Rouhani's Government and Economists; The End of the Honeymoon?

On June 14, coinciding with the second anniversary of Rouhani's victory in the presidential election and nearly halfway through his four-year term, the assessment of the performance of the eleventh government in the economic sphere is being conducted with less leniency and more scrutiny and criticism. His 'breather bell' has come to an end, and the people are demanding accountability from him. During this two-year period, experts have tested the capabilities of Hassan Rouhani and his economic team and have gained greater clarity about what he can and cannot do. Rouhani's unfortunate legacy was that he inherited the presidency of the Islamic Republic of Iran from someone like Mahmoud Ahmadinejad. The misfortune from this perspective was that the winner of the June 24 election received a mountain of economic problems from his predecessor. In fact, the ninth and tenth administrations, at a time when the global oil market was at its peak, pouring about seven hundred billion dollars into the treasury of the Islamic Republic, plunged the country's economy into a state of comprehensive turmoil and international isolation. The economy, which was handed over to Rouhani's government after the June 24 election, was grappling with a negative growth rate of about minus seven percent and an inflation rate above forty percent, with thousands of unfinished projects unable to secure financing left for the government, and offices filled with waves of unjustified hiring. Moreover, the payment of universal cash subsidies was suffocating the executive apparatus every month. Furthermore, with the severe collapse of the rial and the constant fluctuations in the currency market, decision-making centers regarding the national currency and the macroeconomic outlook of the country had practically been transferred to several streets and squares in the capital. In general, the most vulgar type of 'populism' had replaced economic policymaking. In the realm of international relations, Iran was caught in the toughest sanctions in contemporary history, which significantly reduced oil production and exports and caused a collapse of a large part of the financial, banking, and commercial bridges between the country and the global economic community. However, Rouhani's fortune was that he sat in the presidency instead of Mahmoud Ahmadinejad. After eight years of indescribable chaos accompanied by a severely unscientific and uneconomic discourse, any rational speech and action could attract public trust. Rouhani's writings and statements indicated that, unlike his predecessor, he was fully acquainted with Iran's economic issues and the world. On the other hand, the new president managed to gather many of the most experienced technocrats of the Islamic Republic around him. Overall, considering the discourse of the president and his close associates, it seemed that confronting economic challenges was at the top of the priorities for the eleventh government. In the first year of the eleventh government, Hassan Rouhani managed to convince public opinion and a large part of expert circles that he had the initiative in the economic sphere, knew what he wanted, and where he was going. The slow progress was entirely natural given the ominous legacy he received from the previous administration. The roadmap At the same time, with the emergence of a fundamental change in the Islamic Republic's diplomacy and a clear desire to find a solution for the nuclear issue and end the sanctions, it seemed that Rouhani's government was skillfully addressing economic difficulties both domestically and internationally and was well aware of the roadmap in both areas. In July and August 2014, the publication of a 'policy package' under the titles 'Why Inflationary Recession Occurred and Outward Directions from It' and 'Government Economic Policies for Non-Inflationary Exit from Recession during 2014 and 2015' received significant attention from expert circles in Iran. Despite some ambiguous points in this 'policy package,' it was clear that its authors had learned lessons from half a century of past economic policymaking and had achieved commendable results in 'indigenizing' political economy in Iran. Simultaneously, at the initiative of the 'Economic Coordination Headquarters' in Rouhani's government, a broad effort was made to find common ground among economists on the main pillars of fundamental reforms in the country and to attract their cooperation. In the international arena, the signing of the temporary Geneva agreement on Iran's nuclear issue in November 2013, under the title 'Joint Action Plan,' helped strengthen Rouhani's position in the country's economic scene. Without the flexibilities that this agreement anticipated regarding sanctions (including in oil, petrochemicals, the automotive industry, and especially the return of part of Iran's frozen foreign currency assets), Rouhani's government would not have been able to achieve success in areas such as calming the currency market, controlling inflation, and exiting negative growth rates. Thus, during the first year of Hassan Rouhani's presidency, his government managed to enjoy relative dynamism in the country's economic scene. However, after that, the economic policymaking apparatus of the eleventh government lost momentum and largely lost the initiative. As the nuclear negotiations dragged on and the tedious transition of these discussions from one stage to another continued, the technocracy of the eleventh government gradually fell into a state of stagnation and passive acceptance of the existing situation. There is no longer any sign of the 'policy package' from July and August 2014, which was supposed to pull the country's economy out of the quagmire of inflationary recession. It seems that this text, like many other reform programs, has been forgotten in the whirlpool of endless conflicts between the parliament and the government. Of course, Rouhani's government still prides itself on its achievements in the two areas of inflation and growth rates. However, what could have been effective in the discourse of the president and his communication mechanisms with public opinion and expert circles a year ago is gradually fading. Inflation and growth There is no doubt that the inflation rate has decreased from above forty percent to around fifteen percent over the past two years. However, whether Hassan Rouhani can rely on comparing his achievements with the worst inflationary period of Ahmadinejad's presidency for an extended period is highly questionable. Iran's fifteen percent inflation rate is currently one of the highest inflation rates in the world. Moreover, various evidence indicates that this index has now reached its 'hard core,' and further reduction will not be easy. It should be explained that Rouhani's government has so far managed to reduce the inflation rate from above forty percent to around fifteen percent, particularly through strengthening financial discipline and relative currency stabilization. However, from now on, to further reduce the inflation rate and especially to bring it down to single digits, the government must undertake extensive reforms in monetary, financial, and currency areas, as well as address other areas such as downsizing the bureaucracy, enhancing the competitiveness of the economy, improving productivity, etc. In terms of growth rate, the comparison of the current situation with the final period of Ahmadinejad's presidency has reached its end. Repeating the fact that the eleventh government has managed to overcome the negative growth rate of the previous administration is no longer effective, especially since the current growth rate of the country only fluctuates between one and three percent. The International Monetary Fund and the World Bank estimate Iran's growth rate in 2015 to be between 0.6 and one percent, and they are not very optimistic about significant changes in this index for 2016 and 2017. Even this low growth rate is due to the openings that occurred in some of the country's major industries (especially the automotive industry) following the November 2013 Geneva agreement. With such a low growth rate, a very large portion of the country's enterprises that have managed to survive are still operating at thirty to forty percent of their capacity. More importantly, Iran's job market remains at a peak of despair, and the expansion of unemployment among university graduates, especially women, has created the groundwork for a major national tragedy. However, beyond the two key indicators of inflation and growth, the most significant concern is the lack of specific targeting and a roadmap in Rouhani's economic policy. Following the relative dynamism of the first year in economic policy, the government has turned to daily management without any discernible outlook, and this is one of the most important factors creating disillusionment in a significant part of Iran's expert circles. There is no mention of major reform axes such as advancing privatization, downsizing the government, decisively combating corruption, fighting monopolies, reforming the banking system, genuinely reforming energy subsidies, reforming the tax system, etc. In several areas, including reducing the number of cash subsidy recipients, Rouhani's government's policy seems very conservative. In some other areas, it leads to populism, such as issuing directives on controlling the pricing of goods to combat inflation. Is the abandonment of initiative in economic policymaking and the turn towards conservatism and even 'populism' in some cases due to the fact that Hassan Rouhani's government is solely focused on the outcome of the very difficult nuclear negotiations and has concluded that without finally ending the sanctions, no progress will be made?