Iran's Economic Policy Dilemma
Askari, Hossein, International Journal
IN 1979, THE ISLAMIC REPUBLIC OF IRAN (IRI) inherited an economy that was heavily dependent on oil with a small and inefficient manufacturing sector. An eight-year war with Iraq, an influx of refugees, rapid population growth, US economic sanctions and politically expedient policies have resulted in the economic conditions of today, conditions under which the IRI has little room for manoeuvre. The medium- and long-term policies that are called for are obvious yet politically difficult to implement.
This article provides a brief overview of the Islamic Republic's economic performance since the revolution of 1979, describes its policy record, and addresses the economic policy dilemma at hand.
In 1988, Iran's real gross domestic product (GDP) was about what it was in 1977, and given population growth of about 60 percent, per capita real incomes had fallen by roughly 40 percent. Recently, GDP growth has been more satisfactory, at an average annual rate of 6.7 percent for 1990-1995 (although unbalanced and with heavy external financing); 3.8 percent for 1995-2000; and more recently, after adopting some reforms, a more balanced 5.8 percent on average for 2000-2003. During 2002-2003, overall growth reached 6.8 percent even though the oil sector contracted, and 6.5 percent growth is projected for 2003-2004. Yet even after these recent successes, real per capita GDP in 2000 was some 30 percent below the levels of the mid-1970s(1) and 20 percent below those levels in 2003. These figures suggest subpar economic performance and rapid population growth over the long haul, although with significant improvement in recent years.
Iran's overall export growth has also been less than stellar since the revolution. Total exports in current dollars declined at an annual rate of 2.5 percent, with fuel oil exports--on which Iran depends heavily--declining at an annual rate of 4.3 percent. (Non-fuel exports increased at an annual rate of 10.9 percent.) Petroleum exports declined for most major oil exporters over the same period. But in the case of Iran, two internal developments further exacerbated the decline in oil export revenues: a decline in oil output (and capacity) and a rapid increase in domestic petroleum consumption. The decline in production capacity was due largely to investment shortfalls in the oil sector. The increase in domestic consumption was due to high population growth and one of the world's highest petroleum product price subsidies.
Although the economy underperformed and total exports did not fare well, Iran did not resort to significant external borrowing until 1988, after the Iran-Iraq war. Between 1988 and 1993, Iran's external debt exploded from $5.8 billion to $28.5 billion (all figures in US dollars) because of the rapid increase in imports (to meet pent-up demand in the aftermath of the war) and resulted in large current account deficits. Unfortunately, the increased external borrowing did not finance productive investments and Iran received little long-term benefit from the external debt it incurred. This period was followed by several years of current account surpluses because of lower imports. These current account surpluses reduced the stock of external debt to around $7.2 billion 2002.(2) At the same time, gross official reserves increased from $5.3 billion in 1997 to an estimated $21.8 billion in 2002. Iran's debt/GDP ratio stood at 6.3 percent in 2001; its ratio of debt to exports was 30.4 percent; and its debt (excluding short-term debt) service ratio was 6.3 percent.(3) These are low figures by any standard and represent a significant accomplishment relative to most other developing countries.
In the social arena, Iran has enjoyed much more success since the revolution: the average Iranian's life expectancy has risen steadily; infant mortality rates have fallen; access to safe water, sanitation and health care have shown significant improvement; the number of physicians, dentists and nurses per person have increased; and immunization rates have risen. Literacy rates have increased from about 50 percent in 1987 to around 80 percent in 1997. Enrolment rates are nearly 100 percent in primary education and 70 percent in secondary education, compared with 87 percent and 42 percent respectively in 1980.(4) The poverty rate (as defined by the World Bank) has declined from 40 percent to 20 percent. While these indicators point to significantly improved social conditions, they tell us little about changes in the overall quality of services. Many public schools are run on two shifts due to a lack of facilities and qualified staff. University enrolment has expanded since 1979 (from 250,709 in 1988-89 to 733,000 in 2000, with an additional 836,000 in Islamic Azad University), but the quality of higher education does not appear to have improved commensurately across the board. There are, it must be noted, areas of excellence, such as Sharif University of Technology. At the same time, most public hospitals are badly equipped and maintained, and state-of-the-art medications are not widely available.
More fundamentally, unemployment and over-employment are high. The official unemployment estimate for 2000-2002 was around 16 percent and is estimated at 15.7 percent for 2003,(5) but casual observation would indicate a higher figure, coupled with over-employment in the public sector.
A number of complaints are frequently voiced by different segments of society. Average Iranians are not satisfied with their overall economic lot in life. A significant percentage of heads of Iranian households hold more than one job in order to make ends meet. The average person is dissatisfied with the quality of healthcare. The young, meanwhile, are not happy with the quality of their education.
HOW THE IRI GOT HERE
It is apparent that Iran's economic performance has been unimpressive over most of the last twenty-four years. What are the reasons underlying such a performance?
The Iranian revolution, as would be expected of any revolution, resulted in major economic and financial dislocations. Many business leaders and highly educated individuals left Iran, and most took much of their capital with them. This migration of talent and capital depleted the ranks of public servants with policy-making experience and left the private sector and the higher education and healthcare systems without a rudder for some time.
As a major oil exporter, Iran's economic performance is determined to a significant degree by conditions in the international oil market. Major oil exporters were adversely affected by oil market developments from the mid-1980s to 1999. International oil price developments have had a significant impact on Iran's export earnings, on the availability of foreign exchange, and on the balance of payments. The quantity of oil exports is the other important factor in determining Iran's oil export revenues. This, in turn, is affected by oil production capacity, oil output and domestic oil consumption.
Why has Iran's oil production capacity decreased so much, and why has domestic consumption gone up so much? In the case of the former, Iran's oil fields have not received the attention they required. This is due to several factors: damage from the Iran-Iraq war; a shortage of foreign exchange (and, thus, investment in the fields); US sanctions; and government policies (Iran's post-revolutionary constitution) that strictly prohibit oil production-sharing agreements, thus reducing the attractiveness of foreign direct investment (FDI) in Iran. The rapid increase in domestic oil consumption, meanwhile, is due to massive domestic energy price (consumption) subsidies and high population growth. While international oil prices are outside Iran's control, domestic production capacity (adversely affected by the war) and domestic consumption (which has ballooned with the encouragement of subsidies) are in large part determined by government policies. The quality of government decisions has not lived up to expectations.
Aside from changes in international oil prices, the other major factor that significantly affected Iran's economic performance was the Iran-Iraq war. This eight-year war (1980-1988) resulted in heavy damage to Iran's oil fields, pipelines, refineries and related oil facilities. Iran's basic non-oil infrastructure also took a heavy toll, as the war diverted badly needed resources away from industry and agriculture. While it is impossible to quantify the total economic cost of the war (the human cost alone was tremendous, with well over 500,000 Iranians dead), the direct damage in put in the range of $150 to $240 billion (excluding lost oil revenues and foregone GDP). During the war, productive investment was squeezed, infrastructure was destroyed, education programs declined in importance and the number of disabled (more than 500,000) requiring prolonged medical and social assistance multiplied.(6) The Iran of 2003 has yet to recover what it possessed in per capita terms in 1979.
Also outside government control was the influx of about two million Afghan and one million Iraqi refugees. Although Iran provided for their needs, it received very little international assistance to offset the added financial burden. This large increase in Iran's population imposed a significant economic demand on the country.
Iran's economic performance has also been affected by the more-or-less continuous US-imposed economic sanctions. While the popular belief on the streets of Teheran is that sanctions have been the major cause of Iran's economic underperformance, this is at best a gross exaggeration.(7) US sanctions have had a very limited impact on Iran's export earnings (the usual focus of those who stress the important impact of economic sanctions). Iran's oil has been sold to non-US buyers while oil from other countries has gone to the US. As to non-oil exports, small quantities have still been exported to the US through third countries and the rest exported to non-US importers, albeit at a slightly lower price. With regard to imports, most US goods have been imported through Dubai at a slightly higher price; other producers have replaced goods previously imported from the US with little or no disruption.
The impact of US economic sanctions have been most significant in the areas of foreign direct investment, Iran's cost of capital, and, most particularly, in developments related to the exploitation of Caspian Sea oil and gas. The development of Caspian oil and gas reserves has been delayed because of the US insistence that Iran be excluded from any Caspian economic benefits whatsoever. As a result, the littoral parties have been more divided (delaying oil and gas exploitation); the US has banned American oil companies from doing oil swaps (Caspian oil for refineries in northern Iran in exchange for Iranian oil in the Persian Gulf); and the US has barred oil pipelines through Iran (the most economic route and one that would have afforded Iran transit fees and construction benefits). Iran's discounted total economic losses from delayed Caspian oil exploitation could be in the range of $7-24 billion (assuming a $20 average price for a barrel of oil and depending on Iran's share of Caspian oil resources) and in the range of one billion dollars annually for all other sanction-related losses (largely reduced foreign direct investment, transit fees and oil swaps).(8)
It is evident that all of these adverse developments, which were largely outside government control, have had a significant impact on Iran's economic performance over the last twenty years. The effects of government policies, however, have been at least as detrimental as all of these combined and are the fundamental reason for Iran's policy dilemma today.
In the immediate aftermath of the revolution, the authorities created a number of state organizations and foundations and nationalized many industries. These actions reflected the regime's political and social philosophy and resulted in a massive reduction in the size of the private sector in favour of the public (although foundations are still included in the private sector for official statistical purposes). The new entities include the Foundation for the Oppressed and Injured, the Reconstruction Crusade, the Martyr Foundation and three very large public-sector holding companies: the National Iranian Industrial Organization, the Industrial Development and Renovation Organization and the National Iranian Steel Corporation.
The Foundation for the Oppressed was formed with the confiscated assets of the Pahlavi foundation and family to improve the lives of oppressed and disadvantaged Iranians. The holdings of this foundation can be seen everywhere in Iran--in industry, transportation, hotels and other tourism facilities, mining, construction and commerce--and by some accounts they are the source of around two percent of Iran's GDP, with direct employment well in excess of 70,000.(9) Moreover, the contributions of this and other foundations to private sector GDP are highly significant; their share in the output of large private sector establishments could be around 20 percent. All of this came on top of previous nationalizations in oil, gas, railroads, airways, utilities and fisheries.
The Foundation for the Oppressed and other similar institutions function as an economy within the economy and are basically outside government control. These foundations, together with the three large government holding companies mentioned previously, dominate Iran's private sector. In many areas these foundations enjoy monopolistic positions and stifle private sector business activity and growth. Thus, while the rest of the world is embracing privatization, Iran largely retains the nationalized economy it established 20 years ago. Although a process of privatization started in the 1990s, it has been slow to unfold. The IMF estimated that the public sector (including all state enterprises) was directly responsible for about 70 percent of Iran's total employment for 1996.(10)
The structural changes brought about by nationalization have increased economic inefficiencies. This is not to say that Iran's industrial sector was efficient prior to the revolution: high tariffs and other explicit and implicit subsidies supported most of Iran's non-oil industrial and manufacturing production. But reliance on the private sector was the appropriate basis for gradual improvement, and this process might have accelerated with the emergence of the World Trade Organization (WTO) and attendant global trade agreements. Nationalization and the management and operation of nationalized enterprises represented a significant step backward in terms of efficiency. Nationalization has not been limited to the industrial sector. The government, through the Central Bank of Iran, imposed highly restrictive financial controls over commercial banks (which are state owned), with deposit rates and credit creation determined by the central bank. Recently, the government has approved four private banks, with plans to privatize two state banks, and has authorized private insurance companies.
As is the case in the aftermath of most revolutions, the IRI attempted to improve working conditions for labour. To this end, the government adopted highly restrictive labour laws, which have made it impossible, or at best very costly, to lay off workers. As a result, entrepreneurs are apprehensive to start new businesses or even to expand operations. Indeed, in the case of some business enterprises, the operators are willing to give the business away to be rid of their labour-related liabilities. While the government may have had the best of intentions and political survival in mind, their actions have exacerbated the unemployment picture. A recent policy to relax labour laws for small businesses, though helpful, is still too timid to make the labour market sufficiently flexible.
The government continues to rely largely on oil revenues to finance its expenditures. It is estimated that oil and gas revenues constitute about 82 percent of total central government revenues,(11) with tax and non-tax revenues contributing the balance. Oil and gas are depleting resources. Moreover, oil and gas revenues are unlikely to increase with domestic economic activity and government budgetary needs.
A modern government needs an efficient tax system to provide relatively stable revenues, a mechanism for affecting income distribution, and a tool for macroeconomic management. In Iran only government employees pay their complete income tax bills (because it is taken out of their paycheques). The private sector does whatever is necessary to minimize its tax obligations, and capital gains taxes are but a fairy tale.
The government also controls Iran's foreign trade sector heavily. Iran requires import licenses for all imports. Although non-tariff barriers have been eliminated, tariff rates continue to be high and until very recently a multiple exchange rate system was used to discriminate among imports, in turn encouraging corruption. The adoption of the unified exchange rate is another recent hopeful sign.
Iran's economic shortfalls have been dramatically exacerbated by widespread and generous government subsidies and administered prices. These were a legacy of the war with Iraq but were continued for the sake of political expediency, namely for the purpose of buying domestic support. The single largest subsidy, that for energy consumption,(12) amounted to an estimated 11 percent of GDP in 1997-98, 17 percent in 1999-2000 (because of sharp world price increases), and 11 percent in 2001. The benefits of these large and unaffordable energy subsidies largely accrue to the rich, in some years by a 12:1 ratio.(13) Explicit (budgeted) consumer subsidies have amounted to 1.5-4 percent of GDP in recent years. In addition to the implicit energy and consumer subsidies (both of which are available to the poor as well as the rich), most of the profits of the foundations that are distributed to the population are also, in fact, subsidies. Furthermore, the system of dual exchange rates has in the past incorporated a large subsidy element. Thus, implicit and explicit subsidies typically have accounted for 15-20 percent of Iranian GDP, even excluding the subsidy contributions of foundations and the dual exchange rate system of the past.
While corruption is a problem the world over, it is pervasive in Iran--as it is in all energy-exporting developing countries. To get anything done in Iran, from getting a building license or clearing goods through customs, may well require a payment of some kind.
In addition to these broad policy shortfalls, the Iranian government generally encouraged rapid population growth in the aftermath of the revolution. After the population increased dramatically in the 1980s (an average annual rise of 3.6 percent for the years 1979-1988), this policy was reversed, with a significant reduction in the rate of population growth in the 1990s (1.5 percent annually from 1989 to 1998). The explosion in Iran's population--roughly a doubling between 1979 and 2001--has placed a good deal of pressure on the Iranian economy. This pressure is evident in infrastructure (with shortages of electricity, oil, water and housing), education, health and the labour force. Creating gainful employment for the country's youth has been and will continue to be the major challenge for Iran in the first decade of the 21st century and beyond.
A broad indicator of Iran's general economic performance is how the outside world gauges its economic conditions as indicated by the level of FDI. The dearth of FDI outside of its oil and gas industry is startling. The reasons for this shortfall are many: Iran's historically unattractive policies toward FDI, its sub-par economic performance and outlook, its less-than-attractive business climate, negative press coverage (including the issue of personal freedoms) and US sanctions. Although a more investor-friendly FDI law was adopted in 2002, a paper change in a law invariably achieves very little by itself. Foreign investors are still reluctant to put their money and manpower in a country that they are themselves apprehensive to visit. Given the state of the Iranian economy, companies are not willing to jeopardize their relations with the US unless it is worth their while, as may be the case with Iran's energy sector. For example, in 1999 total global FDI was $865 billion, with $9.2 billion in the Middle East and north Africa but only $85 million in Iran (compared to $1.5 billion in Egypt and $847 million in Morocco). Iran has roughly one percent of the world's population, and if it attracted a commensurate share of the world's FDI, it would have received $8.6 billion. Similarly, Iran produces 0.5 percent of the world's GDP, and a commensurate share of the world's FDI would be $4.3 billion.
Iran's policy shortfalls since the revolution are numerous; its successes have been more recent and limited. These include some long overdue economic liberalization (unification of exchange rates, limited opening up to trade, a new FDI law, small scale privatization and a recognition of its restrictive labour laws); more stable macroeconomic management (better coordination between fiscal and monetary policies); and enlightened external debt and foreign reserves management. These policy changes have in turn lead to more rapid and stable economic growth. Iran has been assisted in achieving these recent successes because it has had significant oil revenues in comparison to most developing countries and oil prices have recovered. The Iranian constitution has made it difficult for the government to borrow from abroad. Stable macroeconomic management, the unified exchange rate, low external debt, a reserve cushion for oil revenue fluctuations and general policy reforms were all championed by the late governor of the central bank, Mohsen Noorbakhsh. As a result of his efforts, Iran's macroeconomic performance improved, external debt was kept under control and, in December 2000, Iran established the oil stabilization fund (OSF) to insulate the national budget from oil revenue fluctuations (from budgeted figures). At the end of the fiscal year 20021-2002 the OSF had $7.4 billion (for reporting purposes this amount is included in the official reserve figure) and had a little over nine billion dollars in March of 2003.
Although these are bright economic signs, they are recent and their continuation is not assured. It is, however, clear that Iran's economy is in need of more drastic and decisive structural reform than that implemented by the government to date. Over the last twenty years, successful countries have initiated programs of economic privatization and liberalization, but Iran has done the opposite, marching backwards for about fifteen years, and then slowly and gingerly starting to reverse this process. As a result, in today's Iran the public sector's share of total employment (including state-owned enterprises) is dominant, government controls abound, and subsidies sap government resources and hold back productive investment and growth. If, since the revolution, Iran had productively invested the implicit subsidy embodied in the sale of its petroleum products, economic conditions would have been very different today. All of these economic difficulties have been magnified by Iran's rapid population growth during the 1980s. To my mind, these short-sighted policies--which are under government control--are a root cause of Iran's problems. Iran's experience has important lessons for Saudi Arabia as it continues down a similar road, albeit with more room for manoeuvre, and for the rebuilding of a post-Saddam economy in Iraq. Iraq is starting anew and should avoid the mistakes made by Iran.
IRAN'S ECONOMIC POLICY DILEMMA
To ameliorate domestic economic conditions, the regime in Teheran must adopt policies to attain much faster and sustained economic growth. The government of Iran is faced with two rapidly ticking time bombs, either of which could destabilize the country.
First, GDP per capita in Iran today is some 20 percent below its pre-revolutionary level, while it has about doubled for the rest of the world and even much more so for successful countries such as Malaysia, Thailand and especially South Korea. Increasingly, average Iranians are becoming dissatisfied with their economic lot in life as they are made aware of it through exposure to the outside world. This has been further exacerbated by the demonstration effect of the lavish life styles of the Iranian rich, albeit behind walls.
The second and more serious problem facing the government is the unemployment crisis. Iran's unemployment rate was estimated at 16 percent in 2002. This is due to the rapid population growth of the 1980s (and an accompanied increasing life expectancy) and less-than-stellar economic growth. The actual unemployment problem is more severe because of over-employment in the public sector and in the many foundations, which constitute a significant part of the private sector in Iran. In the face of this difficult unemployment picture, the annual labour force supply, which had grown by as much as five percent per year, is estimated to grow at 3.6 percent per year until 2010, translating into 800,000 new entrants into the labour force each year.(14) The World Bank estimates that GDP growth would have to be 6.5 percent per year until 2010 just to maintain unemployment at 16 percent and would have to be eight percent per year to bring the unemployment rate down to 10 percent (whereas actual real growth over the seven-year period from 1995 to 2003 has averaged less than five percent per year). If anything, these growth requirements are somewhat optimistic estimates if, as the World Bank acknowledges, one incorporates the over-employment in the public sector, increasing labour productivity and an increased female labour force participation rate (from its very low level of 15 percent in 2000). If Iran continues to grow as it has done since the revolution, the unemployment rate could easily reach 25 percent by 2010. Even a six percent growth rate in GDP may still result in unemployment climbing to over 25 percent by 2010 if productivity growth is 3.5 percent, female participation reaches 35 percent and male participation goes to 78 percent. Workforce participation rates are more likely to go up if economic growth does not pick up (as families will need the additional income to make ends meet).
To increase per capita income and to absorb the rapidly growing labour force, Iran has no choice but to attain and to sustain much higher GDP growth rates than it has been able to achieve in the past. The required growth cannot come from the over-employed and inefficient public sector and foundations but must instead come from a vibrant and rapidly growing private sector. Setting aside the sequencing of policies, Iran has to relax economic controls, reduce the role of government and create an environment where the private sector can thrive and grow. This would entail the elimination (or at least dramatic reduction) of explicit and implicit subsidies; the effective privatization of foundations and other state enterprises (including commercial banks); the elimination of remaining price and financial controls; the creation of an effective and equitable tax system; a reduction in tariffs and non-tariff barriers to promote domestic competition; the liberalization of labour laws and markets; improved education policies to promote quality education and technical and managerial skills; a crackdown on corruption; a more favourable attitude towards FDI (including more personal freedoms for foreigners as well as Iranians); a managed flexible exchange rate (avoiding any impression of a fixed system as Iran experiences higher inflation than its trading partners); and a total commitment to upholding the rule of law and developing the supporting institutional structure. These policies in combination should create a favourable business climate in which successful Iranians living abroad would be tempted to move back to Iran, and investment (financed domestically and from abroad) would increase significantly and finance the needed growth. The phasing of the policies will be tricky at best, but the longer the government delays policy reform, the less room it will have for manoeuvre. In the meantime, the government could reduce subsidies more rapidly over the next five to seven years than it has done in the past (eliminating them altogether for the well-to-do); increase tax collection; and give significant transfer payments to the needy to make up for the loss of subsidies. On the other hand, if the government continues to put off reforms, changes would have to be even more drastic and sudden, and even then they might be too late to achieve the needed growth to affect per capita income and employment in time to keep the average Iranian sufficiently contented.
Recently, during 2002-2003, job creation was impressive. Preliminary figures indicate that 700,000 jobs were created even though government employment declined by 5 percent. As a result, the economy created more jobs than the number of new entrants into the labour market. While it must be acknowledged that there has been recent progress with regard to job creation, it will not be sustained unless the government adopts bolder policies and sticks with them.
It is painless to sit in Washington and expound what seems standard wisdom to those running Iran. But from their perspective it is anything but painless to implement policies that might appear downright suicidal. The government has built up a welfare state (albeit an inequitable one with a regressive system of subsidies) to garner domestic support and allegiance and its abolition is anathema to the politicians in Iran. The poor rely on energy and food subsidies. Those loyal to the regime (including the families of martyrs) benefit from employment in foundations and in the public sector generally. They have enhanced access to university education and to better healthcare services. The foundations buy political support for the government in more direct ways also. The lax tax system and the absence of a competitive environment enable merchants, other businessmen and land speculators to accumulate wealth rapidly. The policies required to truly turn conditions around would upset this applecart. But the government has no choice. If it does not institute reform more rapidly, it will be swept aside by growing discontent among the needy and the unemployed, especially the young. The government must adopt policy reforms and ensure that during the transition phase the majority of Iranians (the economically less well-off) see themselves as better off than before the reforms. This will require a well-designed direct income transfer system to compensate for the loss of subsidies for the majority of Iranians, as well as a political campaign to convince the rich and those closely connected to the regime that in the absence of reform they, too, are doomed.
The pain of these needed economic policies for the average Iranian would be reduced if the government simultaneously adopted other measures to attract Iranian expatriates and their capital back to Iran. The government would have to eliminate written and unwritten laws restricting personal freedoms, promote an independent judiciary, and generally enhance the rule of law. With these measures and the return of Iranians from abroad, foreign investors would be afforded the needed comfort to invest in Iran. The inflow of talent and capital would support the faster economic growth that is needed.
Over the last 25 years, the revolutionary government in Teheran has built an economic system intended to buy short-run domestic allegiance. It is a system characterized by economic controls, nationalization and indiscriminate subsidies. These policies, coupled with the policy of promoting rapid population growth in the 1980s, have come home to roost. The resulting adverse economic conditions and the rapidly increasing labour force with little hope of gainful employment will translate into insurmountable discontent over the next three to seven years unless the government undertakes drastic policy reforms immediately. The implementation of such reforms could cost the government support in the short run unless it persuades the general public to buy into its policies with a well-designed system of direct income transfers to the needy. It will also require a political campaign to convince those loyal to the regime of the need for reforms; hope for the unemployed; a crackdown on corruption; and policies to attract Iranian expatriates and their capital back to Iran. There has been a measure of economic success over the last two to three years but the government cannot rest on its laurels and must instead take the opportunity and build on it. One thing is clear: time is running out for the government and the sooner it adopts the needed policies, the more likely their success. Ironically, it is the government's own policy of promoting population growth that has become its nightmare today. But if the past is any indication for the future, the government may delay reforms and attempt to buy more time by drawing down on its reserves, including the OSF, and by borrowing from abroad.(15) Unfortunately this is exactly what Teheran has done over the last twelve months. Between March 2003 and March 2004, instead of increasing the size of the OSF because of historically high oil prices, it has instead withdrawn about $6.5 billion from the OSF for "job-creating investments and to cover tax revenue shortfalls." The government is buying a little time, while the implementation of reforms becomes more difficult with each passing day. Such an approach to the crisis at hand is doomed to certain failure.
(1) Iran: Medium Term Framework for Transition, World Bank, 30 April 2003. All World Bank data are adapted from this source.
(2) Iran: Recent Economic Developments, International Monetary Fund (IMF), 2003. All IMF data are adapted from this source.
(3) World Bank, 2003.
(4) IMF, 2000.
(5) IMF, 2003.
(6) See H. Askari, "It's Time To Make Peace With Iran," Harvard Business Review 72, no. 1 (January-February 1994).
(7) See H. Askari, "Caspian Oil Development: The Sooner the Better," Business Economics 38, no. 1 (April 2003); H. Askari, J. Forrer, H. Teegen and J. Yang, Case Studies of Economic Sanctions: The Chinese, Cuban, and Iranian Experiences (Westport CT: Praeger Publishers, 2003).
(8) For details see H. Askari, J. Forrer, H. Teegen and J. Yang, "U.S. Economic Sanctions: Lessons from the Iranian Experience," Business Economics 36, no. 3 (July 2001) and H. Askari," Caspian Oil Development: The Sooner the Better," Business Economics, 38, no. 1 (April 2003).
(9) IMF, 1995.
(10) IMF, 2000.
(11) World Bank, 2003.
(12) IMF, 2000.
(13) World Bank, 2003.
(14) World Bank, 2003.
(15) This was predicted when this paper was completed in September of 2003. But events have made this prediction into fact. The record high oil prices of the summer of 2004, while boosting economic activity and giving the government wider policy options, will not afford the government a long-term solution.…
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Publication information: Article title: Iran's Economic Policy Dilemma. Contributors: Askari, Hossein - Author. Journal title: International Journal. Volume: 59. Issue: 3 Publication date: Summer 2004. Page number: 655. © Canadian Institute of International Affairs Fall 1997. Provided by ProQuest LLC. All Rights Reserved.
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