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Iran: Analysts Give Economic Planning And Development Mixed Marks

Unemployment among young Iranians is extremely high (Fars) By Bill Samii and Fatemeh Aman

The recent granting of additional oversight responsibilities to the Expediency Council caused quite an uproar in Iranian politics, with much of the discussion focusing on the possibility that this move would undermine the independence of the executive and legislative branches. But a major aspect of the Expediency Council's new powers that did not get much attention relates to Iran's Fourth Five-Year Development Plan.

That the five-year plan requires additional supervision suggests that its predecessor, the Third Five-Year Development Plan, was not overwhelmingly successful. An Iranian economist living in the United States wrote in a recent article that the five-year plan achieved "mixed results," and is based on the "Soviet-invented" and "long discredited" use of central planning. But another Iranian economist, a professor in the United States, disagreed with this basic premise in an interview with Radio Farda.

'A Sacred Ritual'

Economist Jahangir Amuzegar, who served as finance minister in the prerevolutionary Iranian government, wrote in the Fall 2005 issue of "Middle East Policy" that the third plan, which ended in March 2005, focused on "prosperity achieved through high economic growth combined with optimum social justice guaranteed by employment-based poverty reduction." In addition to outlining basic goals, the plan set quantitative targets for the growth rate, public- and private-sector investment, consumption, unemployment, inflation, money supply, exports, imports, and population growth. Amuzegar continued, "the plan still resembled a wish list rather than a cohesive, input/output-based scheme." Setting precise targets when primary data is absent or dependent on external factors is unrealistic, he added.
Unemployment is down to some 10 percent. The real problem is that unemployment is 25
percent among young males and 50 percent among young females.

Amuzegar noted, "Five-year central planning has now become a sacred ritual in the Islamic Republic." He continued, "Although planning has proven to be a costly exercise in futility, it is still regarded as a talisman for Iran's economic salvation."

Djavad Salehi-Isfahani, a professor of economics at Virginia Tech, had a different take on the five-year development plan. He told Radio Farda that it is not central planning which is a sacred ritual, rather, "Five-year indicative planning has now become a sacred ritual." Salehi-Isfahani described the five-year plans as "indicative plans which are needed to coordinate activities between the private sector and the government and within different government ministries." He said the move has been away from central planning since the second plan (1995-2000).

Yet Salehi-Isfahani agreed that the report card is mixed. He told Radio Farda, "I think the economy in some senses, in some measures, has done better than planners expected and in some measures it has done worse than the plan envisioned."

Debating Unemployment, Poverty, And Subsidies

In his assessment of the plan's highs and lows, Amuzegar noted that it succeeded in reaching some of its targets and, even when there were deviations, "the results were altogether reasonably satisfactory." Nevertheless, Amuzegar described several areas in which "unfulfilled promises and a clear inability to reach declared objectives" dwarfed the plans achievements.

For example, Amuzegar questioned the government's claims on reducing unemployment -- "both murky and widely contested" -- and noted discrepancies in official statistics on this subject. He wrote that the official unemployment rate was to be reduced from 15 percent in 2000 to 11.5 percent in March 2005, with the creation of 3.8 million jobs. Amuzegar cited "various official estimates" that say only 2.9 million jobs were created.

Salehi-Isfahani was more sanguine on the subject of unemployment reduction. He dismissed the possibility of data manipulation and said he has seen the raw numbers and can reproduce data from the Statistical Center of Iran. Salehi-Isfahani told Radio Farda that unemployment is down to approximately 10 percent. The real problem, he said, is that unemployment among young people remains high -- 25 percent among young males and 50 percent among young females looking for work.

Turning to the issue of poverty, Salehi -Isfahani told Radio Farda that the poverty rate has fallen. He ascribed this to rising oil expenditures and their role in creating manual labor jobs. He conceded that the plan cannot be credited for the rise in oil prices and the resulting economic growth.

Amuzegar described persistent poverty as a shortfall of the five-year plan. He mentioned an absence of data and officials' citation of contradictory figures, and he referred to data and figures that do not show progress in reducing poverty. Some of the data he cited, for example, includes a parliamentary research bureau report that describes half the rural population and one-fifth of the urban population living below the poverty line.

The effort to privatize state enterprises fell short of the plan's targets, according to Amuzegar, and he added that such enterprises are not very efficient. Amuzegar wrote: "Of the 2,000 largest enterprises in the public sector, with a roughly estimated net worth of $110 billion and annual revenues of $61 billion at the start of the plan, nearly 41 percent reportedly operated in the red." In this case, too, according to Amuzegar, the statistics are "contradictory, unreliable, and confusing." Nevertheless, they are not encouraging, showing a failure to meet targets for the transfer of shares -- "Of the $570 million worth of shares of state firms put up for sale, only $17 million worth was sold." The shares that were sold, furthermore, went to other public entities.

Salehi-Isfahani was less pessimistic on this issue as well, telling Radio Farda: "Privatization has been picking up pace." He noted that labor laws prevent the dismissal of workers which could turn around unprofitable state enterprises. "The labor market is so rigid that there is no way for buyers of this state enterprise to restructure them in a profitable way to be able to keep the workers, they need to lay off those that are not needed by that particular enterprise," he said. "I think that is one of the major inhibitors in privatizations and I think that goes back to a lack of success with human resource development and human resource reform in Iran."

Subsidies for basic necessities, such as foodstuffs, as well as implicit subsidies for most public utilities, are another topic criticized by Amuzegar. He described them as "unfair and unaffordable," and added that they impose "an unbearable burden on the treasury's meager resources, [and] encouraged wasteful consumption, smuggling, and underground transactions."

Salehi-Isfahani agreed that subsidies are a significant problem for Iran, but he rejected that this is a failure of the five-year plan. He said Iranians must decide on the wisdom of having $10-$12 billion in energy subsidies. Salehi-Isfahani continued, "Is it possible to come to an agreement that energy subsidies are reduced, and a way to maintain individual incomes to help the poor is through a more effective income maintenance program and through more effective unemployment insurance?"

Moving The Goalposts

The fourth five-year development plan is now under way, but it got off to a shaky start. Marvdasht representative Ali Akbar Qobadi complained at the 18 May legislative session: "Two months after the beginning of the Fourth Development Plan, related bylaws and instructions required for the execution of the plan have not yet been prepared," "Jomhuri-yi Islami" reported on 19 May. Another legislator, Asadabad's Mohammad Baqer Bahrami, said at the 13 July session that the current administrative system is unable to implement the fourth plan, "Jomhuri-yi Islami" reported on 14 July. To make the plan work, he said, "The administrative system requires brave structural reforms and immediate, accurate, and scientific planning."

As recently as September, Tehran representative Hussein Nejabat was calling for changes in the five-year plan. He said, "In order to achieve justice and Islamic fundamentalism in the Fourth Development Plan, the government, by submitting bills, and the parliament, by presenting fundamental plans, must necessarily make some revisions in line with justice in the Fourth Development Plan," "Jomhuri-yi Islami" reported on 26 September.

And in late October, the plan was changed. Legislators authorized enforcement of a law on public insurance fees by passing a bill that amends the fourth plan, "Jomhuri-yi Islami" reported on 20 October.

It is too early to tell if the Fourth Five-Year Development Plan will have greater success than its predecessor in meeting its targets. If amending it is a continuous process, then it is more likely to fulfill its objectives by 2010. But if it remains unchanged then it will probably have the same mixed record as the Third Five-Year Development Plan.