Iran, a model for Egypt?
Issandr El AmraniDon't get me wrong: Iran is absolutely not a model for Egypt in terms of its bizarre, unelected Ayatollah-led Islamic republic, or in terms of its nasty and repressive security apparatus. But it might be in terms of economic policy, if the IMF is anything to go by. Here's a statement from the latest IMF Article IV consultation for Iran, the annual "inspection" of economic policy and performance review it does in every country:
“The mission reviewed recent economic developments and revised its macroeconomic estimates and projections in light of new data and discussions with the authorities. Real GDP growth recovered to an estimated 3.5 percent in 2009/10 despite the drop in oil prices, reflecting strong non-oil growth and an exceptional agriculture crop. The positive growth momentum continued in 2010/11. The authorities’ monetary policy successfully brought down annual average inflation from 25.4 percent in 2008/09 to 12.4 percent in 2010/11. Gross external reserves also remain comfortable with improved prospects for the external sector on the back of higher oil prices.
“The mission commended the authorities for the early success in the implementation of their ambitious subsidy reform program. The increases in prices of energy products, public transport, wheat, and bread adopted on December 19, 2010, are estimated to have removed close to US$60 billion (about 15 percent of GDP) in annual implicit subsidies to products. At the same time, the redistribution of the revenues arising from the price increases to households as cash transfers has been effective in reducing inequalities, improving living standards, and supporting domestic demand in the economy. The energy price increases are already leading to a decline in excessive domestic energy consumption and related energy waste. While the subsidy reform is expected to result in a transitory slowdown in economic growth and temporary increase in the inflation rate, it should considerably improve Iran’s medium term outlook by rationalizing domestic energy use, increasing export revenues, strengthening overall competitiveness, and bringing economic activity in Iran closer to its full potential.
Cutting energy subsidies and rationalizing other subsidies so that they target the poor better is exactly what Egypt needs to be doing. Mohamed ElBaradei is the first Egyptian politician who had the courage to bring it up, to my knowledge, in last night's appearance on the Amr Khaled "Boukra Ahla" show. Rather than borrowing money from financial institutions to finance increases in its budget, Egypt should cut the subsidies. It will be politically unpopular but it's necessary.
The previous government knew it and the next one better know it. An economic policy that delivers better social justice and poverty reduction doesn't just have to create jobs, improve infrastructure and deliver better social welfare — it also has to finance itself without systematically resorting to debt and to be efficient and fair in the way it delivers subsidies. The businessman who lives in a villa in Maadi and drives a gas-guzzling Range Rover should not be getting subsidized fuel — better to spend that money on the poor villagers who need affordable cooking gas. So perhaps there is something to learn from Iran after all.
Reader Comments (6)
Remember though that Iran was practically forced to do so - not least because of the sanctions, which make it very difficult to increase refinery capacity, with the absurd result that Iran imports most of its gasoline at very high prices. Also the subsidised price in Iran was much lower than in Egypt (true to 2009, haven't checked since). So the distortion was really more serious. On the other hand Egypt does not have Iran's oil reserves.
Clearly the fuel subsidies are unsustainble and unjust, the challenge is really about building an effective mechanism that would target those in need. In that sense I would not trust the IMF to be a judge of the success of the process.
"unelected Ayatollah-led Islamic republic"
The Supreme Leader is elected by the Assembly of Experts (jurists) which is elected by the people. He can also be recalled by the Assembly of Experts.
That's about as democratic as it can get.
The Assembly of Experts is elected, but its candidates must receive the approval of the Guardian Council, which itself is half-appointed by the Supreme Leader, and half-elected by the Majles and pre-approved by the head of the judiciary, who is also appointed by the Supreme Leader. The Assembly of Experts is completely un-transparent and unaccountable.
So it's not really as democratic as it gets: it's a theocracy mixed with a republic. The Islamic Republic might have been a more promising system were it not a) for its repressive practice, b) increasing electoral fraud and c) the reality that the Supreme Leader appears to be beyond criticism in the media.
The idea that Iran lacks refining capacity is false, rather Iran had excess consumption. The subsidies literally made gasoline cheaper than water and so not only was consumption extremely high as a result (and a lot of waste) but there wad also a lot of smuggling to neighboring countries. The actions made it more palatable for Iranians to implement subsidy reform whose need was long recognised. In fact since the Revolution, the standard of living of Iranians has dramatically improved. Literacy, healthcare, electricity, clean water, paved roads etc. Iran human development index, stagnant prior to the revolution, now places Iran as a medium developed nation. This, in the face of sanctions and co.start hostility by the US. Oh and by the way, every official in Iran is either elected or appointment.Ted by am elected body.
And there was never any evidence of eke tion fraud in Iran. Indeed, multiple polls by US organizations concluded that the people did vote for Ahmadinejad. Iran nuclear program also enjoys massive popularity, and the Green leaders ate actually more hardline on thst point than Ahmadinejad.ejad.
So glad to see this finally being discussed!