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Iran needs new development vision

The failures produced over the last three decades by divergent views on the definition of a "development plan" for Iran necessitates a new development paradigm.
FILE PHOTO: Labourers work at the construction site of a building in Tehran, Iran January 20, 2016.  REUTERS/Raheb Homavandi/TIMA/File Photo  ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. FOR EDITORIAL USE ONLY. - RTX38OJS

Since the end of the Iran-Iraq War in 1988, Iran’s development policies and investment plans have been formulated in so-called five-year plans (5YPs), with the first one starting in 1989. Five 5YPs have been completed so far, and Iran started the implementation of the sixth 5YP on March 21. The approval and implementation of this latest plan had been delayed due to disagreements between the government and the parliament — disagreements that point to key differences on what political stakeholders understand as a “development plan.” The objectives of the original plan have previously been discussed by Al-Monitor. This article will concentrate on the diverging views on development planning and what it will mean for the future of economic policymaking in Iran.

One of the main characteristics of the original sixth 5YP bill was the fact that it was relatively short and kept referring to future executive bylaws that would determine the detailed approach. Many conservative lawmakers criticized the plan during parliament debates, stating that it did not qualify as a development plan and it “clashed with the macro policies of the country.”

Incidentally, the original plan only defined five priorities, but in the course of the parliamentary debates and the criticism from the Guardian Council, lawmakers ended up adding more articles and eventually defining "35 priorities." Top priorities in the original bill included improving water and environment conditions, improving the business climate, reforming local and national governance structures, promoting mining and related industries, tourism and the transit sector. In the amended version, other priorities such as financial sector reforms, promoting pay structures based on social justice, empowering poorer social classes, restructuring pension funds, etc., were also added to the document.

The amended version was so different from the original plan that Akbar Torkan, presidential adviser and head of the Free Trade and Economic Zones Organization, called it a "list of good but unattainable desires." Furthermore, Vice President for Parliamentary Affairs Hossein Ali Amiri said that the document that was passed in parliament and forwarded to the Guardian Council had changed so much that its implementation would be “impossible or very difficult.”

Though the amendments included some good objectives, such as a ban on governmental investment in sectors where the private sector was active and the need to introduce more transparency in capital markets, the core problem is the clash of two diverse approaches to development planning. On the one side, there is a government that wishes to keep the overall development goals simple and allow the executive branch to draft relevant policy approaches within annual budget cycles. On the other side, there is a parliament that is mainly driven by provincial or sectoral interests who insist on defined investments and government allocations. The latter approach does not produce a comprehensive development paradigm, but rather a list of fragmented initiatives and investments that may in some cases even undo each other, e.g., one province investing in the mining industry without the needed supply chain while the neighboring province is investing in tourism or services.

Consequently, 28 years since post-revolutionary Iran started drafting and implementing 5YPs, experts assess the state of development planning very negatively. Abbas Shakeri, the dean of the Faculty of Economics at Allameh Tabatabaei University, explains the main shortcoming. "In Iran, we don't have development planning, i.e., we don't look at the actual realities in society in order to set specific goals and then draft a plan and create the needed infrastructure that will help us achieve the set goals. … Our actions are just shock therapy,” he said.

Respected economist Farshad Momeni believes the country is experiencing a crisis. He believes that in the five 5YPs since 1989, a disastrous alignment between nonmanufacturing sectors, a short-term government and a spectrum of domestic neoclassical views has taken shape and has undermined manufacturing and economic development. In Momeni's analysis, the main losers in the process of the past 28 years have been society at large and the manufacturing sector, and the crisis has reached such dimensions that the country will have to make a new strategic decision about how to go forward.

Other economists, such as Shahla Kazemipour, believe that the Management and Planning Organization (MPO) should become independent from the government so that it can draft and implement 5YPs without political considerations. However, in a country where the Central Bank is still fully dependent on the government, it is far-fetched to look for the emergence of an MPO that can draft and implement development plans without any political interference.

The fact is that even the best plans and laws cannot be implemented properly if the country’s bureaucratic structures lack adequate capacity. As such, before one decides what kind of approach is needed, Iran needs administrative reforms to increase bureaucratic efficiency, transparency and discipline. Such structural reforms would also need to be accompanied by cultural and social reforms, including addressing religious and superstitious beliefs that impede the country's economic development.

In parallel with the above-mentioned reforms, Iran needs a clear definition of development and also a clear strategy forward. Notions like "economy of resistance," which sometimes is presented as "resilient economy" and otherwise as "resistance economy," won't help the confused state of affairs. Furthermore, general statements such as the goals defined in the 20-Year Program are too vague to be measured.

One potential approach could be that Iran gets rid of the 5YPs in their current format and instead develops either regional (e.g., northwestern region, southeastern region, etc.) or sectoral (e.g., mining, tourism, agriculture, etc.) development plans. One could also create a hybrid system of plans involving both regional and sectoral plans, but the key point is that they have to be aligned and also guided by a clear and measurable national goal. The advantage of such plans would be their decentralized structure and the ability to take into account the specific requirements in each region and sector more accurately.

As long as Iran's mainstream political forces do not agree on a clear paradigm for development, economic planning and policymaking will remain ambiguous, vague and at best fragmented. It remains to be seen whether President Hassan Rouhani will use his momentum in his second term to take tangible steps in this direction.

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