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Tarabaran; Iran's Transportation Economy (Monthly)
May 2000, No. 12
By: Ahmad Reza Roshan
Summary: The Second Development Plan had stressed privatization of the
economy, creation of a single rate for foreign exchange, gradual omission of tax
exemptions and trying to minimize the state economic organizations. However, what actually
took place was a move toward a closed circuit and more controlled economy. In other words,
the plan was a paragon of politicized economy run beyond the people's supervision in its
design and implementation.
Text: In March 1946, the government of the time in Iran organized a group under the name of Planning Commission which was later on changed to the Budget and Plan Organization (PBO), which is the official organization responsible for economic planning in Iran. The country's first economic draft plan was drawn in the Summer of 1946 and was ratified by the National Assembly (Majlis) in February 1948.
This plan came to an end in 1955 after a lot of ebbs and flows. After this plan and up
to the culmination of the Islamic Revolution the second seven year plan (1956-1962), the
third development plan (1968-1972), the fourth development plan (1963-1967), the fourth
development plan (1968-1972), and the fifth development plan (1973-1977) were put into
implementation.
The performances of these economic plans in general and in view of the increase in the
macro-economic variables were evaluated to be satisfactory. For instance, during the fifth
development plan the growth of aggregate private and public fixed investments went as high
as 25 percent and the growth in non-oil economic sector reached 15 percent per annum.
After the Revolution, the first efforts of the PBO in drawing up a development plan goes back to 1982 during which a five year development plan known as the Islamic Republic of Iran's First Social, Economic and Cultural Development Plan (1983-1987) was drawn up and presented to the Islamic Consultative Assembly (Majlis) in 1983. However, this plan was rejected by the Majlis Plan and Budget Commission. As a matter of fact during these two last decades after the culmination of the Islamic Revolution only two development plans have been implemented. If we should look at the plans for the purpose of examining the economic variables, the First Plan (1989-1993) was relatively more successful.
Of course we should not forget the fact that after the war between Iran and Iraq (1980-1988) there were a lot of economic opportunities and the rise in the oil prices helped the increase in the economic indicators. When the cost of creation of new economic opportunities went higher and there was a drop in crude oil prices, the period of prosperity came to an end and we entered a recession. During the final years of the First Plan, the economic growth rate decreased.
Nevertheless, an economic growth rate of 7.3 percent was considered an achievement. The Second Economic Plan started in 1995 with a delay of one whole year. We are now in the final year of the Second Plan.
In consideration of the present data for the economy, we are going to evaluate the performance of the first four years of the Second Plan. The following article is a concise evaluation of the most important economic variables and indicators of the Second Plan.
*****
If an economic plan is to bring about an accumulation of thought and experience, we have
to evaluate it so that we can stress those policies that led to success and avoid
repetition of the same mistakes. In line with this approach we follow up the performance
of the first four years of the Second Plan. In order to do this, we will look into the
economic growth index, which in economic literature is among the most important
indicators.
According to table no. one, during the first four years (1995-1998), the highest economic growth took place in 1996 and the least growth was in 1998. Although according to the Second Plan the annual economic growth rate was anticipated to be around 5.1 percent but in practice this rate did not go higher than 3.8 percent. The recession of 1997 and 1998 even pushed the rate to lower figures. Of course if we look at the crude oil revenues (table no. 2), we will encounter the ever lasting bane of the Iranian economy which is dependence on oil revenues. As we can see in those years for which the price of per barrel of oil and as a consequence the general oil revenue has increased, the gross domestic product (GDP) has also increased. On the contrary, with a drop in the oil revenues the economic growth rate has also suffered.
Among the most important economic sectors for the period under study, the agricultural
sector has been the only sector that has enjoyed a higher growth than what was anticipated
in the plan. This sector has achieved an average growth rate of 4.4 percent.
Table 1: Performance of Some Important Economic Indicators 1995-1998 and Mines
| Annual growth rate | 1995 | 1996 | 1997 | 1998 | Average program | Average performance |
| Agriculture | 2.3 | 3.6 | 3.5 | 8.1 | 4.3 | 4.4 |
| Services | 2.4 | 5.2 | 4.3 | -1.0 | 3.1 | 2.7 |
| Industries | 5.5 | 7.8 | 5.4 | 2.1 | 5.9 | 5.2 |
| Oil | 0.9 | 1.9 | -5.3 | -0.8 | 1.6 | -0.9 |
| GDP | 3.2 | 8.3 | -1.5 | 6.3 | 6.2 | 1.1 |
| Tax Revenues | 33.2 | 71.8 | 38.1 | 7.7 | 18.2 | 35.8 |
The services sector, which has the biggest share in the country's economy, was not able to
reach the plan's objectives. It could not go beyond a growth rate of 2.7 percent per
annum. The industries and mines sector, which acts as a very strong economic indicator,
grew along the oil sector, but was not, however, able to reach the plan's objectives.
Without exaggeration no indicator can take the place of investment in order to reveal the economic status of a country. Unfortunately, the growth of the gross domestic investments in table one has fared the worst among the other economic indicators. As a matter of fact this indicator has fallen behind the other indicators at the rate of 5 percent on yearly basis in connection with the objectives of the plan. Its annual growth rate during the years 1995-1998 has not surpassed 1.1 percent (Even during the years 1997 and 1998 the gross domestic investment growth rate was negative).
Our real economic difficulty was not the shortage of investment, but there were no possibilities toward which the investments could be pushed and create production. The Iranian economy has not been able to get rid of its dependence on oil. It has hardly been able to rely on the internal production forces. Because of the drop in oil revenues, investments have also nosedived. Signals received from the general outlook of the country's economic situation do not motivate foreign investments a great deal. As a matter of fact between 1993 to 1997 a total of 50 projects at 722 million dollars were approved for foreign investments. However, the actual foreign investments did not go over 40 million dollars. We can also refer to the exit of capital from the country because of unfavorable investment picture of the country.
According to Table No. 1, the general government budget indicates that tax revenues have been among the most successful in performance. These revenues have not only lived up to the objectives of the Second Plan but also have surpassed those objectives. The real annual growth rate of these revenues have increased two fold (tax revenues include income tax, taxes on assets, imports and sale). The ratio of taxes to the GDP dropped from 6 percent in 1992 to 4 percent in 1995 because the collected taxes were less than the nominal growth of the GDP. However, this ratio in 1996 went up to 5 percent because of the increase in the oil prices and naturally increased imports in 1996. Another reason for this increase was the efforts made to collect these taxes. During the first three years of the Second Plan the share of the government income tax had always been increasing.
In the field of non-oil exports, the general objectives of the plan was the attainment of 27.5 billion dollars in export of non-oil products during 1995-1998. While the assumption of 4 billion dollars was made for the year 1378 (March 1999-March 2000), the total exports of non-oil goods did not go beyond 16 billion dollars, which is the realization of 60 percent of the Plan's objectives. It is also indicative of the fact that we have failed to gear up our products toward exports.
The Second Plan had stressed privatization of the economy, creation of a single rate
for foreign exchange, gradual omission of tax exemptions and trying to make the state
economic organizations as small as possible. However, what actually took place was a move
toward a closed circuit and more controlled economy. In other words, the plan was a
paragon of politicized economy being run beyond our people's supervision in its design and
implementation.
Table No. 2: Some Macro Variables in Iran
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Indicator 1995
1996
1997
1998
Liquidity
Billion Rials 85072 116552
134286 170740
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Inflation % 49.4
%23.2 %17.3
% 20.0
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Price of Per
Barrel Oil $ 16
19.2
16
10.4
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Exports of
Gas & Oil
Billion $ 15.1
19.3
15.5
9.9
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Non-Oil
Exports 3.26
3.12
2.91
3.04
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