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| Volume VIII, March 2001, Number 1 |
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| ABSTRACT: Iran's Post-Revolution Planning: The Second Try |
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| Jahangir Amuzegar |
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Dr. Amuzegar, an international economic consultant, was
minister of finance and commerce in the shah's regime.
Iran's Second Development Plan (l995-2000)
came to an end on March 20, 2000, leaving behind an economy mired in tepid
growth, high inflation, high unemployment, a weakened national currency, a
widening income gap between the rich and poor, and an uncertain future. A
significant number of promised structural reforms were also not implemented,
and were passed on to the Third Plan (2000-2005).
The second plan was scheduled to begin on
March 20, 1994, the first day of the Iranian New Year 1373 (1994/95). However, due to the significant internal and
external imbalances resulting from earlier mistakes and miscalculations, it was
postponed for a year. The Second Plan
was put together with the avowed purpose of dealing with the country's lingering problems.
Projections were for an average annual GDP growth rate of 5.1 percent, to be
achieved by an average increase of 6.2 percent a year in domestic
investment. Private consumption was to
rise by 4 percent a year in real terms. Real government consumption was to decline by 0.9 percent a year.
During the plan's life, progress was seen on several
fronts. The rate of population growth
was reduced from the high levels of the early post-revolution years. The official consumer-price index, while
still exceeding the target, was nearly halved from the 49-percent level
prevailing in the Plan's first year. The budget deficit was measurably reduced, if only by cutting down on
public development expenditures and through higher rial valuation of the oil
income on the treasury's ledgers. The
exchange rate, although still in a multiple range, was guided towards a managed
float. Prices of some public goods and
services were modestly raised to bring them more in line with their true costs
and to reduce their consumption. External debt, after undergoing an embarrassing forced rescheduling, was
kept at $21.2 billion by march 2000 -- somewhat below the planned limit of $25
billion, after rolling over part of the overdue debt. Modest successes were also achieved in some social and cultural
areas.
However, the
Plan failed to reach every one of its targeted goals. GDP growth fell well
below the target. The inflation rate
rose to more than double the targeted figure, as did the annual growth of broad
money. Unemployment worsened. Public consumption, instead of falling, rose
five times as fast as planned due to increased salaries, subsidies and
waste. Private consumption did not even
approach the projected level, due to periodic shortages of goods and
services. Aggregate annual investment
was less than half its relatively modest goal, due to lack of incentives and
security. At the sectoral level, also, all but the services sector fell short
of their targets.
Official
excuses for the shortfalls have been many but mostly unfounded. The adverse
impact of some exogenous factor -- most
specifically the crushing 25-percent drop in oil-export revenues -- however,
should not be denied or underestimated. Yet the plan's truly unenviable performance had a lot more to do with
the failure to achieve its "core values" than the understandable deviations
from numerical targets. The ultimate
success of the Second Plan in the economic arena depended on its ability to
achieve five fundamental objectives: reduction of poverty and promotion of
"social justice;" downsizing of the government bureaucracy through privatization; reducing youth unemployment through increased
labor-intensive investments; lowering dependence on oil through the expansion
of non-oil exports; and making
agriculture the pivot of economic development to establish a better balance
among the economy's basic sectors.
Information supplied even by official sources,
however, points to considerable setbacks on all
of these fronts. In retrospect, no one
truly expected central planning to solve every
one of Iran's chronic economic problems -- sluggish growth, virulent
inflation, intractable unemployment, a dwindling middle class, undue reliance
on oil exports, capital flight and brain drain. The question is whether it effectively tackled any of them.
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