which is direct taxes.


Subscribe to

  May  2004 / No. 29