Ahmadinejad's Economic Plans Under Attack

New five-year plan and annual budget poorly conceived, say deputies.

Ahmadinejad's Economic Plans Under Attack

New five-year plan and annual budget poorly conceived, say deputies.

Monday, 22 February, 2010

While Iranian politics have been mostly consumed with the aftermath of President Mahmoud Ahmadinejad’s disputed re-election in June 2009, unease about his ability to steer the economy has been brewing amid high unemployment and runaway inflation.

With Ahmadinejad’s introduction of his proposed fifth five-year plan and annual budget for Iranian fiscal year 1389 ending on March 20, 2011, conflicts over the economic management of the country are set to resume centre stage and compound the country’s political problems.

Deliberation of these two bills has yet to begin and parliamentary leaders have said that, given their late and concurrent submission, they will delay consideration of the five-year plan until next year. There is already evidence that most lawmakers were surprised by the carelessness with which both bills have been prepared and with Ahmadinejad’s blatant disregard of previous economic targets.

Members of parliament are faced with hard choices, none appealing. They could spend the next two months negotiating and effectively re-writing in detail a budget that Ahmadinejad is likely to ignore. Or they could make Ahmadinejad’s incompetence in budget writing and planning an issue and hence add to his political woes. Or they could give in to the president, say nothing, and be held responsible for the economic catastrophe they consider to be in the making.

The deputies face this dilemma as unemployment hit 11.3 per cent in December, up from 9.5 per cent a year before, while the current five-year plan called for it to be down to seven per cent by 2010, the official PressTV reported in January. Annual inflation was put at 13.5 per cent in December.

The highly expansionary budget was submitted to parliament 45 days later than mandated by law and called for a 32 per cent increase to almost 368 billion US dollars in comparison to approximately 280 billion dollars last year. It was introduced after the subsidies legislation finally became law with the assent of the Guardian Council. Yet it is based on figures that contradict the legislation intended to reform Iran’s bloated subsidies system.

It took a whole year for the targeted subsidies legislation - calling for prices of 16 commodities, mainly food and fuel, to be liberalised - to become law because of parliamentary wrangling with Ahmadinejad. The president insisted on total control over price increases of key commodities such as gasoline and diesel fuel as well as the redistribution of the funds generated from the cuts to needy families.

The parliament, worried about an inflationary shock, mandated gradual price increases over a five-year period and specifically demanded that in the first year of implementation the money generated from subsidy cuts be between 10 and 20 billion dollars, at most 50 per cent of which could be distributed as cash or non-cash subsidies as a means to compensate for the cost to consumers of increased prices.

But the budget submitted for next year assumes that close to 40 billion dollars will be generated from subsidy cuts. According to Ahmad Tavakoli, a conservative member of the parliament and head of the parliament’s research centre, this figure suggests that the government intends to free fuel prices immediately “while the law is explicit that this should happen over a five-year period”.

Another conservative member of the parliament, Mussalreza Servati, not only expressed his dismay but also said that members of the planning and budget committee have already registered their protest in a meeting with the deputy head of the president’s office of strategic planning and oversight in light of the fact that “according to predictions by some members of the committee the price of gasoline will increase four-fold … and the price of diesel fuel 22-fold”.

Such price increases are simply unacceptable to many members of the parliament. According to Tavakoli, “This budget is cause for astonishment and political and economic lament … If the government continues these illogical obstinacies … we do not see the implementation of the targeted subsidies law as being in the interest of the country under these conditions.”

Gholamreza Mesbahi Moghadam, the conservative chair of parliament’s special committee on the economic transformation plan, also insisted that the parliament will simply not allow such disregard of the law, despite Ahmadinejad’s insistence that the budget should be approached in its totality and not be dealt with in parts.

The parliament will have a hard time giving Ahmadinejad much latitude given the scepticism that exists towards a budget proposal that takes up only a few pages and gives very general and vague numbers.

Tavakoli expressed his scepticism and surprise at the government’s actions by saying, “The budget is a financial reflection of the government’s legal obligations in any given year. The administration cannot propose a doubling of revenues from taxation and when questioned say that we doubled the rate of taxation; this is just a proposal and the parliament can change it.

“This is not the way to write a budget. Writing a budget means that the administration must predict its income and expenditure based on its legal responsibilities.”

But critics of the budget at least have tried to deal with the numbers presented.

Ahmadinejad’s departure from the tradition of detailed five-year economic plans with clearly stated objectives in terms of indicators such economic growth and investment rates - even if hardly ever fulfilled - has elicited disdain at best and sneers at worst.

Parliamentary leaders have already said that the plan will not be dealt with until next year, hence effectively extending the fourth five-year plan, written during the previous administration of President Mohammad Khatami, to six years.

Several parliamentarians have also said that the plan has to be effectively rewritten by the parliament given that its few pages mostly resemble a “wish list” rather than an economic plan.

Even Ahmadinejad’s first minister of economy and finance, Davood Danesh Jafari, has been damning in his assessment, stating, “This plan is not compatible with any scientific definition of a plan. No one is against the title of this plan; that is progress and justice. But implementation strategies for the realisation of this plan are unclear.”

The plan’s generalities also depart from Iran’s previous economic documents - such as the “20-Year Outlook” or “Outlook for Principle 44” - by mostly ignoring long-standing objectives set out in these documents, like the reduction of the size of government, empowerment of the private sector, and privatisation of government-owned enterprises.

Faced with Ahmadinejad’s consistent effort to depart from past practice in the economic arena, members of the parliament as well as others in positions of authority could accept that Ahmadinejad really knows what he is doing but simply chooses to act differently as a way to re-direct the economy along the lines he considers better for the country.

They may also have to face the possibility that Ahmadinejad has been intentionally careless in order to use the rejection of his plans as an excuse to blame the parliament for the country’s deteriorating economic conditions.

More likely, however, they will agonise over the behaviour of a president who is leading the country by trial and error at a time when any significant challenge to his competence could show that his opponents during the election campaign, as well as those who have protested since the election, were right to say Ahmadinejad should not have been allowed a second term as president.

Mitra Farnik is the pseudonym of an Iranian writer based in the Washington.

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