Although explaining the main reason of the downswing in the economy of Iran with economic sanctions or economic crises, which have become systemic, is a viable method, this may not be sufficient. We have to primarily take into consideration the political and economic organizations that have become interconnected and articulated in order to comprehend the unbalanced economic structure of Iran’s economy. Since the establishment of the Islamic Regime, significant conflicts have been experienced as a natural reflex of an ideological state between political priorities and economic realities. Whereas political priorities are becoming apparent through alliance lines among different power centers that feed on unbalanced power distribution. The failures in the implementations of reform are based on political processes that are being cut off by these alliance lines.
Islamic Regime has created power centers loyal to itself in the management of political and economic fields in order to ensure its own security and continuity. The multicenter structure within the state apparatus feeds the 'shadow organizations' that dominate reform processes. There is no single actor, who is the main determinant of reform policies in Iran; on the contrary more than one political actor is involved in the process. Consequently, most of the reform initiatives in Iran are condemned to be left only in the planning phase. In this sense, the structure and fundamental dynamics of the reform initiatives started in late 1980s in Iran should be examined with regards to certain organizational structures. These structures, in relation to their affects on reform processes may be classified as follows: organizations that directly related to the Rahbar, semi-autonomous parastatal (bonyad) and paramilitary (Revolutionary Guards) organizations. These three basic structures that can be defined as shadow organizations obstruct the functioning process of formal structures; that is to say that of the parliament and the government.
Factors such as regime security and continuity concerns, prolonged Iran-Iraq war, and widespread expropriations of public assets during the Shah era led Iranian state, beyond its conventional role, to undertake the responsibility as an entrepreneur in fields such as banking, providing basic infrastructure services and social services. The closed economy of Iran naturally took under its protection the structures that feed each other within its own internal system. As such the union of conservative wing of politics and economy expanded the distribution of the state ownership in favor of the loyal guardians of the Regime. The key sectors of the Iranian economy today are under the control of the Revolutionary Guards. The domestic market (bazaar) has formed a deep rooted alliance network with semi-autonomous parastatal structures (such as Bonyad e-Mostazafan) that have grown in an uncontrolled manner and the development of military force in the economy as an actor under the state-control. These structures directly benefit from entire privileges of the state under the protection of the Rahbar.
The economy based on oil that is fed from this alliance since the Iran-Iraq War, the overgrown state apparatus, non-diversification of the economy in different fields of the economy, instability, and closed economy and similar criticisms pushed the government towards the search of deep rooted reform, but most of the initiatives have been ineffective.
Neoliberal Reforms: Economic Stimulus Package of the Rouhani Government
Liberal economic policies that the reformist governments see as the sole remedy are the leading threats that would affect the independent politics of Iran. The first post-1989 action of the Rafsanjani Government was to dispose, together with the Revolution, the parastatal economic structures that were inherited from the Shah era and especially consolidated with the Regime economy. Whereas the privatization rush that was initiated in the name of downsizing the state ended up with the Revolutionary Guards' acquiring the sectors with key importance instead of the private sector. Starting from the Rafsanjani period, the enhanced role of the Revolutionary Guards reached its most developed stage with the Ahmadinejad Government. The endeavor of conservative governments to secure their own place with their paramilitary structure constitutes the most basic issue of the Iranian economy today.
Efforts were made to surpass the economic contraction, which occurred due to the extreme expansion of government ownership, by preparing comprehensive long-term plans. The road map of neoliberal policies were included as targets in the primary objectives of the Third Plan (2000/01-2004/05): 1) Transparency in macroeconomic system and legal framework, 2) budget reform, 3) tax reform, 4) mitigating the role of the state in economic activities, privatization of state enterprises, and private sector incentives, 5) breaking up of monopolies and promotion of competition, and 6) establishing a comprehensive social security network on behalf of vulnerable groups. Ahmadinejad Government pursued a different economic policy from the Third Plan by making populist policies dominant, and moreover by crippling the planned economy via abolishing the Planning Organization and establishing two separate organizations associated to the President’s office, instead. The Rouhani Government decided to revive the Plan and Budget Institution that was abolished during the Ahmadinejad period with the effort to associate the economy with a certain plan. The jury is still out on how to manage the process.
Immediately after its landslide victory in the elections, the Rouhani Government had declared that reducing the dominant role of the Revolutionary Guards in economic activities was targeted. Rouhani, the only Iranian leader who participated in the Davos World Economic Forum in the last decade, mentioned the desire to establish tighter international relations and to open up its potential power with the policy he defined as 'prudent moderation'. At the outset, the main discourse about what is to be done to open up to the world, which the Rouhani Government embraced with enthusiasm, focused on diminishing the state’s role in the economy. Rouhani was expressing at every opportunity that if they could ensure transparency in the economy that they would also be able to fight corruption, that welfare could not be achieved as long as there is state monopoly in the economy, and that the economy is required to be freed of the monopoly and a competitive environment had to be established. These statements were conveyed into a written document as an economic reform package nearly a year later upon the Rouhani Government's coming to office. The package, named as the 'Stimulus Package', challenges the main obstacles the Iranian economy faces. According to Massoud Nili, Senior Advisor of Economy, lack of financial resources, market imbalance, interruptions in the market, macroeconomic factors, and state intervention in the economy constitute the main frame of these obstacles. Essentially the package starts to lead off by determining the areas of issue that contribute to the last stagnation and intensifies the process. Accordingly: sanctions and the drop in export proceeds, subsidy reform, Mehr Housing Project, and maladjusted exchange rate policies are the major factors that feed the downturn in the economy. Alireza Tayebnia (Finance and Economy Minister) stated that the package was intended to revive the economy with a short-term strategy series. Upon the package being announced, the criticisms that were voiced were especially from the foreign press and economy circles, and were focused on the structural functions of the state. At the top of the structural deficiencies was the role of the state in the economy. Protective policies regarding the domestic market were given as an example to this, and the dependency of large-scale industry on the state was being intensely criticized. In order to prevent such criticism, Rouhani insinuated that the Government had to terminate the protective industrial policies. Another criticism concerned the privatization processes. Privatization implementations were being undertaken in favor of the semi-autonomous organizations. A substantial part of investments are based on state-owned holding companies and institutional investors. Whereas some act together with the Revolutionary Guards or the Rahbar, others are in relation with the state pension fund, banks, or subcontractor firms.
Expectations of the world from Rouhani were; the reduction of power held by economic elites that limit the government, and providing a competitive environment for the private sector. The economy of Iran is trapped between economic organizations that have become state within state and which get their power from the conservative wing, and the desire of the external world to convert Iran into a state where all the rules of free market economy apply. However, it is clearly seen that submitting the economy to neoliberal policies will also bring about an uncontrolled growth, and feed a process in which foreign intervention will make itself felt in all areas. Rather than preventing state intervention in the economy, it could be argued that relieving the economy from the grip of paramilitary and parastatal organizations that run the economy has a more critical importance than the presence of an unconditional market economy.
This article was published in Ortadoğu Analiz journal with the title of “Obstacles to the Reform Initiatives in Iran: Economic Stimulus Package of the Rouhani Government ”
