September 2006, No. 41

Economy

A Tough Test

Hashemi Rafsanjani’s viewpoints are determining during all Expediency Council sessions, but some analysts maintain that some political figures are not willing for the Expediency Council’s powers to be further extended under current conditions.

Ratification of general policies of Article 44 of Constitution by the Expediency Council and its notification to heads of three powers can be considered a major stride toward giving economic affairs of the country to the private sector and a major economic leap for Iran. It seems that transition from a state-run economy to a liberal economy for a country where the government has always played a major role in economic activities would not be easy. However, reaching that point would signal a new development in the country’s economy and would be a tough test for the present government.

Now that several weeks have lapsed since the Supreme Leader issued his decree on privatization of major state-run companies, expert discussions on how to implement the decree are still going on. According to general policies of Article 44 of Constitution, the government will be obliged to limit its investments and, simultaneous with development of the cooperative sector, pave the way for cession of 80 percent of stocks of big state-run companies to the private sector, thus paving the way for liberation of the Iranian economy from total and absolute rule of the government.

Doing away with government’s monopoly which is a major obstacle to improving economic structure of Iran to establish a competitive atmosphere, requires a new interpretation of shares of state-run, cooperative and private sectors in the Iranian economy. This job was taken over at the Expediency Council in 1997. After many expert studies by Macroeconomy and Trade Commission of the Expediency Council, members of the Council held 14 sessions over five months and ratified general policies of Article 44 in five paragraphs. After final approval of the 20-Year Perspective Plan by the Supreme Leader in 2005, the way was cleared for implementing Article 44 of the Constitution of the Islamic Republic of Iran. In fact, realization of the goals of that plan requires elimination of obstacles and problems facing domestic economy. Among those obstacles one can refer to existence of an oversized state-run economic system and historical domination of government over economic structure of the country, which has faced it with many essential impediments instead of facilitating economic affairs.

Therefore, approval of Expediency Council’s ratification on Article 44 by the Supreme Leader was considered by most experts as a new revolution in the economic spheres of Iran. Also, Expediency Council’s interpretation of Article 44 has raised hopes in government’s success in realizing goals of the 20-Year Perspective Plan, which emphasized on transition of the government from a state-run to a liberal economy. Expediency Council was expected to play its role in this regard by presenting suitable solutions. Ratification of general policies of Article 44 and presenting them to the Supreme Leader for final approval was a major step in this regard.

Status of Expediency Council: Nine years ago and after Hashemi Rafsanjani took charge of the Expediency Council, the institution started to play a more active role in domestic developments. Hashemi Rafsanjani’s viewpoints are determining during all Expediency Council sessions, but some analysts maintain that some political figures are not willing for the Expediency Council’s powers to be further extended under current conditions.

The Expediency Council believes that the private and cooperative sectors should be empowered and this will not be possible unless through downsizing the government and changing its control to supervision and guidance. Therefore, state-run, private and cooperative sectors that are responsible for achievement of goals of the 20-Year Perspective Plan should increase cooperation, empathy and coordination to implement the Supreme Leader’s decree in the best possible manner.

Supervisor, Not Implementer: A group of analysts believe that now that after 27 years of implementation of Article 44 of the Constitution, limits of the government’s competence for running big economic corporations have been made clear, return by government to policymaking, guidance and supervision with regard to economic activities can be harbinger of more productive activities to be carried out by the private sector. State’s role in the Iranian economy increased after 1974 following increase in oil revenues. After victory of the Islamic Revolution when most banks and industries were nationalized, role of the government became more pronounced. During the war with Iraq, the government played more powerful role in economy on the pretext of supporting people and preventing a crisis and the number of state-run companies suddenly increased. After the war was over and during implementation of the First Economic Development Plan, attention was paid to privatization of governmental companies, but it failed in practice. Afterwards, though establishment of more state-run companies was banned, government’s control over economy continued through establishment of state-run, but outwardly private, companies.

Under those conditions and within frame of the Supreme Leader’s decree, the government was obliged to reduce 20 percent per year of its control over companies not included in Article 44 of Constitution and pave the way for liberation of the Iranian economy. To realize the goal of ceding 80 percent of stocks of big governmental companies, it was decided that the government should empower the private sector and help public joint stock cooperatives through legal supports. According to the latest statements by the Expediency Council, the value of government’s companies and corporation amounts to more than 120,000 billion tomans (130 billion dollars) and the government has been obliged to cede about 96,000 billion tomans of those assets through Tehran Stock Exchange. On the other hand, some analysts have mentioned resistance of directors of state-run companies to privatization as a major obstacle to privatization trend in Iran.

Some observers say that in view of interpretation of the Expediency Council of general policies of Article 44 of Constitution, which includes nonmilitary economic activities by the Armed Forces including the Islamic Revolution Guards Corps, the government will not be able to use a semi-governmental approach to renew its control.

The Expediency Council has announced that, according to the Supreme Leader’s edict, it is in charge of supervising good implementation of the decree and will present its first report on performance of the government to people and the Supreme Leader by the end of the current Iranian calendar year (started March 21, 2006). In that case, concerns about increased interference by the government in economic affairs through dictating its orders, which were raised after President Mahmoud Ahmadinejad won the presidential election, will be to some extent, allayed.

However, what the Expediency Council has done in theory to help privatization drive should be implemented in practice because the government’s role should change from ownership and direct management of economic corporations to policymaking, supervision and guidance. If such policies are implemented painstakingly, they can lead to profound economic, social, and cultural developments in the country. We must not forget that achieving goals of the 20-Year Perspective Plan needs a collection of mechanisms and good grounds. Also, the government should be downsized and more room should be given to economic activities of private and cooperative sectors. Successful implementation of general policies of Article 44 of Constitution also requires legal tools outside the government. Experience has shown that monopolism in any field will be problematic and, therefore, successful implementation of the said policies should not be solely expected from the government.

It is forecasted that, at least, 10 years are needed to achieve those goals. Therefore, some analysts fear that during that long period, transfers to the private sector and implementation of plans and policies will be forgotten and determination of authorities will dampen. To prevent this from happening, we must think of suitable mechanisms. However, due to historical domination of government on economic structure of the country, some resistance inside the government and other powers against downsizing the government is possible. Compiling a law to fight monopolies and painstaking supervision by relevant bodies on good implementation of policies, will prevent continuation of historical domination of the government, monopolism and rent seeking.

However, there are concerns that some state-run plants and economic corporations will be given to influential personalities as well as semi-governmental centers under the guise of privatization. Mohsen Rezaei, secretary of the Expediency Council says in this regard: “To prevent this from happening, transfers to the private sector should be based on the policy of competitiveness and any kind of relationship outside economic equations or through information rents, which is harmful to national interests, should be cut off.”

However, what actually guarantees implementation of general policies of Article 44, is doing away with state monopoly and management in all fields. The government should get used to acting as a support rather than a guardian. Meanwhile, supervisory role of the Expediency Council on the government’s performance is very important. The Expediency Council can guarantee good implementation of those policies through bolstering its supervisory role.