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Iran's 'Productivity Plan' likely to lead to an increase in corrupt transactions
Al-Monitor Pro Members
Dr. Bijan Khajehpour
Managing Partner, Eurasian Nexus Partners, Vienna, Austria
Feb. 15, 2023
The recent decree entitled “Productivity Plan” issued by Iran's so-called Economic Coordination Council — consisting of President Ebrahim Raisi, Parliament Speaker Mohammad Baquer Qalibaf and judiciary head Mohseni Ejei — will pave the way for the continuation of corrupt transfers of ownership between the government and the semi-state sector, with some positive short-term impact on the government’s financial position.
- One of the economic consequences of the 1979 revolution in Iran was the nationalization of the economy, putting the vast majority of enterprises and assets under government control.
- Though various administrations engaged in a prolonged privatization process, the real private sector did not benefit directly and most of the assets owned by the government were transferred to various semi-state institutions, i.e. military, revolutionary and religious foundations as well as pension funds affiliated with the networks of power.
- The legal platform for the sell-off of government assets was the 2006 re-interpretation of Article 44 of the constitution. This decree determined which sectors had to remain a government monopoly and which enterprises were to be privatized and through what methods. Even though the legal framework insisted on transparency, experts believe that most transactions that took place under the umbrella of privatization have been accompanied by ambiguity, financial misappropriation and corruption.
- The consequence of three decades of privatization has been the continuous empowerment of the semi-state sector and the weakening of the central government. Nonetheless, the executive branch still owns a large segment of land and properties in the national economy — a fact that has compelled the Raisi administration to come up with the so-called “productivity plan” in order to monetize the abundance of idle properties under government control.
- According to officials, the objective of the plan is to “contribute to economic growth and increase the productivity of the government’s surplus assets.” As most of these assets are real estate, the officials argue that the process would increase the supply of land, properties and buildings and adjust property prices downwards. Furthermore, the plan intends to boost the liquidity of governmental companies. However, there is little doubt that the main driver for the government is to monetize its asset base in order to fill its enormous budget deficit which is expected to amount to 2,000 trillion rial ($7 billion at the current Nima rate of the Central Bank of Iran) in the next year, on top of the already existing deficit of 3,000 trillion rial ($10.5 billion) in the current cycle that ends on March 20, 2023.
- The process will be governed by a seven man committee headed by Mohammad Mokhber, current first vice president and the former head of the country’s largest revolutionary foundation, known as Setad. The most worrying fact about the decree is that the committee members have been declared immune from any kind of prosecution regarding their decisions related to this process.
- The Iranian media and economic experts have heavily criticized the plan. Prominent economist Hossein Raghfar commented that the plan would equate the declaration of a public financial bankruptcy.
- According to Mohammad Rashidi, a member of parliament representing Kermanshah, the total assets that would be subjected to the decree amount to 180,000 trillion rial, equal to $630 billion at the Nima rate. Taking into account the expert estimation that such assets are transferred at least 30% under their real value, the potential for corrupt transactions will amount to more than $190 billion.
Scenario 1: The government will manage to fill its budget deficit and contain runaway inflation
Chronic budget deficit has been one of the main drivers of inflation in Iran and if, implemented well, the planned proceeds of this plan could reduce the budget deficit. In the proposed budget bill for the next Iranian year, the government has projected proceeds of 1,060 trillion rial. Considering the sheer volume of assets subject to the plan, it is foreseeable that the budgeted volume will be achieved plus additional revenues that will help the government reduce its growing budget deficit. As such volumes of capital are mainly under the control of semi-state institutions, the downside of a successful implementation will be the growing weight of this sector in the overall power structure. Essentially, the more assets are transferred from the government to the semi-state institutions, the more the balance of power will change to the detriment of the executive branch.
Scenario 2: Backlash from society will limit the maneuvering space for the government
As mentioned, the plan has been subject to severe criticism from day one and it is possible that additional layers of scrutiny will be put in place to prevent corrupt practices. Such scrutiny could also be a tool to increase the government’s legitimacy which has suffered enormously in light of the clampdown on recent social protests. Experts believe that tens of billions of dollars of assets that belong to future generations will be transferred to the semi-state institutions at artificially low prices. Therefore, measures may be put in place to limit the volume of asset transfer per year. Such measures won’s stop corrupt transactions, but will reduce the number of such transfers putting a lid on corrupt dealings. However, as most power centers are controlled by hardline elements in Iranian politics, the impact of backlash from civil society will be limited.
The most likely scenario is that the process will create a new platform for corrupt transactions between the government and Iran’s growing semi-state sector. The implementation of the plan will certainly generate some needed revenues for the government that has to tackle high inflation and the society’s socio-economic demands. Notwithstanding, within the country’s long-standing political culture, it will more likely become a tool for President Raisi to buy additional political support from diverse power centers to improve his chances of re-election as well as being a serious contender to succeed Ayatollah Khamenei as the country’s supreme leader. In other words, a campaign with political and economic objectives that will improve the government’s finances, have some short term benefits for the economy, but would also further consolidate the corrupt transactions between various stakeholders in Iran.
Bijan Khajehpour is the managing partner at Eurasian Nexus Partners - eunepa.com - a Vienna-based international consulting firm. He also sits on the board of the Europe Middle East Research Group. He is considered an expert on geopolitics of energy and the Iranian economy and energy sector.
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