September 7, 2013

NOW TO GET THE CAPITALISM RIGHT:

A very different flavour : The new president is testing the water at home and abroad (The Economist, Sep 7th 2013)

For a start, he has brought in a cabinet of technocrats, most of whom last held office during the years of two reform-minded presidents, Akbar Hashemi Rafsanjani (1989-97) and Muhammad Khatami (1997-2005). They were both said to represent Iran's "modern right" school, trying to steer the economy towards a freer market, while broadening the tax base and seeking credit from global institutions such as the World Bank.

The new finance minister, Ali Tayyebnia, who did a stint at the London School of Economics, has signalled that he wants to revamp Iran's VAT and income-tax systems in order to reduce the country's reliance on oil exports, which have slumped by more than half since Western sanctions were imposed at the end of 2011. The oil minister, Bijan Zangeneh, another reformer, wants to offer more generous contracts to foreign oil companies and is looking for foreign capital and expertise.

Mr Rohani also says he will reopen the Management and Planning Organisation, the closest thing Iran had to an independent budget auditor, which Mr Ahmadinejad summarily closed in 2007. The president's new chief of staff, Muhammad Nahavandian, has suggested a series of additional economic reforms, among other things to reduce currency speculation. Large crowds around men holding up bricks of dollars are a common sight in Tehran's Grand Bazaar, as speculators seek to exploit the volatility of the rial.

The new head of Iran's central bank, Valiollah Seif, has hinted that interest rates should rise in order to control inflation. That, says Kevan Harris of Princeton University, a frequent visitor to Iran, will "cause a lot of bankruptcies because of the loose monetary policies of the last several years. So the state will need to be ready to deal with that, and not simply expect the market to sort it out."

In any event, unless Mr Rohani can get American and European sanctions against Iran's banks and oil lifted, his intended reforms are likely to stall. He was elected to his post largely because voters reckoned he would have the best chance of getting sanctions lifted.

Posted by at September 7, 2013 5:28 AM
  

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