The Remedy for Iran’s Economy is not Executive Orders

Last week, as has been customary since 1989, the general guidelines of Iran’s next five-year development plan were directed by ayatollah Khamenei to the government which sent it to the Management and Planning Organization for review and implementation.

The sixth five-year development plan is broken into eight section with a total of 80 articles. Unlike its predecessor during president Ahmadinejad’s administration, the economic section has been elevated from fourth to the top priority.  Rooz spoke with two economic experts who have seen the plan, Mohammad-Reza Behzadian who is a manager in the private sector and Fereidun Khavand, an economy professor in France.

Behzadian said he had not yet had the chance to look at all the details, but still said, “It looks like we are dealing with a professional job with good attention to details.” He said he hoped that executive organizations and the Majlis would implement the plan in a satisfactory manner.

Here are the excerpts of the interview.

Rooz: Is 8% economic growth that Mr. Khamenei envisages in the plan feasible?

Behzadian: Yes, if the managers of the country equip themselves. If we can resolve the nuclear issue the country can rapidly make progress as international tensions will diminish and international conditions will change to benefit Iran’s economy.

Rooz:  Are the current and fundamental problems of Iran addressed in this plan?

Behzadian: Yes, the plan has been devised on the current needs of the country. But one must pay attention that the implementation of the plan will be begin in ten months and not today. By that time one must hope that the nuclear issue has been resolved and a different atmosphere is present in the country.

Rooz: Some have said that the economy has received the most attention while other issues such as domestic policies are absent. Is this not a flaw?

Behzadian: Current problems have not been ignored but one can say that economic and foreign policy issues are more prominent in the plan. I need to look at the details yet.

Fereidun Khavand takes a different view. He said, “Five year plans are a remnant of socialist systems, especially that of the Soviet Union. Today however, which successful economy in the world look at the long term? Successful economies refrain from making long term plans because it is not appropriate to make long term plans when variables are changing so rapidly. One reason for this is that economic conditions have become globalized and new important events take place every day. In fact nobody today has the information needed to make plans for the next five years. The other point is that economics under these conditions can be ordered today. When you look at this five-year plan you will notice that some aspects of it are dictates issued by Mr. Khamenei. For example it is stressed in several places that the economic growth rate must be 8%! We have seen this figure in the five-year plans since the third such plan was launched. How is it possible for an economy to keep its growth rate because it has been ordered by someone? The third point is that I do not view five-year plans to be rational. We are at mid-point of Mr. Rouhani’s presidency, with two more years remaining. How is it possible for a plan to go to the Majlis during Mr. Rouhani’s administration, be turned into law and then be ready for implementation at a time when Mr. Rouhani may no longer be the head of government? An example of this would be for the conservative party in Britain to draw up a plan that would have to be implemented by the labor party! My last point is about actual implementation: Look at the development plans in Iran since they were drawn up during Mr. Rafsanjani’s presidency: which ones were implemented?”

He continued, “I remember when Mr. Ahmadinejad became president, he looked at the fourth development bank that had been drawn up by president Khatami and said it looked like it had been drawn by the World Bank and IMF, and he shelved the plan. The plan that Ahmadinejad drew up was confronted with the international sanctions. Already much money, energy and time has been spent on this plan, including some 2,500 people. So I do not think the whole idea of drawing up economic plans for such periods makes sense under current conditions.”

Rooz: Are you saying there should be no economic planning for the country at all?

Khavand: Instead of plans, governments today announce goals for a specific period to be implemented by a government. An example of such a goal is to reduce or eliminate the budget imbalance. Another one is when a government decides to make its central bank independent of the government and its policies and puts this into law. When Mr. Rouhani came to office he too presented a package for short term success to depression. This was a two year plan with a very specific goal, but which was lost in the corridors of the Majlis. Look at Iran and its conditions, how can you make five year plans for it when the outcome of the nuclear talks are up in the air and the end of the talks could create conditions that are completely different from today or whatever is predicted. We cannot draw a wall around Iran and imagine that Iran can single handedly make any decision that it wants and implement it. In today’s world, such plans do nothing other than create bureaucracies and waste resources.

Rooz: You mentioned the independence of the central bank, as a possible goal. This is mentioned in the plan, but is this what you have in mind?

Khavand: The problem with Iran’s banking sector is that it is essentially a government system. While there are many apparently private banks but they are semi-governmental institutions, such as military organizations or foundations. Perhaps the intent of this provision in the plan is to separate the work of banks from that of the central bank as a way of preventing interference. While this can be beneficial, the real question is that the whole banking system must be rebuilt, something that is very difficult to undertake under the current conditions. Unless of course the huge financial institutions that are not accountable to the government are eliminated.

He continued, “The central bank should determine monetary policy, but in reality it interferes in banking activities, which is not right. As an example, it dictates the interest rate for commercial banks. The central bank should of course determine its minimum interest rate, but this is the rate at which other banks borrow from it and extend that credit to others. But it should not be interfering in the competitive banking markets and impose its rate on them.”

“The Iranian economy currently suffers from serious Investment problems because of its shortage, especially foreign investment which is an aspect of today’s globalization. We notice that many Asian and Latin American countries that have attained high economic growth in recent years have done so because of foreign investment. According to UNCTAD only two billion Dollars of foreign investment have taken place in Iran. If we compare this with a country like Turkey, Saudi Arabia, the UAE we will see that Iran has been acting very weak in this regard. And this is so despite the fact that Iran is a country with the fourth largest oil reserves and the first in gas. It needs foreign capital for the development of these resources and potential. Of course attracting foreign capital requires more than just pronouncements. This will need the right atmosphere and protections.

Rooz: If the sanctions are lifted and Iran’s proposed agreements fall within the general formats, what domestic policies can then prevent the flow of foreign capital to Iran?

Khavand: The most important one is the absence of the atmosphere for jobs. We see that on one hand there is a complex bureaucracy in the country while on the other there is a huge government sector and then the quasi-government economy comprising of companies belonging to the Revolutionary Guards and foundations not accountable to the government. These companies and institutions can block foreign investment whenever their interests and profits are threatened. The other issue is that besides the sanctions, Iran must take a more constructive role in international affairs. It needs to refrain from creating tension in its external and regional relations. It needs to calm the region so that capital can flow to the country. In other words the lifting of sanctions alone will not solve the problem: a combination of measures inside Iran must be undertaken to see foreign capital come to Iran.