When the president of Iran announced his plan to cut subsidies on fuel, electricity, water and bread, liberal economists celebrated the move. Iranian liberals called this project inevitable and historical. Subsidies program was costly and inefficient. Opposition economists warned about inflation, unemployment and stagnation.
Dr. Fariborz Rais-Dana, a professor of economics in Iran, was arrested when he participated in popular BBC Persian program and warned the nation about tremendous effects of this project.
Those commentators in favor of neoliberal economic policies, argued that cuts will reduce government’s role in the economy and may help to redistribute income. Dr, Masoud Nili, one of the supporters of free market economy, said: the amount that government spends on subsidies is larger than government’s budget deficit. He also added: since Iran’s fuel is cheaper than the neighbouring countries, smuggling of fuel remains a lucrative business for smugglers.
I examined governments’ plans with respect to “Washington Consensus”. John Wiliamson in 1989 introduced 10 “broad sets of relatively specific policy recommendations”. In a piece which was published in Persian I argued: subsidies cut is not liberalization, or a step forward for creating a free market economy.
Washington Consensus is demanding governments to respect fiscal policy discipline. Instead president Ahmadinejad dissolved Management and Planning organization, which was relatively independent, in order to hide details of government spending. Ahmadinejad is not respecting Independence of the Central Bank of Iran; he is dictating interest rates to public and private banks.
Washington consensus is recommending to “Redirect public spending from subsidies (especially indiscriminate subsidies)” toward broad-based provision of key pro-growth, pro-poor people services (such as primary education, primary health care and infrastructure investment); Government of Iran is paying cash ( Equivalent of 40 USD per person) indiscriminately to 60 million citizens of Iran.
This indiscriminate cash distribution is increasing the inflation rate and industrial sectors are suffering from cuts, the skyrocketing prices of production and they are losing their capabilities to compete with international competitors. Contrary to Washington Consensus recommendations, Iran is not implementing tax reforms. Teachers and low income workers are paying tax but merchants are Cooking the Books. Interest rates and Exchange rates are not determined by the market. Government is depreciating exchange rates in order to import low price materials. This policy is damaging producers.
The main target of trade liberalization is to attract the foreign direct investments. Iran is under International sanctions. “Numerous nations and multinational entities impose Sanctions against Iran. Sanctions commonly bar nuclear; missile and certain military exports to Iran; investments in oil, gas and petrochemicals; exports of refined petroleum products; business dealings with the Iranian Republican Guard Corps; banking and insurance transactions, including with the Central Bank of Iran; and shipping. The United States imposed sanctions on Iran following the Islamic revolution of 1979, while more recent rounds of sanctions by the U.S. and other entities were motivated by Iran's alleged nuclear weapons program.”
Tehran is not receiving FDI. Prior to economic reforms, government of Iran must normalize its relations with United Nations Security council, the United States of America and EU.
While the IMF praises economic reforms, newspapers in Tehran have announced that “Ahmadinejad Tied to Billions Lost in Corruption Case.” On September 12, a previously secretive corruption case, involving figures very close to the president, was made public, with further revelations being released daily. No less than $2.6 billion is said to have been embezzled. The case is, according to Iranian officials, the biggest in the nation’s history. While it remains unclear whether or not Ahmadinejad himself could be implicated, it is certain that some of his closest allies will be.
Once Ahmadinejad was considered as a “leftist”, ant-imperialist, anti-privatization hero by so called “progressive intellectuals” in the west. Now he has been naively considered as a reformer by the IMF. Conventional economic measurements are not helping to understand the Garrison State of Iran; the state is based on propaganda and government is not providing transparent and accurate information for analysts.
Above all any economic plans must consider level of freedom of individuals, ability of workers to organize unions and intellectuals to oppose government plans.
... Payvand News - 09/19/11 ... --