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Iran Press: Ahmadinezhad Inheriting Better Economy Than Khatami

Posted on: Wednesday, 6 July 2005, 15:01 CDT

Text of from the "Note of the Day" column by Hamid Reza Shokuhi entitled "From 9 dollar oil to 60 dollar oil" by Iranian newspaper Mardom-Salari web site on 2 July

The day when Seyyed Mohammad Khatami took over the presidency from Akbar Hashemi-Rafsanjani, the OPEC oil basket was traded in world markets at the average price of 9 dollar a barrel. Eight years have passed, and Seyyed Mohammad Khatami is passing the presidency to Mahmud Ahmadinezhad under such circumstances that the oil price in world markets has risen unprecedentedly and has exceeded the limit of 60 dollar a barrel.

When Khatami was elected president with 20m votes, he faced heavy debts due to the large loans that were taken out during the construction era in order to rebuild the destructions of the devastating Eight Year War [Iran-Iraq War]. So in the economic arena, Khatami had to fight on two fronts. The first economic challenge for Khatami was the reduction of the oil price. The country's annual budget was calculated on the basis of an oil price of 17.50 dollar, whereas the country had to sell oil at a single digit price and therefore incur an enormous budget deficit. The second economic battle that Khatami had to fight was paying back the debts that remained from the construction era. But with the recession that dominated the oil market back then, not only was there no hope of repaying the debts, but even the amount of loans was likely to increase due to the government's enormous budget deficit at the time.

Khatami went to war against the "sick economy" - as Khatami himself described the economic situation in Iran - while everyone was expecting him to carry out political reforms, and hardly any attention was paid to the economic domain.

This is why the economic reforms of Khatami's period were noticed less by the media and the public and why Khatami's efforts in this sector were not acknowledged. The media that were critical of the government even put the 14 per cent inflation rate during the Khatami administration under a magnifying glass, although they never really mentioned the fact that Khatami had received the government from a person under whose administration the inflation rate had reached up to 49 per cent.

Seyyed Mohammad Khatami will hand over the helm of the country's administration to Mahmud Ahmadinezhad on 12 Mordad 1384 [ 3 August 2005]. Ahmadinezhad is receiving the country's executive helm from Khatami under the circumstances that Iran's foreign debt is at its lowest level in the past 20 years, 10bn dollars. So the new president will have no heavy debts to worry about and put strings on all ten fingers of his hands to remind him of payment due dates for several loans.

On the other hand, Ahmadinezhad will not have to deal with an oil price of $9 per barrel, either. He will receive the government from Khatami while the oil price is at 60 dollar and the government's entire expenditures are already covered by this year's oil revenues. And whatever is earned from the sale of oil following Ahmadinezhad's official induction into office will be considered surplus oil revenues; that is 24bn dollars worth of net income in addition to the annual budget.

Ahmadinezhad is taking the government's executive helm in his hands at a good time. Using this golden opportunity, which is happening for the first time in history, he can accomplish his economic promises and stand proudly before the people.

But there is one point that cannot be neglected, and that is how Ahmadinezhad is planning to spend the surplus oil revenue. Is he going to put the oil money on the people's tables, as he promised? Or is he going to spend the surplus oil revenue on fundamental investments and then use the resulting profit to fulfil his promises and improve the people's living status? Naturally, the people would prefer the former approach, because they want to see an improvement in their livelihood as soon as possible. But if the people were told that the result of directly transferring the oil revenues to them and their tables would be lots of economic losses, would they still choose the same way?

As one expert said, to infuse surplus oil revenues into society and put them directly on the people's tables is just like selling the furniture in a house in order to paint its doors and walls.

Perhaps the better solution would be to use surplus oil revenues to build infrastructure and make productive investments. The profit that results from these investments could then be spent on providing the people's living needs. In this way, even though it may take more time to reach results, at least the country will not face further economic problems in the long run.

Which way will Ahmadinezhad choose for spending the enticing oil revenues? Will he also keep his promises about confronting the oil Mafia.

The passage of time will determine the answers to these questions.

Source: BBC Monitoring Middle East

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