Jan 20, 2016, 10:57 AM
News Code: 81928358
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National economy in post-sanctions era

Tehran, Jan 20, IRNA – The deeply-rooted economic problems in Iran are not solely the consequence of decades of western-imposed sanctions, writes Iran Daily in an opinion piece published on Wednesday.

The article tries to bring into spotlight other factors contributing in recent years to exacerbating the economic conditions.

The full article follows:

Iran’s economic problems and bottlenecks did not crop up as a result of the Western sanctions to be overcome through their removal.

In the post-sanctions era, Iran’s economic system will at best experience the same unfavorable conditions it encountered during the period of stiff embargoes unless the government and people initiate effective reforms to tackle the deep problems of the domestic economy.

This while, this time, the economy’s downturn will be way more tragic due to the current 12-year low oil prices and the fact that domestic economic agencies are now far more vulnerable than they were at the time of the sanctions. Since 2006, Iran’s economy has been faced with serious challenges due to the adoption and initiation of a number of imprudent economic policies and moves. They included an obligatory fall in interest rates and narrowing the gap between the parity rates of the dollar and the rial at a time when inflation shot up to a two-digit figure. Closing this gap was only possible by bringing the real rates of foreign currencies down.

Other policies further exacerbated the economic conditions. Among them were extending loans to projects with speedy capital return, which was a waste of monetary reserves of the banking system. In 2008, Iran’s economic growth dropped to below 1 percent. This was while no new job opportunity was created.

Nevertheless, the remarkable rise in oil revenues masked the dire consequences of the economic downturn. The government kept the wheel of the ailing economy spinning by spending oil earnings on low price imports. In 2010 and 2011, Iran experienced economic growths of 6.5 percent and 4.3 percent, respectively, thanks to the unprecedented hike in international crude prices.

The imposition of economic sanctions on Iran, in effect, was an untimely end to Iran’s oil-revenue induced transient economic growth bringing it down to -6.8 percent in 2012.

The non-existence of economic sanctions could have procrastinated inflationary recession in 2010 and 2011 for two years.

The continuation of wild fluctuations in macroeconomic variables for more than four decades has hurt Iran’s business market, thus, creating an unfavorable condition for foreign investors. Other factors such as the Iraqi-imposed war (1980-88) have naturally played a role in the economy’s slow growth. Nonetheless, Iran’s economic problems have deeper roots stemming from the financial system’s structure and function.

Despite its important achievements, enactment of reforms in the post-war era, particularly during the Third Economic Development Plan (2000-2005), failed to ensure economic stability. The downfall of the financial system came abruptly after a relative improvement in the economic function of the then-government, i.e. following the execution of the Third Plan. This demonstrates the vulnerability of the economic system to political changes.

The adequate legal and organizational maneuvering room of the then-government to pursue its populist policies since 2005, led to a severe downturn in Iran’s economy in the second half of the first decade of the 21st century. It freely set market prices as well as interest rates and allocated banking reserves based on political or social concerns.

The risk of a recurring populism and occurrence of large fluctuations will always threaten the economy, unless we reform anti-economic rules and regulations and eliminate the massive cumbersome bureaucracy dominating domestic organizations and entities.

Despite the 11th government’s anti-populist measures and policies and efforts to promote economic liberalism and competitive market, faint traces of populist moves can be discerned.

Now that the embargoes are being gradually lifted, the Rouhani administration is provided with a unique opportunity to reform its counter-economic rules and regulations and prepare the ground for a liberal and competitive economy.

Grasping this opportunity is not only plausible, but quite necessary and inevitable.

By: Mousa Ghani-Nejad