The Iranian economy has gone through many ups and downs. The First Economic Development Plan was implemented at a time when Iran had experienced an eight-year war and needed a radical overhaul of its economic structure. "Economic reform policy" was on the agenda at that time and was a harbinger to economic development plans. That plan faced many difficulties in practice so that the Second Economic Development Plan, which was a sequel to the First Economic Development Plan was not implemented and gave way to economic stabilization plan, while the essence of an economic reform policy is its continuation. The Third Economic Development Plan was still a combination of experiences gained through the First and Second development plans. Although the plan was facing difficulties in practice, it has been described as the most successful economic development plan during post-revolutionary years. What should be discussed here are two unsuccessful plans in addition to a successful one as well as the Fourth Economic Development Plan, which is structurally different from its predecessors. Since studying experiences, failure and achievements of every economic plan is part of professional agenda of all media, we plan to issue viewpoints of experts in economic development plans. The first interview was carried out with Ali-naqi Mashayekhi, Professor of Management at Management and Economics Faculty of Sharif University of Technology in which he touched upon problems experienced by the Iranian economy during the said economic development plans.  

In order to have a successful organization, it is not enough to have a plan, but other elements are needed as well. I think there was a problem in running the country, which was non-implementation of suitable plans. In general, other elements are needed for success: there should be a suitable executive and organizational structure to follow up the plan and there should be a good supervisory system to monitor possible deviations from the plan. There should be a motivational system to encourage implementation of the plan. In the absence of the above elements, even the best plans are doomed to fail. Another issue is the degree of understanding contents of the plan because every plan’s content should be understood by those who are supposed to implement it. If they do not understand or accept the plan, they may act opposite the plan’s content. The economic reform policy enjoys such logical principles which it is very hard to oppose. One principle is that the government should spend as much as it earns that is there should be a balance between earnings and expenses. In case of mismatch, inflation will be exacerbated. During the said plans, instead of reducing budget deficit, part of it was concealed. They obliged the banks to grant obligatory credits and told project implementers to ask banks for credit.

Another instance they referred to is that there should be a balance between imports and exports through regulation of foreign exchange rate. If imports exceed exports, it means that you need more foreign currency to import goods and since you demand more foreign exchange, parity rate should go up to keep the balance. Now if you cut that relationship, you will be facing problems. This happened during the First Economic Development Plan and in early years of the Second Economic Development Plan, when the government tried to dictate foreign exchange rate despite its reform policy. For example, they issued circulars to the effect that the parity rate should not be 1300 rials but 900 or 700 rials, and so on. On the other hand, to show that we have enough foreign currency, everybody was allowed to open lines of credit at the declared foreign exchange rate. People were enthusiastic about opening the said lines and there was no control mechanism. Then we were informed that the country has been burdened with massive commitments, because foreign exchange rate was low and imports were profitable. At that time, there were people who imported machinery for plants and quoted higher prices so as to get more foreign exchange. Then they sold the extra foreign exchange in the black market. So, they dictated foreign exchange rate, on the one hand, while allowing everybody to import as much as they wanted. The inflow of imports led to imbalance between imports and exports and brought heavy debts on the country. As a result a lot of foreign exchange earning of the country was exhausted on payment of those debts. Therefore, the government had to run the country in a manner as if, foreign exchange earnings were half the actual figure. For example, of our oil revenues standing at $16 billion, $8 billion was spent on repayment of debts and $8 billion remained to be spent inside the country. This led to huge budgetary deficit, increased volume of liquidity and beefed up inflation to above 50%. When inflation rate hit 50%, some said it was due to economic reform policy, but not observing principles of that policy was the main reason.

Yes, we should have first provided suitable grounds to cushion some pressures on the poor. A principle of reform policy is that price of goods should be set according to supply and demand or match international rates. Otherwise, prices will send erroneous signals to economy and economic sources will to produce needed commodities. This is a major orientation for reform policy. According to this definition, we must not determine energy price, because when we set a low price on energy, energy consumption will be encouraged, rail and public transport is not developed and smuggling is intensified. This means energy wastage in the country. If we had not taken this wrong course, resources that are wasted as energy could be used to good effect to improve education, health and other affairs. It is wrong to pay high subsidies on energy and increase it every year. We must set real energy prices to prevent wastage and use energy resources for more basic projects. To do this, we must go through a transition period during which there may be disturbances in prices and people’s purchasing power. We must think of ways to cushion pressure on the poor during that period. Otherwise, we better postpone that plan. Sometime, we will have to solve this issue, and as time goes by, pressures will be higher. Therefore, implementing development plans needs suitable grounds. It means that in transition from a disturbed pricing system to a system where prices are set by supply and demand, we must establish infrastructures to lessen pressures on the poor.

They were not complete and a reason was the weakness of the executive system. If executive grounds are not paved, politicians will be wary about the transition because it entails untoward short-term consequences. When our problems with energy subsidy were few, we took no steps to solve it. Now the problem has gotten bigger and its solution has become correspondingly more difficult. The reason is that changing established energy infrastructures is very difficult.

It is true. Establishing suitable infrastructures hinges on the executive skills of the country. It depends on how we appoint and assess directors and how posts are distributed among them. Therefore, an efficient executive system is needed. The structure may be weak because that system is not in place or directors have not been given posts according to their qualifications. It is for this reason that I emphasize that not only a plan, but also suitable structure is needed for the success of the plan. Therefore, part of the reform may involve structure, while part of it may include directors and executive officials. If suitable structure is not established, the plan will fail.

This is a process that should be carried out hand in hand. We cannot complete one side of it without improving the other side. As we go on with the reform plan, we also move toward improving infrastructure. If we only focused on a single domain, weakness of other domain will cause it to fail.

I think it would have been better if we continued with the plan. If mistakes were not made during the plan, it would have been easier. We made major mistakes and, at last, we were forced to let the market determine foreign exchange rate. It was a bad mistake. Therefore, I reiterate that economic reform policy enjoys components that if explained clearly, nobody will oppose them. Nobody will be opposed to government’s expenses being proportional to its earning, or opposed to balance between imports and exports. If a commodity is in short supply, according to reform policy, its price should increase until people would have to produce more of that commodity. The benefit goes to people because goods become plentiful and inexpensive. It only needs a little time. If we do not allocate that time, we will suffer in terms of low capacities and lack of technology transfer as well as more unemployment. The main question is what we should do to reduce pressure on lower social classes during the said transitional period?