Need for New Development Paradigm

EghtesadOnline: Since the end of the Iran-Iraq War in 1988, Iran’s development policies and investment plans have been formulated in five-year plans, with the first one starting in 1989 and the Iranian government recently decreeing the implementation of Sixth Plan (2017-22).

News ID: ۷۷۷۸۶۱

23 July 2017

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”.

An article penned by managing partner at consulting firm Atieh Group, Bijan Khajehpor, and published by Al-Monitor concentrates on diverging views regarding development planning and what it will mean for the future of economic policymaking in Iran. According to Financial Tribune, excerpts follow:

One of the main characteristics of the original sixth five-year plan 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 parliamentary debates, stating that it did not qualify as a development plan and “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 criticism from Guardians Council, lawmakers ended up adding more articles and eventually defining “35 priorities”.

Top priorities in the original bill included improving water and environment conditions, expanding the business climate, reforming local and national governance structures, promoting mining and related industries, tourism and transit sector. In the amended version, other priorities such as financial sector reforms, promoting pay structures based on social justice, empowering poorer social classes and restructuring pension funds were also added to the document.

Good But Unattainable

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”.

Vice President for Parliamentary Affairs Hossein Ali Amiri said the document passed in parliament and forwarded to the Guardians 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.

Shock Therapy

Consequently, 28 years since post-revolutionary Iran started drafting and implementing five-year plans, 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 five-year plans since 1989, a disastrous alignment between nonmanufacturing sectors, a short-term government and a spectrum of domestic neoclassical views has taken shape and undermined manufacturing and economic development.

In Momeni’s analysis, the main losers in the process of the past 28 years have been the 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 should become independent from the government so that it can draft and implement five-year plans 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.

Reforms Required

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.

One potential approach could be that Iran gets rid of the five-year plans 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 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.