DATE=2/9/99 TYPE=BACKGROUND REPORT NUMBER=5-42558 TITLE=IRANIAN REVOLUTION AT 20: THE ECONOMY BYLINE=ALI JALALI DATELINE=WASHINGTON CONTENT= NOT VOICED: INTRO: THE TWENTIETH ANNIVERSARY OF IRAN'S ISLAMIC REVOLUTION (FEB 11) COMES AS THE COUNTRY IS SUFFERING WIDESPREAD ECONOMIC WOES. (IN THIS LAST OF A THREE PART SERIES), V-O-A'S ALI JALALI LOOKS AT CHALLENGES FACING THE IRANIAN ECONOMY AND THE WAYS THAT HAVE BEEN PROPOSED TO DEAL WITH THEM. TEXT: IRANIAN REVOLUTIONARIES INHERITED A FAST GROWING ECONOMY WITH SIGNIFICANT POTENTIAL FOR DEVELOPMENT. TWENTY YEARS LATER THE COUNTRY FACES A DEEPENING RECESSION AND WORSENING LIVING CONDITIONS. IRAN'S POPULATION HAS MORE THAN DOUBLED SINCE THE REVOLUTION, BUT ITS PRODUCTION HAS DECLINED. SEVERAL FACTORS HAVE BEEN BLAMED FOR THE STAGNATION. IRANIAN ECONOMIST JAHANGIR AMUZEGAR, WHO SERVED AS MINISTER OF COMMERCE AND FINANCE IN THE SHAH'S REGIME, SAYS INCREASED GOVERNMENT INVOLVEMENT IN THE ECONOMY IS THE MAJOR REASON FOR THE DECLINE. // AMUZEGAR ACT // ACCORDING TO ACTUAL ESTIMATES, PRESENTLY 80 PERCENT OF THE IRANIAN ECONOMY IS DIRECTLY AND INDIRECTLY UNDER THE GOVERNMENT CONTROL. THE SHARE OF THE PRIVATE SECTOR IS ESTIMATED AT 15 PERCENT AND THE SHARE OF COOPERATIVES IS FIVE PERCENT. THEREFORE, FROM THIS STANDPOINT GOVERNMENT INTERVENTION IN THE ECONOMY HAS TREMENDOUSLY INCREASED. // END ACT // THE REVOLUTIONARY GOVERNMENT CHOSE TO EXPAND THE GOVERNMENT AS A WAY TO HELP THE POOR AND TO MEET CALLS FOR SOCIAL JUSTICE. THE GOVERNMENT NATIONALIZED BANKS AND SOME KEY INDUSTRIES, INCLUDING OIL, TRANSPORTATION, UTILITIES AND MINING SECTOR. THE GOVERNMENT ALSO GROUPED HUNDREDS OF CONFISCATED AND NATIONALIZED ENTERPRISES INTO HUGE STATE-AFFILIATED FOUNDATIONS -- BONYADS -- THAT GRADUALLY TURNED INTO STAGNANT CONGLOMERATES. IN ADDITION, IRAN'S LONG WAR WITH IRAQ (1980-1988) INTENSIFIED THE DRIVE FOR EVEN MORE GOVERNMENT CONTROL OF THE ECONOMY. WHEN THE WAR ENDED THE BONYADS REMAINED AS A SOURCE OF CORPORATE POWER AND PERSONAL BENEFIT FOR THE RULING CLERGY WHO RESISTED PRIVATIZATION. ANOTHER BLOW TO THE IRANIAN ECONOMY CAME WITH THE DROP IN OIL PRICES. THEY STARTED FALLING IN 1985 AND RECENTLY SLUMPED TO A 12-YEAR LOW. ON TOP OF THIS, THE UNITED STATES IMPOSED ECONOMIC SANCTIONS AGAINST THE ISLAMIC REPUBLIC. A SPECIALIST ON THE IRANIAN ECONOMY, PROFESSOR SIAMAK SHUJAEI OF MANHATTAN COLLEGE IN NEW YORK SAYS MOST OF THE EXTERNAL PROBLEMS THAT HURT THE IRANIAN ECONOMY WERE PROBLEMS THAT IRAN BROUGHT ON ITSELF BY ITS DAMAGING POLICY CHOICES. // SHUJAEI ACT // THERE HAVE BEEN A LOT OF INTERNAL FACTORS, LIKE MISMANAGEMENT, CORRUPTION, MISGUIDED IDEOLOGY, INCOMPETENCE WHICH HAS LED TO A LOT OF EXTERNAL PROBLEMS LIKE WAR, ECONOMIC SANCTIONS AND ALSO THE WEAKNESS THAT WE OBSERVE IN OPEC AND THE DISARRAY WHICH EXISTS AMONG THE OPEC MEMBERS AND LOWER OIL PRICES. ALL THESE INTERNAL FACTORS HAVE CREATED AN EXTERNAL ENVIRONMENT WHICH HAS DEPRIVED MILLIONS OF IRANIANS OF THEIR TRUE PLACE IN HISTORY AND THE GLOBAL ECONOMY. // END ACT // AFTER THE WAR ENDED WITH IRAQ IN 1988, IRAN BEGAN A MAJOR DRIVE FOR RECONSTRUCTION OF THE ECONOMY. HOWEVER, THIS WAS HINDERED, ANALYSTS SAY, BY WHAT HAD BECOME ENTRENCHED PROBLEMS -- MISMANAGEMENT, AN INEFFICIENT BUREAUCRACY AND POLITICAL AND IDEOLOGICAL INFIGHTING. PROFESSOR SHUJAEI SAYS NO MAJOR ECONOMIC IMPROVEMENT IS POSSIBLE WITHOUT FUNDAMENTAL CHANGES IN THE GOVERNMENT SYSTEM. // SHUJAEI ACT // THE ECONOMY NEEDS TO MOVE TOWARD PRIVATIZATION. IT NEEDS TO MOVE TOWARD FREE MARKET INITIATIVES, TO LET THE TALENTED PEOPLE OF IRAN MANAGE THEIR AFFAIRS THEMSELVES, THEY HAVE TO MOVE AWAY FROM THESE NATIONALIZED BANKS, THESE INSURANCE COMPANIES AND THE OIL INDUSTRY. BUT THE POLITICAL SITUATION IS SUCH THAT THEY (THE RULING CLERGY) ARE AFRAID THAT IF THEY MAKE ANY SUBSTANTIAL CHANGE, THEY WILL LOSE THEIR POLITICAL POWER. // END ACT // THE STRATEGY FOR ECONOMIC RECOVERY HAS BECOME ONE OF THE MOST CONTENTIOUS ISSUES IN THE DEBATE BETWEEN REFORMIST SUPPORTERS OF PRESIDENT MOHAMMAD KHATAMI AND THE CONSERVATIVE FACTIONS THAT CONTROL MOST OF THE POWER CENTERS IN THE COUNTRY. POLICY DIFFERENCES HAVE ALSO SURFACED AMONG GROUPS INSIDE PRESIDENT KHATAMI'S CAMP. REFORMIST TECHNOCRATS, FOR EXAMPLE, ARE PUSHING FOR WIDER PRIVATIZATION, WHILE POPULIST GROUPS FAVOR CONTINUED WELFARE SUBSIDIES. IN THE ECONOMIC RECOVERY PLAN HE PUT FORTH LAST YEAR, PRESIDENT KHATAMI LINKED THE DEEPENING STAGNATION TO THE COUNTRY'S DEPENDENCE ON DECLINING OIL REVENUES, SHORTAGE OF CAPITAL, THE SLIDING NATIONAL CURRENCY (RIAL) AND BUREAUCRATIC RESTRICTIONS ON INVESTMENT. TO CORRECT THE SITUATION, HE PROPOSED SWEEPING REFORMS, SUCH AS REDUCING GOVERNMENT MONOPOLIES ON GOODS AND SERVICES, BOOSTING THE NON-OIL INDUSTRY AND ATTRACTING FOREIGN INVESTMENT. HOPES FOR FOREIGN INVESTMENT SOARED LAST YEAR WHEN THE UNITED STATES WAIVED (MAY 98) ENFORCEMENT OF SANCTIONS AGAINST A CONSORTIUM LED BY FRENCH OIL COMPANY TOTAL TO INVEST TWO BILLION DOLLARS IN A MASSIVE IRANIAN OFFSHORE GAS FIELD. THE OPPORTUNITY PROMPTED IRAN TO SEEK FOREIGN INVESTMENT IN OVER 40 OTHER GAS AND OIL PROJECTS TOTALING EIGHT BILLION DOLLARS. BUT WESTERN ANALYSTS SAY IT WILL TAKE A LOT MORE THAN THIS INVESTMENT TO TURN THE ECONOMY AROUND. FAR MORE IMPORTANT IS HOW THE COUNTRY IMPLEMENTS THE RECOVERY MEASURES. THE PARLIAMENT HAS AUTHORIZED THE GOVERNMENT TO DRAW UP PLANS FOR SELLING OFF MOST OF THE STATE-OWNED ENTERPRISES. BUT TO DO THIS, ANALYSTS SAY, MR. KHATAMI WILL HAVE TO HAVE THE POLITICAL STRENGTH TO IMPLEMENT ANY MAJOR PRIVATIZATION PLAN OVER THE OPPOSITION OF THE CONSERVATIVE FACTIONS THAT HAVE A VESTED INTEREST IN THE STATUS QUO. (SIGNED) NEB/AJ/KL 09-Feb-99 2:25 PM EST (1925 UTC) NNNN Source: Voice of America .