June 20-2014
Iranian economist Bijan Khajehpour has outlined six issues that he argues the Rohani Administration needs to focus on if it ever hopes to get the Iranian economy chugging along.
In an article written for the Al-Monitor website, Khajehpour said the government needs to start by actually developing a doctrine for economic development and not just prattling about its undefined “Islamic economy.”
He also talks about a need to tackle corruption, mismanagement and the highly politicized foundation of economic policies that ignore economic realities.
Here are Khajehpour’s six points.
- Lack of an economic doctrine. Khajehpour says Iran continues to lack a comprehensive doctrine for economic development. Though both the 20-Year Perspective and the recent Document on Resistance Economy define strategic goals, he says it is still not clear what macro-development route the country will take. “Iran continues to react to external factors (such as sanctions and regional developments) as opposed to proactively following a clear path of economic development,” Khajehpour argues.
- Politicization and securi-tization of the domestic business environment. The country’s economy remains politicized and security-driven, mainly due to the overpowering role of the government and opaque interest groups. “Economic interests become the subject of internal bargaining between competing networks rather than fair competition,” he says. Complex laws and regulations create ambiguities, pushing many Iranian investors to go elsewhere.
- Corruption and misman-agement. “It’s no longer a secret that widespread corruption is present in the Iranian bureaucracy,” Khajehpour says. Furthermore, despite privatization, the government remains the main engine of capital formation, which is inefficient. “The inherent conflict facing the Iranian economy is the fact that on the one side, the government needs to be downsized and to deregulate to improve economic conditions, but on the other side, the same government has to play the role of the largest investor in the economy. The time has come for the government to empower the private sector to plan its own needs based on a market structure and supported by government incentives and grants,” Khajehpour argues.
- Low total-factor production efficiency. Statistics on the Iranian economy expose low efficiency in virtually all sectors. “Despite massive allocations of funds and resources to the state sector, its efficiency remains extremely low…. Efficiency improvement could itself be a major source of economic growth in the Iranian economy, but efficiency shifts require an appropriate business climate and legal and structural reforms,” Khajehpour writes.
- Socioeconomic tensions. A host of reasons, including the gap in income levels, unjust distribution of resources between provinces and regions as well as youth unemployment have led to tensions in society that undermine the country’s economic potential, he says.
• Short business cycles. Business cycles in Iran continue to be conducted in the short term, which prevents long-term planning and growth. The key ingredient to achieving a gradual shift will be legal and policy sustainability, Khajehpour writes.
