Titus Livius (59 B.C.-A.D. 17) the Roman historian
once said that men are only too clever at shifting blame from their own
shoulders to those of others. These days Mr. Ahmadinejad, the man the West loves
to hate, is in hot waters in
What a difference a year makes. It was in mid 2005 that Ahmadinejad won a land-slide victory (62%) in the presidential election. As a presidential candidate he had promised to improve the lives of the poor and the lower classes by "putting petroleum income on people's tables". His campaign motto was "it is possible and we can do it".
Son of a blacksmith,
Ahmadinejad was the fourth child of a working class family with seven children.
He was brought up in the rough and poor neighbourhoods of south
This lavish spending has increased the double digit inflation rate even more and has caused concerns among politicians and economists that his economic policies coupled with his hard-line stance on nuclear dispute and approach to foreign policy may damage the country. Some economists argue that while the country's economy is being pressured externally (sanctions), the government is spending money as though there were abundance of resources.
The Iranian senior economist Dr. Masoud Nili of Iran International points to an ever expanding government budget and increasing dependence on the oil revenues as a serious problem for the country. He argues that:
"in 1998, average oil price stood at 10.8 dollars per barrel and oil revenues grew fourfold in about 7 years. Meanwhile, state budget in 1998 was less than 71,000 billion rials, but Iran's budget for 2006 has been estimated at 600,000 billion rials; that is, while oil revenues have quadrupled over a 7-year period, state budget has increased eightfold during the same period.
Before 2002, government spent an average of 15 billion dollars in foreign exchange. The figure increased to 21 billion dollars in 2003, to 30 billion dollars in 2004, and to 36 billion dollars in 2005. It seems that the figure will reach 45 billion dollars in 2006, which is indicative of serious budgetary dependence on petrodollars.
The Third Economic Development Plan aimed at reducing government's dependence on oil revenues to less than 12 billion dollars, but it actually soared to more than 40 billion dollars in 2006. Therefore, the government's budget experienced such a great leap in 14 months from January 2005 to march 2006, when the government was determined to offer Majlis with a budget supplement. Considering this reality, one can conclude that the country witnessed one of its biggest financial developments in the Iranian year, 1385."[]
As inflation is rapidly
approaching critical levels, economists and politicians have began to sound the
alarms. There are now open calls for impeachment of several government ministers
and although not openly mentioned, the moderates and some conservatives would
like nothing more than impeaching the president himself. The rallying cry for
the opposition is "the economy"; a clever point of attack since they know that
no president no matter how wise or prudent, can solve the existing economic
Theoretically, a country with abundant natural resources and a young educated workforce should have no problem in economically growing rapidly. Alas Iranian economy, like most other oil dependant economies, is to a very large extent government owned and controlled. Hence all the pressure on the economy automatically becomes political pressure on the government.
For instance, the
inflationary policies of the current government is the direct result of the
government's desire to reduce poverty and hence the growing inequality in
"Because of the class gap that has remained from former regime, now our country needs economic justice more than anything. The government should make profits more in this situation and move toward declared goals and mottos. The achievement of justice is too difficult and requires many preparations such as geographic and classic justice, justice in economic and cultural affairs, justice in substituting officials and granting responsibilities and justice in judgments. The execution of justice must be logically within the Islamic frame. According to article 44 and notes (A) & (B), the state should decrease its interferences in economy." []
But reducing poverty and the gap between the rich and poor in the current economic system is extremely difficult. In a normal liberal economic system the government's revenues come mostly from investments and taxes. Tax revenue is supposed to cover most of the government's budget. Tax coupled with social security is also an instrument of wealth distribution. But collecting taxes is something that requires a formal and transparent economy, not to mention information on who earns what. Iranian government can only collate information about what it's companies and some large corporations earn. The rest is a made up of series of guess works. For example, Bazzaries (Traditional merchants) seldom declare their true net worth or income to the authorities, and the authorities have no system of finding out the true income of these individuals and companies. Another problem is the informal economy. For example, major part of
Bonyads (Charity Foundations)
As charity organisations they are supposed to provide social services to the poor and the needy. Yet since there are over 100 of these organisations operating independently, the government doesn't know what, why, how and to whom this help and assistance is given. Lack of proper oversight and control of these foundations has also hampered the government's efforts in creating a comprehensive social security system in the country.
These organisations also compete with other private actors in the country. Private companies find it exceedingly difficult to compete with such large corporations, since they (Bonyads) have both the political and financial muscle to compete in any given market segment for as long as they like without considering the profitability of their ventures. These Bonyads, by their very presence, are hampering healthy economic competition and growth.
Another problem facing
the government is the subsidies. Subsidies in general are either paid in cash
(like food-stamp in US) or child support allowance in
One of the most pressing
Red Tape and Inefficiency
Much of the government's information collection and processing is still paper-based and there are virtually mountains of files being kept in offices around the country. Computerisation is under-way, but for the time being millions of hours of people's time are being spent taking forms from offices to offices, increasing inefficiency, traffic and frustration.
Couple this kind of red
tape with state owned industries and you get a sure way of turning billions into
millions. Government run industries
usually are less efficient than the privately owned industries. Couple this with
political interference, nepotism, cronyism and general corruption and you get
industries that produce goods and services of questionable quality at the
highest possible prices. Since the losses are covered by the government, the
pressure to improve is minimal. The losses are either covered through the budget
or through loans by state owned banks. In other words, the funds that could have
been made available for economic growth through the private sector, is tied-up
in keeping inefficient and loss-making industries alive. For instance it is
calculated that each year over one billion dollar worth of electricity is wasted
due to the inefficiency of the Ministry of Energy.
"Some 30,000 Gigawatt
hour electricity equal to the total electricity generation of some 30
Boushehr-like nuclear power plants is wasted annually in
Electricity wastage is
not the only problem. Iranians use and waste water like never before. According
to deputy head of Iran Water Resources Management Company for planning and
economic affairs, Alireza Daemi, Iranians use almost double the amount of water
as Europeans use. "It is no secret that water consumption level in Iranian
metropolitan areas is higher than the average rate recorded for most developed
cities in other parts of the world. For example, the per capita water
consumption in European cities is 140 litres per day, while the related figure
Voltaire once said that
when it's a question of money, everybody is of the same religion. When it comes
to corruption Iranians are no different than Saudis, Egyptians, Americans or
Norwegians. Religion of corruption is the same all over the world: money and
power. Corruption is usually the result of three things, lack of transparency,
lack of regulations or too many regulations. Paradoxically, you'll find all
three conditions in
Transparency is vital in
fighting corruption. In
The lack of transparency
is one of the most important problems facing
Lack of financial
regulations such as the ones described from
While lack of regulations has
allowed individuals and chosen corporations to avoid taxes and scrutiny; the
small private companies are being suffocated by myriad of paperwork and forms.
Recently the Judiciary asked people (through advertisements) to report the wealth of the government officials to the said authority. [] This financial scrutiny is based on the amended article 142 of the constitution, where the wealth of the Supreme Leader, the President, his cabinet members, other high officials and their families are to be examined by the judiciary both before and after their period in office. This is fine as long as the results are presented to the public.
Iranian government is one of the
biggest employers in
Ahmadinejad's idea of privatisation
was vastly different from the previous governments. He wants to distribute the
shares of the companies equally between the people, while others would like to
sell the companies to the highest bidders.
"The member of Tehran Chamber of Commerce (T.C.C.) representative board in an exclusive conversation with T.C.C. news site said: "The justice share is not a part of privatization. Maybe the result of division of 80 per cent of government share between people equally, is satisfactory but the people can not manage even 10 per cent of these shares because they have not expertise in management. So the government will manage the company again."
"The main purpose of privatization is the change of management to increase returns and create additional value in economy for more development", he added.
He said: "The government is against the privatization. The reason for delaying in this process is related to the reluctances of officials."
"The privatization is a double side process: the private sector that should invest in economy and purchase the companies, and government sector that should accept to delegate its properties. Now the government throws a monkey wrench into privatization process. The government must be restricted for investment and can only invest in especial field such as security and information ", he added." []
The problem with normal
Privatization is the best solution
Government must also strengthen its social security services before any large scale privatisation can take place. Any privatisation will definitely lead to large scale lay-off of part of the work-force which can lead to social upheaval. The country is already suffering from high unemployment and under-employment. Any sudden increase without social safety net (such as unemployment benefits, retraining programs, etc) may well result in large scale protest against the government.
Prior to any privatization, government owned companies have to be turned into limited liability companies with government as the majority share-holder. These companies should then be managed like other private companies. When the proper social security system along with anti-monopoly laws are in place, then the shares of these companies can be sold to the public. It would not be a bad idea for the government to have a closer look at the Nordic system of privatization.
Ahmadinejad's economic policies
certainly can be blamed for the current increasing inflation and unemployment.
But he can not be blamed for everything that has gone wrong in
The first step in the right direction is to improve the economic data collection system of the country. It is vitally important for the government to know who (individuals and corporations) earns what. Only through access to this information can the government create a workable taxing system. Only through this can the government begin to reduce corruption, target subsidies, reduce inequality and plan for the future.
The next step is to create a comprehensive social security system where people do not have to rely on charity foundations. These foundations have to be sold-off and the proceeds included in a social security fund for the country; other wise over time, these entities will become so powerful that they will become the effective rulers of the country.
The Iranian economy is now in stable
condition going towards critical. As long as
The last three Iranian presidents
have tried to tweak the system in various ways to optimise it without any
success. They all had learned men advising them on the best way to manage this
sick economy. Yet none succeeded.
It is perhaps time for learning from others. The current learned people
About the Author: Dr. Abbas Bakhtiar lives in
 Massoud Nili, "Picture of Iran's Oil-Dependent Economy", Iran International, May 2006, No. 40
 Tehran Chamber of Commerce and Industries & Mines,
"Our country needs economic justice more than anything",
 Kenneth Katzman, "Statement of Kenneth Katzman", Joint
Economic Committee Hearing on
 Baztab.com, "USD 1 Billion of Electricity Wasted Due to
Energy Ministry Inefficiency",
 Transparency International, "Corruption Perception Index 2006"
 Baztab.com, "People are urged to report the wealth of
the government officials",
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