Iran Pulse

Iran Revives Planning Agency To Enact Economic Reforms

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Article Summary
Iranian President Hassan Rouhani will reestablish the Management and Planning Organization, which former President Mahmoud Ahmadinejad had dissolved in 2006.

President Hassan Rouhani and his economic team have stated unambiguously that they will revive the Management and Planning Organization (MPO) — an entity that was dissolved by former president Mahmoud Ahmadinejad in 2006. While the new administration is deliberating on how to structure the new MPO, it is worthwhile assessing what kind of a state organization would best respond to the needs of the country’s economy and business environment.

The MPO was created through the merger of two old state organizations in 1997: the Planning and Budget Organization (PBO: in charge of drafting and supervising annual budgets and five-year development plans) and the Organization for Administration and State Recruitment (in charge of all human resource issues within the state sector). It should be noted that the PBO was originally established in 1948 based on the advice of US advisers who were helping Iran build a modern state in post-WWII era. After the merger in 1997, the MPO played a significant role in the allocation of provincial, organizational and project budgets and as such was an important stakeholder in the financial processes within the government. It was so significant within the state structure that the head of the MPO had the rank of a vice president and was also a member of the Supreme National Security Council. Before Ahmadinejad’s arrival on the scene, the main criticism at the MPO was that its experts were out of touch with local and provincial realities and that budgets were allocated without a clear understanding of local issues and most times based on political bargaining processes.

Ahmadinejad’s decision to dissolve the MPO and to transfer its key responsibilities to the president’s office under a vice presidency was based on a number of reasons: First, Ahmadinejad was principally anti-establishment and for him the MPO was a symbol of a state bureaucracy that was driving decisions in Iran. Second, his experience as the former provincial governor of Ardabil had underlined how Tehran could impede provincial projects through the budget leverage. Third, as his later decisions indicate, he wanted a free hand in passing and implementing “rapid projects” and wished to control the resources — incidentally, the desire to control matters directly was also evident in the new name for the new vice presidency, “vice president for planning and strategic control.” 

In justifying the move (which was criticized heavily by experts at the time), Ahmadinejad said: “This step will inject a new spirit into the management and planning systems of the country.” In reality, the decision to dissolve the MPO paved the way for a “trial and error” mentality in budgetary decisions and fund allocations and the gradual move away from expert cost-benefit analyses on state expenditure. It is also no coincidence that the government is faced with enormous budget deficits and also a large number of unfinished projects.

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Well, with Ahmadinejad and his erratic policies and budget allocations out of the picture, the new administration is looking to revive the MPO. However, according to Mohammad Nobakht, a close confidant of Rouhani on economic issues and the likely head of the new MPO, the government is evaluating the best approach to establish a new MPO. It is expected that the law and bylaws related to this strategic shift will be drafted, debated and passed in the next few months and that a new MPO will be tasked with drafting the next state budget before the end of the current Iranian fiscal year (March 20, 2014).

In designing and establishing a new MPO, the Iranian government will certainly take into account the structural and economic changes in the country. In fact, the Ahmadinejad years have empowered the provinces and there will be a greater need to create an organization that can develop a comprehensive, country-wide strategy for planning and budget allocation.

There will also be a need to create an expert organization that will be as apolitical in its decisions as possible. In fact, the new MPO could easily become the victim of competition between different provinces or diverse networks of interest, if it were subject to political considerations. The only way to establish an organization that can provide efficient development plans will be to define tangible national interests and development goals that would be achieved through state budgets, five-year plans and other macro-economic documents produced by the future entity.

In fact, Iran has a strategic vision (the so-called 20-Year Prospective Document) which was passed in 2005, but subsequently rather neglected by the Ahmadinejad governments. This document provides a number of goals (such as the desire for the country to become a knowledge-based economy by 2025 or the objective to be an active trading partner in the global economy) that can be a good basis for additional expert planning. Furthermore, the government will have to create a structure in which the MPO is not solely managed by civil servants and that there is clearly defined interaction with the private sector (through the national and regional chambers of commerce), universities and other NGOs. This interaction will enable the new MPO to maintain a constructive dialogue with key national, provincial and local stakeholders whose cooperation will guarantee a more efficient utilization of the country’s resources.

Experts have no doubt that the instability in government policies and the trial and error mentality of the former government were among the main causes of the economic decline of the past few years. It is also evident that the return of a new and efficient MPO will induce a certain degree of sustainability in economic and trade policies. As such, private sector players as well as economic experts expect that the Rouhani administration will create an MPO that will be apolitical, expert-oriented, independent and a cross-section between government and non-government. 

It remains to be seen what will emerge from the current deliberations in the Rouhani administration, but it is clear that this government would book a major achievement in the field of economic policy and development in the country, if it manages to draft, pass and implement the laws that will facilitate the independence of the MPO alongside an independent Central Bank of Iran

Bijan Khajehpour is a managing partner at Atieh International, the Vienna-based international arm of the Atieh Group of Companies, a group of strategic consulting firms based in Tehran, Iran.

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Found in: iranian central bank, iran, economic, development

Bijan Khajehpour is an economist and a managing partner at Eurasian Nexus Partners, a Vienna-based international strategic consulting firm.

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