The Forum for Partners in Iran's Marketplace

January 2019, No. 90


Good Governance

There are certain indicators for good governance, published by the World Bank and the relevant organizations of the United Nations.

Dr. Mehdi Asali, Economic Expert

Most of Iran’s economic problems can be analyzed in the context of political economy, and there are clear analytical frameworks in this regard. Major economists have written about political economy and have shown the root causes of the economic problems of different countries with great care. These are not obscure and unknown issues; we know that economic activities do not take place in vacuum, but rather in a platform of incentives created by the institutions, laws, and policies of governments to create these platforms.

If these platforms were provided for saving, investing, and inventing healthy economic activity, we would witness effective economic activities, growth and development, such as in the countries of Northern Europe, South Korea, Malaysia, Taiwan, etc. over the past 40 years. But if these institutional frameworks instead of healthy activity and competition, put complicity, smuggling, hoarding, rent seeking, embezzlement and capital flight at the top of their tasks, these activities will naturally be profitable and develop, and the result will be economic, financial and administrative corruption, poverty and unemployment, and so on instead of growth and development. These conditions are seen in countries like Venezuela, Nigeria, Iraq, and so on. Unfortunately, Iran is also in this category.

“One of the important issues of political economy is that citizens of every country, along with their various rights, have the right to good governance,” says economic expert Mehdi Asali, adding that it is good governance that provides a platform for solving political and social problems, creating a good environment for healthy economic activity, income growth and development, and improved income distribution.

He went on to say: “There are certain indicators for good governance, published by the World Bank and the relevant organizations of the United Nations. Last year, at the Institute of International Energy Studies of the Ministry of Oil, we launched a project on the Resistance Economy’s approaches at the National Iranian Oil Company (NIOC). There, considering the timeliness of the UN and World Bank governance indicators, we realized that in recent decades these indicators in Iran have declined in most cases, and especially in comparison with many other countries.”

It is the oil that has rendered rents, corruption and lack of transparency in Iran’s economy and has minimized efficiency and productivity.

Studies show that development of financial and administrative corruption has led to a general inadequacy of the country’s governance system (including all three executive, legislative and judicial branches), which illustrates the state of Iran in terms of administrative corruption in its international reports.

According to the most recent definition of the World Bank, good governance is crystalized in the adoption of projected and explicit decision-making institutions, transparent bureaucracy, and accountability of executive agencies in relation to their activities, active participation of people in social and political affairs, and the equality of all individuals before the law. In general, it can be said that good governance and practice of resource management (political, economic, executive, etc.) of a country is set to achieve its goals.

Of course, this is based on the oil economy. It is the oil that has rendered rents, corruption and lack of transparency in Iran’s economy and has minimized efficiency and productivity. The gradual decline of economic efficiency in the Middle East oil exporting countries is a general process, but what is regrettable is that in most of these countries, the community is deprived of the right to good governance. In addition to this, lack of efforts by the authorities and the inability of the people to improve the situation make it harder.

Chaos in Iranian Economy 

The absence of a clear and transparent mechanism in Iran’s economy and adherence to global rules and experiences has caused our economy to face strange problems. Of course, some of these problems are observed in crisis-hit countries.

Mehdi Pazouki, a professor of economics at Allameh Tabataba’i University, says: “Emergence of Iran’s economic problems is the outcome of three types of disorders: monetary, financial and administrative.”

He added: “We continue to see more monetary disorder in the banking system.” The lack of independence of the Central Bank of Iran is the cause of this problem, and we see that the CBI as the mother of all the banks, cannot yet adopt a proper monetary tool to solve monetary and currency problems. This is the cause of part of the current problems in the foreign exchange market, and not all of this is related to the sanctions.”

Pazouki considers financial disorder to be the second problem, which is seen in the budget document. “Both the government and the Parliament are involved in the emergence of this chaos. A model should be designed to change Iran’s economy tax-based from oil-based and the budget document is implemented precisely. Also, economic reforms should take place and unnecessary budget costs should be eliminated.”

The third issue, which is administrative disorder, is not unrelated to administrative corruption and rent seeking. The professor of economics said: “In the world, governments are looking to attract the best and most specialized forces. But this is not the case in Iran, and this is the root of many problems. “

Pointing out that reforms should be based on economics to succeed and achieve good governance, he acknowledged: “The main problem in Iran’s economy is structural rather than sanctions-oriented. Therefore, by adopting the right policy in the international arena and communicating with the world action must be taken to settle these three crises. We must keep away from oil and benefit from the experiences of the successful countries. We must achieve a transparent economy where decision making is scientific. We must create a business environment that sends a positive signal to domestic and foreign investors.”

“Therefore, creating transparency in the economy, creating a healthy competition between firms and eliminating monopolies can be a feasible way to come out of the economic crises even under the sanctions,” Pazouki said.

Need for United Economic Command 

“It seems that the economic team of the 12th government is weaker than the 11th administration. The former started to work concurrent with the coming to power of Trump and his decision to abrogate the JCPOA (Joint Comprehensive Plan of Action),” said Lotfali Bakhshi, another economist, describing the situation as “A weak team along with more complex issues!”

He added: “Of course, everywhere in the world, experts put their opinions and suggestions on reform process and decisions at the disposal of governments, and these views are taken into account in the decision-making process. But unfortunately, in our country, experts’ views may be just reflected in the media and have no other impacts. The experience we are facing shows that in the media economic debates, there is practically no representation from the government; governments do not participate in discussions, nor do they pay attention to solutions or criticisms of the macroeconomic decisions in the country. In such an environment, economists are forced to write letters to reach the gentlemen at least in this way. They write letters to say that the sudden decision to set the rate of the US dollar at 42,000 rials for export purposes has caused the country severe consequences and margins. They write letters to say that the decision last year to cut bank interest rates was wrong and would generate irreparable consequences but despite repeated emphasis by the mass media and economic experts the government unfortunately did not pay attention to these recommendations and warnings.” 


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  January 2019
No. 90