Distributing Iran’s Oil Wealth?

CV1_TNY_2_9_16_09.inddBy Abbas Djavadi – In 2005, Mahmoud Ahmadinejad was elected Iran’s president on the promise to distribute the country’s oil wealth among the poor. After his election, he approved grants and subsidies, disregarded advice by state budget office, and ordered the central bank to print more and more money. In one year, liquidity increased by 40%. Lacking incentives to invest, Iranians used the cheap cash to buy imports. This paralyzed domestic industries and caused skyrocketing prices. Within one year, the inflation rate was the fourth highest worldwide after Zimbabwe, Uzbekistan, and Burma. Currently Iran has an annual inflation rate of 17% (official) or 25-28% (experts) and an unemployment rate of 12% (official) or 25% (experts).

Iran’s economy relies almost entirely on oil revenues that make up 85% of the total government income. With the international price of crude reaching record highs in the last few years, Tehran could afford keeping the country afloat.  The dramatic fall in oil prices in the last few months, however, has  caused deep concerns among most Iranian economists that a serious crisis is looming.

The New Yorker speaks to prominent Iranian economist Mohammad Tabibian who says that in Iran, the spectrum of economic thought runs «from left to left.»

The economic plans of both so-called conservatives like Ahmadinejad and «reformists» are based on spending and distributing the state revenues through subsidies and grants and not restructuring the economy that is heavily state-run. Both plans create basis for increased inflation and unemployment.

Tabibian was the first professor in Iran to be purged from the country’s educational system not for demanding democracy and human rights as many of his fellow professors in other fields, but for supporting free enterprise. He says liberalization of Iran’s economy is a necessary precondition for political reform.

Those with interest in the subject matter are recommended to read the full article in The New Yorker of February 2, 2009: «Letter from Tehran: The Rationalist — A Dissident Economist’s Attempts to Reform the Revolution, by Laura Secor.» Here you can find an abstract, but to read the full article you have to register online or buy the magazine.