Date: 06 Mar 2000
Time: 09:46:07
Remote Name: 156.29.145.175
Iran Farda; Political, Social, Economic & Cultural (Weekly) Feb. 2000, No. 67 By: Reza Alijani
Summary: The economic adjustment policies followed by the government of Mr. Hashemi Rafsanjani during his presidency have entailed problems such as the jump of the value of dollar to rial from 800 rial per dollar to 7,000 rials per dollar during a year (1993), increase in monopolistic tendencies, rise in the salaries of top level managers up to 5,000 dollars, spread of corruption in administrative and financial apparatuses, recession and bankruptcy of industries.
Text: Mr. Hashemi Rafsanjani in his recent interviews, speeches and Friday prayer sermons claimed that his economic adjustment policies had been successful, accusing those disputing his claim as "telling lie". It is necessary to mention the following points:
1. Although economic adjustment according to the national needs and necessities is a must, adoption of adjustment policies prescribed by the World Bank and the International Monetary Fund (IMF), has been, and still is, challenged theoretically by economists as well as political and social experts to an extent that even today, the World Bank has been modifying those policies, itself. Therefore, it has been, an still is a mistake, for the government of a developing state to adopt and follow a general and universal prescription insinuated by the World Bank and the IMF, without corresponding it with its domestic needs and conditions. Economic adjustment policies have been implemented in any countries but only a few of them has managed to attain real economic development.
Our government was neither a bankrupt government with huge foreign debts nor did it have a negative foreign trade balance because in spite of the slump in oil prices from 1985 to 1989 (the beginning of the First Five Year Plan) and considering the country's oil exports, its foreign trade balance was positive. In addition, the government did not have heavy foreign debts and the country's 12 billion dollar debt, as claimed by Mr. Hashemi was debts in current account which could be settled as soon as the goods ordered by Iran arrived in the country. Altogether, those conditions, which made Iran distinct from many of debtor developing countries, had caused the national currency of Iran to be considered among strong currencies in international monetary and economic fora (World Bank and IMF). Therefore, our country was very different from countries such as Ghana when Mr. Hashemi's government started its work and it should not have accepted blindly the pattern offered by the World Bank and the IMF.
2. The economic adjustment policies prescribed by the World Bank and the International Monetary Fund were implemented in an immature and inefficient manner and without national vigilance.
2.1 One of the conditions of the economic adjustment pattern offered by the World Bank and the IMF was practice of free foreign trade and an end to state monopolies, but none of these two international bodies had obliged Iran to liberate its foreign trade suddenly in a year's time, so that inflow of foreign made goods could make the majority of Iranian industries bankrupt, the industries which had already suffered a lot of losses as a result of a five year recession and functioning at one fifth of their nominal capacity. As for foreign trade, the government acted immaturely, inefficiently, against the national interests and against domestic industries, causing traders of luxuries and unnecessary commodities such as automobiles, electronic devices, luxury foodstuffs including chocolates and pasta to make huge profits.
For this reason, domestic industries of Iran including the auto manufacturing industry on which Iranian authorities put much emphasis now did not find any opportunity to materialize their relative advantages. Therefore, the miscalculated policy of liberating foreign trade at home dealt a heavy blow to domestic industries, inflicting heavy economic losses on them.
2.2 But as for establishment of new industries and directing liquidities towards industrial production during the aforesaid two five year periods, only the public sector was active in this regard, implementing some projects relating to mining, petrochemical and steel industries. However, in the private sector, no growth or development took place except in consumer industries. At the beginning of the plan, the government and the Plan and Budget Organization had pledged that consumer industries would develop as high as the rate of population growth (4.5 percent at that time and 2 percent at present) in the course of the plan while intermediate and capital industries were set to develop at a more rapid pace. This proved contrary at least in the private sector. Nowadays, the Iranian people are watching ever increasing commercials being broadcast on the television about such primitive industries as gas cookers, machine-made carpets and so on. This is while that the intermediate and capital industries have been facing numerous obstacles thrown by various state-run organs. These industries have not managed to attain 10 percent of the growth rate they were supposed to get despite that fact that growth of intermediary industries ensures the industrial independence of the country.
All in all, Mr. Hashemi's government was not successful at all in attracting private capitals or encouraging production by the private sector, nor did it even take a single step to remove structural deficiencies of the economy or improving laws on labor, trade and so on. From qualitative point of view, the industrial development of the country in the eight year period before Mr. Hashemi took office had been more rapid and more at the service of the national interests.
2.3 In the first and second years of the First Development Plan, there was inflationary growth in domestic industrial products and an increase in the production capacity of Iranian industries which was merely due to the foreign exchange received by the country through usance-based loans. This kind of loan is among the worst loans, which if its volume goes up, it will break the back of the recipient. It was due to this reason that within one year or two, a 35 billion dollar foreign debt was inflicted on the Iranian nation, a loan which would double within a four year period. However, due to an agreement reached with German banks and some other creditor countries, the repayment date was postponed to after 1996 to be paid by another government that replaced Mr. Rafsanjani's administration.
3. What was done for determining floating rates of foreign exchanges against the national currency was based on miscalculation, unscientific methods and corruption.
In 1992, when the budget bill for 1993 was being drafted, the parity rate of U.S. dollar against rial was raised to 1,400 rials (per dollar) which was equal to the rate of dollar traded on black markets in those days. Given the living expenses, domestic prices and foreign trade balance of payment, the real value of our national currency against each dollar, as detested by the majority of experts, was 800 rials. So, choosing the black market rate of foreign exchange as the official rate of hard currencies against rial was both an unscientific ad miscalculated measure. Nevertheless, during 1992, despite foreign exchange limits, reduction in imports excluding basic goods, a total halt to economic development activities and import of capital commodities needed for projects and a subsequent fall in hard currency consumption, the rate of foreign exchange sky-rocketed to 7,000 rial (per dollar) to an extent that the government had to revise all its price liberation and foreign exchange policies so as to stabilize the rate of hard currency at the level of 3,000 rials (per dollar).
The reason for such illogical increase in the rates of foreign exchange in 1993 should be searched for in the policies announced by the then government and its unreal claim of deficit free budget declared by it for the first tie in the history of Iran. The answer to this question should be given by Mr. Hashemi and the Central Bank of Iran to the Iranian nation.
4. For his economic development policy, the government of Mr. Hashemi chose to appease its top level managers by giving them material rewards. The salaries and bonuses given to senior managers at the time of Mr. Rafsanjani had such an substantial growth that had no precedence in the history of both Iran and the world. The payment of salaries ranging from 3,000 to 5,000 dollars regularly in a country where its annual per capita income is 2,000 dollars and its government is heavily indebted to foreign countries and domestic banking system is an illogical act. In fact, his government formed a group of technocrat managers who were totally obedient to him at the expense of national interests and even ignoring the principles of economics. In other words, he chose the most expensive kind of development pattern for a developing country and this only served to exacerbate the country's underdevelopment.
5. Giving a free hand to organizations and organs affiliated to the government under pretext of self-sufficiency only brought chaos for the country's financial system, thus inflicting substantial losses on the country's treasury and paving the way for birth of feudal system and dismantling of the executive and administrative system of the central government.
6. Corruption has spread to such a high degree that it can no longer be hidden from the noble nation of Iran which can do nothing but to regret.
7. As for the dams built and irrigation projects implemented by the Energy Ministry, there is no one today who may say that there are holes in your dams.
As for construction of the main body of dams and their relevant installations, the Energy Ministry has made great progress from executive and technical point of view which is a source of honor and needs to be acclaimed.
However, dam building is not confined to construction of the main body of a dam or its reservoir. First of all, establishment of a dam and its relevant installations requires that enough studies be conducted on the watershed and water catchment situation of the area where the dam is to be built, on the lower layers of the earth where the lake of the dam is to be constructed and on irrigation system that should be established immediately after the construction of the dam.
If such studies are not conducted and irrigation system is not inaugurated simultaneously with the commissioning of the dam, it would most probably produce unfavorable results. In other words, a dame designed to bring development to the region and to make regional lands fertile, may wreak havoc. This is exactly what that happened to the lands surrounding the Aras dam, Miandoab dam and Chah Nimeh dams in Sistan. Without these preliminaries, dam building with a sole aim of propagation and publicity work will not have any effect on the development of the country. Many of the dams now being constructed by the Energy Ministry are devoid of such preparations and even post construction studies.
8. The definite and obvious results of the above-mentioned policies is the further impoverishment of the country, economic dependency, foreign debts, poverty and gap between various strata of society, lack of dynamism on the part of the private sector, spread of moral corruption and finally widening gap between those governing and those being governed.
9. Given the above-mentioned facts, one can reach the conclusion that the economic adjustment pattern dictated from across the borders has failed and in order to attain real social and economic development, we should resort to indigenous pattern which believes that the materialization of economic development should be in parallel with the materialization of political development. This pattern will certainly produce favorable results if tried.
In our opinion, it would be much better for Mr. Hashemi to try to find real answers to the questions raised by the nationalistic and patriotic economists and specialists, instead of getting angry or labelling others. Our ultimate goal is to improve the state of affairs through logic, tranquillity and consensus, something which Mr. Hashemi claim to be advocating but practically show nothing that indicates any change or modifications in the economic adjustment policies according to the necessities and internal conditions of the country.