Events Magazine | No. 6, September 2004: What Did the Third Plan Achieve

We are now approaching the end of Iran’s Third Socio-Economic and Cultural Development Plan, and many economists are studying its achievements and failures. Many think that the Third Plan has attained most of its objectives while some others maintain that it has badly failed as regards its human development objectives which are, after all, the main objects of any development plan. It has failed to lower the rate of inflation which has in fact risen in comparison with the past, while the nation was promised that the rate would be brought down to a one figure digit but according to official channels, e.g. Bank Markazi or the Central Bank of Iran, it has actually risen by 2% points in 2003 as compared to 2002. Meanwhile independent experts estimate infl ation to be considerably higher even than officially announced by the Central Bank.

In general the Central Bank employs a number of experts living across the country and receives their views on infl ation with respect to 30-35 major items of goods and services and bases its fi nal fi gures on these views. But can this give a true basket figure?

The major items that the Central Bank takes into consideration are:

Foodstuffs, drinks, tobacco
Clothings
Housing, fuel (energy) and lighting
Transportation & communications
Healthcare
Leisure, education and studies
Miscellaneous goods and services.

Refinery Looking at the bright side of the Plan, GDP Growth was 5.9% in 2000, 6.7% in 2003 and is expected to be 6.15% in 2004. Also, per capita income, which was 7,204,000 rials at the beginning of the Plan rose to 14,202,000 (though this fi gure is not accepted by all economists); yet at 8,600 rials to the USD, this means a per capita income of 1,671 USD, lower than it s in many developing countries.

Another problem that Iran’s economy faces is the high rate of unemployment. Although employment rose from 15.8 million people in 2000 to 18.3m in 2004, the rate of unemployment increased from 14.3% of the able workforce in 2000, to 19.5% in 2004.

Yet another problem Iran’s economy faced during the Third Plan period was an expansion in the country’s liquidity which has continuously increased by just over 29% each year.

One promising factor has been the increasing prices of oil which for some time reached the incredible level of 50 USD, the highest ever. However since Iran, like many other developing countries, is spending a large part of its crude oil earnings on the purchase of fi nished or semi-finished goods from the international markets it is likely that the prices of such goods will be increased and much of the extra oil earnings will go back to the developed world.

However, Iran has been paying a great deal of attention and putting enormous effort into non-crude exports, which amounted to 5.5b dollars in 2003 from about three billions a few years before, and is expected to amount to 6.2b by the end of 2004. However, Iran’s imports have increased in value and consequently its foreign trade defi cit has increased from 7.9b dollars in 2000 to 10.6b in 2003 and is expected to amount to about 12 billions by the end of 2004.

Pipeline - Dam

Another major problem that Iran has to deal with is budget defi cit which is growing each year. Budget defi cit which was 40,665 billion rials (8,600 rials = 1 USD) in the year 2000 eached 81,441 billion rials in 2003 and is expected to rise to 105,034 billions by the end of 2004.

During the years when Iran’s revenues from export of crude oil were high the government decided to open a reserve account for emergency expenditures to help production units. Thus an account was opened with the name of Exchange Reserves initially with an amount of 7.1b dollars.

Indexes	2000	2001	2002	First half of 2003
Index for prices of goods and consumer	12.6	11.4	15.8	16.4
services:
goods	9.0	5.8	13.6	13
services	17.1	20.4	16.3	20.0
housing, fuel & lighting	18.4	18.8	19.6	20.9

Index for wholesale cost	14.7	5.1	9.6	10.5
Index for producer's cost	16.3	10.9	13.4	15.9

Today it amounts to 8.3b dollars and is expected to increase further as oil prices rise but most economists maintain that to satisfy the needs of production units the account must meet some expenditures that will reduce its balance to about 7b dollars.

In 2004 Iran is fortunately experiencing a surplus production of wheat for the first time in many years. It is also in a position now of expanding petrochemical productions and exports, and this trend in expansion of petrochemical exports is bound to continue. Furthermore, the adjustments in the legal system and the ratifi cation of the Act on the Attraction and Protection of Foreign Investment has further paved the way for foreign investment which will consolidate the petrochemical industry still further.

Furthermore, Iran’s banking system has improved remarkably as competition among the stateowned banks has been initiated and many banks have been established by the private sector and authorized to operate.

Restrictions on exchange dealings have been reduced and thus the exchange market is beginning to fl ourish. Finally, experts worldwide agree that risks concerning investment in Iran are now within reasonable limits and this shall certainly encourage investment both by Iranian and non-Iranian capital owners.

Reservoir Unfortunately no offi cial report has so far been made available as regards the achievements of the Third Plan, but it seems obvious that it has made great effort with respect to the expansion of non-oil exports, a trend that must certainly be followed by the Fourth Plan. Indeed the Fourth Plan must emphasize on increasingly replacing exports of crude oil with export of non-oil products.

Presently Iran is rapidly expanding its petrochemicals production, but this is just a first step. We must develop downstream productions - industries that turn petrochemicals into fi nished or semi finished products such as parts used in appliances - to gain further added value. Iran must make an effort to free itself from reliance on export of crude oil. This is an urgent need an issue that should not be taken lightly.

What Did the Third Plan Achieve?