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September 2017, No. 85


Economy

The Triangle of Rescuing Iran Economy


I propose elimination of three economic bottlenecks: the triangle to rescue Iran’s economy comprises removal of “smuggling and corruption”, the “banking system crisis”, and finally “uncompetitiveness of the economy”.


Dr. Mehdi Behkish,
Senior Economist

Experts and officials agree that a higher economic growth and more employment are seriously needed by the country; but what they do not agree upon is how to achieve higher growth. Some believe that it is imperative to become competitive but some others would give priority to introversion and yet some others cite an interpretation of the ‘resistant economy’ whereby security of the country and the system would be better served.

Free economy experts maintain that in the globalized world of today achieving higher growth is not possible except through becoming competitive. This group believes that even security and resistance of the country against foreign threats is well provided through this route; because presence of both domestic and foreign investors would bring security in itself. This group considers fate of similar countries a reason for legitimacy of their argument and claims that promotion of exports is possible only when export commodities are produced in a competitive environment and the price and quality are competitive; because if we do not move towards becoming competitive, we would have an introspective approach which would not secure a favorable growth for the country; because exports would be confined to oil and its subsidiary products.

In addition, smuggling would find an expanded space for operation; because domestic prices are generally higher than international prices and the country’s gateways cannot be controlled. Presence of multiple half-hidden ports and oppressed porters are indicative of two realities. One is that the life of the people and the economy is disrupted in the absence of foreign trade and the other one is that introversive efforts have not eliminated imports but made it go underground through suppression. Furthermore, other countries, including the neighbors, enjoy free economy and are interested in exporting even through unofficial borders and porterage.

The introversive group is concerned about security of the country of course if no specific interest is raised. This group is also concerned about the economy becoming competitive; because they think by becoming competitive, decision makings would not be in the hand of reliable people, rather the market and the people inside who are not known would make decisions. As a result, this group has an introversive interpretation of ‘resistance economy’ and do not have full confidence in the private sector unless they are known. This process was generally dominant over decisions of the country in the past years and for this reason privatization was turned into private-public.

Pricing is still there and 100 percent tariffs are flaunting. In return, the first group believes that reliance on particular individuals in the economic activities would cause corruption, but the introversive group attaches little importance to this; perhaps they think that if resources for some subsidiary expenses which are generally not transparent are supplied through this route, corruption would be justified and they won’t go far away because they are under the control of insiders. It should be noted that specific and confidential expenses exist in every country but they would never be supplied through granting economic concessions; because it would disrupt competition.

Administration of the country as such would gradually turn into feudalism which is being observed more or less and the feudals would devote their resources to activities demanded by political goals or to high profit businesses which have mostly been created behind the high walls of tariffs or specific commercial privileges or broad over invoicing which impose the biggest pressures on the consumer. Buying cars at prices twice as much as those in the post-revolution years is another reason for this claim. It should not be forgotten that as long as the sanctions are in place no step could be taken towards serious competitiveness. For the same reason the 11th government tried to remove the sanctions through the Joint Comprehensive Plan of Action (JCPOA) in order to implement the competitive economy and attract foreign investment, but we saw how semi-sanction conditions returned to the country and made the investors flee.

Over the past 37 years, the economy has been directed by the second group (the introverts) while thousands of articles and books as well as efforts by the first group have proved useless. Of course the group believing in introversive economy claim that they have so far managed the economy but would not admit they did this with a growth rate close to zero and almost all the resources of the country have been depreciated and even fundamental assets, such as water, have gone downhill.  Moreover, they would not let raise the question that if the economy had been administered in a competitive form, what would be the condition now and that many of the existing problems did not exist or would be much less than the extent we are facing today.

There is no doubt that the oil revenue has helped the introverts and despite claims on non-dependence of governments on oil, in practice governments have become more dependent on oil and have no simple way to get out of the status quo. But now that oil revenues are experiencing a drastic decline, could the economy be administered in an introversive form? The answer of the author to this question is negative; unless we get ready to face an army of the unemployed and be prepared to check its social tension which would create an unpleasant atmosphere no one would like to witness.

I propose elimination of three economic bottlenecks: the triangle to rescue Iran’s economy comprises removal of “smuggling and corruption”, the “banking system crisis”, and finally “uncompetitiveness of the economy”.

If the followers of introversion agree and the government also welcomes the proposal, a program could be planned to resolve the three above-mentioned problems. This will pave the way for other reforms and domestic and foreign investments and provide appropriate conditions for the growth of employment while export goods can be produced. If we do not take action on this path, in a not far away future we would face very serious and hard decisions, while the non-oil sector of the economy would encounter lower growth and even negative rate. In other words, if we do not change the system of administration of the economy, we should expect very hard days ahead and as it was said before disorders would not be confined just to the field of economy.

 

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  September 2017
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