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EURASIA INSIGHT

IRANIAN PRESIDENT’S ECONOMIC DECENTRALIZATION PLAN SPARKS WIDESPREAD DOMESTIC OPPOSITION
Kamal Nazer Yasin 10/26/06

President Mahmoud Ahmadinejad’s effort to decentralize Iranian economic planning is generating strong opposition. Domestic critics say the plan is politically motivated and could end up accelerating the deterioration of Iran’s economy.

Ahmadinejad issued a directive October 16 mandating the break-up of the Management and Planning Organization (MPO) -- a centralized state agency responsible for developing and monitoring the state’s budget priorities, as well as overseeing implementation of ongoing development projects. Under Ahmadinejad’s plan, the MPO’s functions are to be decentralized, with activities in every region placed under the control of local governors. The plan envisions that governors would then coordinate MPO-related matters with the Interior Ministry.

The MPO currently operates as a quasi-independent state agency. The president maintains officially that decentralization would hasten economic development in Iran’s provinces.

The directive produced an immediate political storm, thus creating a distraction for the Iranian government at a time when it is facing international pressure over Iran’s nuclear program, and when campaigning for important elections in early December is heating up. [For background see the Eurasia Insight archive].

A wide variety of Iranian economic and political figures assailed Ahmadinejad’s plan, their chief complaint being that it lacked a sound economic basis. In an October 17 letter to the president, MPO Chairman Farhad Rahbar called on Ahmadinejad to delay implementation of the directive until impact studies could be completed.

If the president proceeds with implementation, the move would mark a radical economic departure for Iran, which has engaged in central planning for over 50 years, pre-dating the 1979 Islamic Revolution. Some observers see a strong political motive behind the move, as regional governors are appointed by the Interior Ministry, with many having strong ties to Iranian security bodies and/or the Revolutionary Guards. Ahmadinejad himself is closely affiliated with the Revolutionary Guards.

In issuing the directive, Ahmadinejad can claim he is fulfilling a promise made during his 2005 presidential campaign to stimulate development in economically lagging areas. However, there would also an undeniable political benefit to the move, as it will allow presidential allies to control what to date has been an agency operating largely beyond direct presidential influence.

Exerting greater influence over the MPO decision-making process could help the neo-conservative Ahmadinejad administration run up massive deficits for public works projects. The political aim of such binge spending would be to broaden the administration’s support base, thus allowing it to tighten its grip on power.

According to various media reports in Iran, Ahmadinejad’s populist economic agenda is encountering deepening resistance from the Iranian bureaucracy. The MPO in recent months has earned a reputation as a bastion of resistance to the president’s plans, reportedly preventing Ahmadinejad from exceeding MPO-established spending targets.

So far, most domestic critics have avoided discussion about the plan’s political implications. Some experts have expressed the belief that the MPO’s decentralization would culminate in an fiscal disaster, asserting that many governors are unqualified to handle budgeting and planning responsibilities.

"The government must realize that giving away political and economic prerogatives to governors and provincial authorities could create havoc," Mohammad Sadegh Janatsefat, a former economic advisor at the MPO, wrote in a commentary published by the Kargozaran newspaper. "It is highly doubtful they can master economics and economic planning in any short order."

Meanwhile, an October 21 commentary posted by the Tehran Times, and English-language website, noted that governors were "mainly occupied with security and political issues," adding that "personal whims may influence the allocation of funds and MPO offices will be forced to obey these decisions. This may hurt the government’s development plan."

Amid the chorus of criticism there was one loud voice in favor of the plan, that of Interior Minister Mostafa Pourmohmaddi, who characterized Ahmadinejad’s directive as a "thoughtful and bold decision." The interior minister contended that the directive would rationalize government economic development activities.

The Fars news agency, which is connected with hard-line groups, reported on October 18 that three MPO board members had submitted their resignations, citing dissatisfaction with the Ahmadinejad reorganization plan. Later, a pro-business newspaper, Sarmayeh, reported that at least 40 top experts and section heads submitted letters of resignation, but Rahbar, the MPO chairman, didn’t accept them.

On October 20, Fars published a report that suggested Ahmadinejad wanted to replace Rahbar. While the MPO chief quickly denied the report, the fact that a semi-official press agency like Fars could issue such a story made it clear that Rahbar is now under considerable pressure from the presidential administration.

Several key MPs -- all from the rival hard-line factions -- have voiced strong opposition to the MPO’s decentralization, and have indicated they will try to block the plan when it comes up for parliamentary debate in late October or early November. Among the prominent parliamentary opponents is Mohammad Khoshchehreh, the head of the legislature’s Economic Subcommittee, which will examine the plan. Experts say it is uncertain at this stage whether Ahmadinejad opponents have sufficient support in parliament to defeat the decentralization initiative.

Developments could hinge on the stance adopted by the traditional conservative faction, led by the powerful parliament First Deputy Speaker Mohammad Reza Bahonar. The faction is widely seen as aligned with the thinking of Supreme Leader Ayatollah Ali Khamenei. Some observers believe Ayatollah Khamenei may be unwilling to block the reorganization, noting that the interior minister, Pourmohmaddi, is widely believed to be a protégé of the Supreme Leader, and that the Interior Ministry will gain influence of the MPO under the reorganization.

Editor’s Note: Kamal Nazer Yasin is a pseudonym for a freelance journalist specializing in Iranian affairs.

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