Economic Reforms for Iran

[I was recently interviewed by John Arvidsson and of the Swedish newspaper Nyheter24 about Iran’s economic situation. Here are my answers to his questions.]

Q. Taking Iran’s economic and political situation as a starting point, which reforms in a direction of a free market are urgent to implement in Iran? How would the people benefit from them?

A.  Iran’s biggest economic problems are inflation and unemployment. Last year Iran’s inflation rate was at 27% when my open letter on Iran’s inflation problem (http://blog.minaret.org/?p=787) was delivered to President Ahmadinejad. Several weeks later,  Iran announced it was converting its financial reserves to gold. This was a good first step, and the inflation rate is now reported to have declined (http://in.reuters.com/article/oilRpt/idINDAH33645820091013), although by how much could be disputed. A more complete reform of monetary policy remains ahead. It will be necessary to deal with the unemployment problem in a way that does not undermine the progress made to date in the fight against inflation. If the government would commit to eventually establish a gold-denominated currency (perhaps payable in oil, as America’s gold-backed dollar, when it had one, was payable in silver), that could guide particular interim government policies to maintain a tight control on the money supply that would keep inflation in check. Deprived of Keynesian style “quick-fixes” to the unemployment problem, the government could then focus on policies that increase the production of wealth (rather than redistribution of such wealth as exists) and increase employment opportunities.  The third major problem in the economy, disputes over the spending of the oil revenues would be best addressed by a privatization of the oil industry, but doing this in a way that does not privilege foreign investors will require a careful deliberations over the mechanisms by which title in the industry could be transferred into the hands of the public without the problems experienced by the privatization experiments in the Soviet Union or encountering the stiff resistance of the public sector as in Iraq today.

Q. Can the country learn from reforms in other countries that’s been in the same, previous, situation?  Which are they?

A. On monetary policy it could learn from the experience of the Turkey that has largely solved its inflation problems under the reforms of the AKP. On unemployment it could learn from the experience of Malaysia and Indonesia in the 1990’s, provided it avoids their monetary policy errors. On privatization, there is no positive model, so I can only suggest that they  avoid the mistakes of the Soviet Union and the evasion of the issue in Iraq.

Q. Could the international community play a part in the work towards liberal reforms? If yes, how?

A. The intense hostility of the international community towards left Iranians suspicious of their goodwill, so it is difficult to see how the international community could help. Nonetheless, Iranians are great admirers of the United States (although not its foreign policy) and I think those American  Muslim whom Iranians have come to see as their friends could get a fair hearing. I expect that foreign entrepreneurs would be welcome to partner in Iranian enterprises as long as they were willing to play by Iranian rules, and could have a positive impact in creating an environment that would favor liberalization, as long as they don’t begrudge the Iranian partners getting an impressive share of the profits. The easiest thing the international community could do would be to lift the sanctions against Iran that have kept it isolated and (belatedly) accept the offer of people-to-people exchanges that were favored by the previous president, Khatemi. Conferences in Iran on market liberalization, for example,  can only be advantageous to all parties.

Q. How is it possible that the Iranian regime and Mahmoud Ahmadinejad can receive great support by the people despite economic mismanagement, double-digit unemployment and inflation?

A. The Iranian regime and President Ahmadinejad can receive great support despite the problems identified for the same reason that the Republicans and Democrats in America maintain strong support despite the recent financial crisis and the bailouts that followed. The bank bailouts was a worse example of mismanagement that any economic misstep Ahmadinejad has committed, but populist professions that it was done in the interests of “preventing a worse meltdown” convince enough people to maintain the legitimacy of the ruling elites. The right thing to do is not necessarily the popular things to do. Ahmadinejad’s emphasis on redistribution of the wealth has enough admirers among the Iranian masses for people to overlook the flaws in the approach. President Ahmadinejad is an effective politician who keeps in touch with his base. Further, his most prominent opponents are leftists whose economic policies would only make things worse. Ahmadinejad and the conservatives in the regime are relatively more responsive to the pro-market, “bazaari” elements in Iran as his willingness to change the financial reserves to gold and as the conservatives’ moves to privatize the economy demonstrate.

Q. And if you have any published articles or essays on the topics above where you develop your thoughts, links are welcomed.

A. Please see my open letter to Dr. Ahmadinejad (http://www.reuters.com/article/GCA-Oil/idUSTRE4AE1F820081115) mentioned above.

Imad-ad-Dean Ahmad, Ph.D.
Minaret of Freedom Institute
www.minaret.org

One Response to “Economic Reforms for Iran”

  1. the unemployment rate on our country is growing bigger and bigger due to government mismanagement*:.

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