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June 2018, No. 87


Cover Story

Iranís Economy Needs Surgery!


We have to do surgical operation on the economy. I say this very firmly: A person who has cancer cannot be cured by taking aspirins.


Dr. Asghar Fakhriyeh Kashan says: ďFrom the very beginning after the (1979) revolution, our government has failed to formulate a program to manage its resources. Investing requires management of financial resources. Rare resources of the country should be distributed and prioritized towards development. But has this been the case? Definitely not! We wasted the resources.

I ask him whether the government will be financially capable of investing towards economic growth and whether it would be able to raise development investment to at least the level of the 1980s. Fakhriyeh Kashan does not provide me with an explicit negative answer to this question but says the advanced disease of the Iranian economy would not be cured by taking aspirins and that it requires surgery. He speaks of dispersed economic islands in Iran, and the funds that are wasted between these islands and in the absence of a development program. He cites numerous examples that show our main problem in the economy is not lack of investment. But the problem is that the funds are wasted. He says we do not invest in Iran. We just divide up the donations. 

How do you think the government can create economic growth?

There is no doubt that economic growth requires investment. But investing requires factors that we have not been able to provide and, at the same time, expect to attract capital. Investment requires a well-documented economic program: A plan that would give the people the signal as to where the economy is set to go in the next few years so that people and the private sector can safely and securely invest in long-term projects. But there is no such program in our country. Our economy has no stability and security. The same insecurity does not give a good signal to the people and the private sector, and everyone is trying to invest in markets that would give them the highest profits in the shortest time. The result is a wandering of the capital. The people would hastily invest in the foreign currency and gold market one day and in housing another day. They would make advance purchase of mobile sets one day and buy gold coins another day. These are all due to the lack of a principled development plan. In the absence of this plan, short-term investments will be economical and the economic signs direct investors towards short-term investment. We have had five development plans so far but I can confidently say that none of them has been a development plan. Security is the second requirement of investment.

When the private sector does not enter long-term investment, all the investment load will be put on the public sectorís shoulders. Today also, the government is incapable of continuing to invest in the economy with this heavy body and lack of capital. Today the hands of the government are empty and it does not have the funds to make investment. But that has not been the case always. Even when we had the capital we could not use it appropriately. Since the beginning of the revolution, our government has not had a plan to manage its resources. Investing requires management of financial resources. Rare resources of the country should have been distributed and prioritized in a way to be in line with development.


When the private sector does not enter long-term investment, all the investment load will be put on the public sectorís shoulders.


But has this been the case? Definitely not! We wasted the resources. There are many examples to prove my claim. The simple example is the division of limited resources among countless construction projects. One thousand billion rials were needed to launch the Tehran-Mashhad railroad in 2009. We also had the money. But instead of allocating this credit to the project we split the money among several projects, none of which was realized. Today, with 120 trillion rials, we have not been able to start the project, and it may require up to 200-300 trillion rials to finish. The mismanagement of resources caused neither the railroad project nor the rest of the projects be completed.

This is while, if we had made the right investment at that time the railway would have been ready and operating in the economic cycle. Do you know that we have a few thousand projects with a physical progress of 10-15%. Every year, we need to allocate resources that are only spent on maintaining these projects without a particle of physical progress. What I am trying to say is that our problem is not just lack of credit and capital. We do not know how to manage existing resources. We do not have the art of optimal resource allocation. We allocate resources under the pressure of MPs, Friday prayers leaders, ministers and expert of the Planning Organization rather than based on a formulated development plan! 

You know where the problem is and you have the solution as well. There are many others like you: People who both recognize the disease and have the treatment prescription. But why all these things remain in words? When will this island outlook and complaint about weak management come to an end?

Look! If we want to really examine the roots, I would say that itís not an economic problem. The problem is cultural. I have been emphasizing from the outset that it is true that our resources are limited, but we waste even these limited resources. We have not been able to convince the private sector to make investment. Its root cause is not just economic. The problem is our educational system and our Eastern line of thinking. Oriental thought is particularistic. This thought has precise and complete instructions about ​​marriage, the wisdom of individual livelihood, inheritance, individual transactions, and so on but not at the macro level.

To have a comprehensive outlook about the economy and development requires planning. Planning in Iran is an imported matter and we do not even believe in it. We closed down our Ďplan and budget organizationí twice after the revolution: Once at the time of Mousa Khayer (head of the plan and budget organizationí at the time of assassinated president Mohammad Ali Rajaei) and once under Mahmoud Ahmadinejad. After that, our plan became budget; While these are two different things. So, we do not have the culture of planning, and in this planning everyone has an island type function. Development, and hence investment, requires a single economic rule. There is no single economic sovereignty in our country.

Because it is in the united sovereignty that resources can be consumed correctly. When the sovereignty is not united everyone would allocate resources based on their priorities. Iím 100% opposed to putting the revenues of companies at their disposal. This is the root cause of corruption and part of the cause of our backwardness. The government spends billions of dollars on operation of a sector over the years, and then gives the income to the companies. So, when the return on investment will go to the government so that it could use it for reinvestment? I emphasize that we lack the science of planning. We do not invest, we divide up the donations. We use the government resources in the worst possible way. Itís a tradition to increase the costs of government agencies by 10% every year! When will a rise in efficiency, cost reduction and cut in human resources occur? Where do increased productivity, growing domestic output and investment stand in the formula? 

What should the government do now to invest and achieve growth?

The answer is very clear. We have to do surgical operation on the economy. I say this very firmly: A person who has cancer cannot be cured by taking aspirins. Surgical operation will be necessary. This is what other countries did. I am not talking about economic surgery in developed countries. I am citing Iraq and Algeria as examples. In Iraq, when oil revenue declined, the projects were divided into three categories: Projects the government accepted the responsibility to complete; projects the private sector could carry out with its own capital; and those projects that should be shut down altogether. Algeria did the same when oil prices dropped. We do not want to face the reality. Apparently we are idealist and greedy people. We want to advance all the projects together and invest everywhere. But we are unable to do that

 

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  June 2018
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