Conference on Iran’s Economy at University of Illinois

Department of Economics and the Center for South Asian and Middle Eastern Studies (CSAMES) at the University of Illinois at Urbana-Champaign (UIUC) have initiated a call for papers on Iran’s Economy. This conference is going to be held at Urbana-Champaign this coming December. Program is chaired by Hadi Salehi Esfahani, University of Illinois at Urbana-Champaign and M. Hashem Pesaran, Cambridge University. Among its members there are: Djavad Salehi-Isfahani, Virginia Tech and
Mohammad Tabibian, former deputy of Management and Planning Organization. For more information please visit: http://www.iranconference.org/
Spread the word this is going to be a great gathering of the economists who work on Iran’s issue.

Afshin Jafari Prize Call for Paper Submission

Afshin Jafari was a brilliant graduate of Institute for Research in Development and Planning (IRPD) in Tehran, a pilot master program in economics where economics was being taught following neoclassic tradition. Ranked first in his class he joined IRPD as a faculty and researched after his graduation.
In 2003 he passed away from cancer most unexpectedly at 29 years of age. In his memory and in the gratitude of his passion for economics research, his classmates, friends and faculty have established Afshin Jafari Prize for the best graduate level paper in economics. The third round of this award is being conducted this coming spring and a call for paper submission has been circulated please visit: http://afshinprize.org/Prize.htm for more information.
This year there will be an especial award for the best paper in environment economics.
Please share this information. Submissions are being accepted in either Persian or English.

A Notice Has Been Served

Infrastructure! Infrastructure! Infrastructure! Probably any economist with her dying breath would yell: Infrastructure! When oil price began its increasing trend, many Iranian economists also joined each other to press the case for infrastructure. However President Ahmadinejad won the competition by promising the public oil money. Last week a member of Majlis said: “Mr. President, The people of my constituency do not want the oil money; please do not cut the gas!” Snow has served Iranian government a notice that how inadequate the infrastructure is in Iran and how unprepared public executive are for such emergencies.

It is hard to draw an accurate picture of how heavy snowfalls and gas cuts have affected Iran in last week. Following Turkmenistan decision to stop its natural gas exports, using a maintenance excuse, to secure a higher price from Iranian government, gas pressure fell down in many cities and towns across Northern parts of Iran. This disturbed daily life for many households who rely on natural gas for their daily activities and shut down many small businesses, including bakeries. Distorting supply of bread resulted in a price hike for this most essential item on Iranian table.

Heavy snowfalls and severe cold increased demand for heat and demand for natural gas and heating houses in temperatures as low as -4’ F. This forced government to decide to cut the flow of natural gas from industrial sector and to divert it to residential and city consumers. This is a short term solution that affected the industries and forced many to question the robustness of investment returns in an industry subject to such demands.

Transportation sector was the next victim. Many roads were shut down by snow and cars were trapped on highways such as Tehran-Zanjan route, a major western highway. Passengers had to sleep over for three days at Iran’s largest international airport: Imam Khomeini Airport located 19 miles south of Tehran. Runways were closed by snow and aircrafts’ wings froze. Airport authorities canceled up to 100 flights. After 3 days of chaos the head of airport was dismissed, becoming the first authority to lose his job because of severe cold.

The recent energy-weather crisis in Iran, a country rich with oil and natural gas resources, may result in many questions and encourage a few enterprising ideas. Today more than 13 million households are natural gas consumers. Diversifying resources and developing natural gas fields in south become more and more important; a point that some already have started to criticize the present administration about. One wonders if this means an increase in the opportunity cost imposed by recent sanctions.

That is not all. 15’000 industrial units and 47 power plants rely on natural gas as well. Cutting the gas from industries in the time of crisis does not seem to be the perfect solution and in the long run would hurt industries. Power wise some might argue that given the growing domestic reliance on natural gas, developing a nuclear power plant is an alternative that reduces the negative effects of such extreme weather. Of course that is not as easy as it sounds.

The recent events have given power to those who have been arguing for infrastructure development in the past few years and criticizing the government on spending too much on irrelevant projects that might bring in votes, but not sustainable development. An example of such projects is the subway connection between Tehran and Imam Khomeini International Airport. Designed to make the airport more accessible, it has not been finished. Had it been completed, passengers wouldn’t have had to pay close to $150 to cab drivers to get back to Tehran.

Meanwhile government’s handling of economic affairs has been criticized by the both sides of aisle. Dr. Tavakoli an economist, a conservative member of Majlis and a president Ahmadinejad’s supporter, had to say in anguish: “The engineers do not understand and do not appreciate economics as a scientific methodology.” Government’s recent request for 1.2 billion dollars to import necessary products does not seem to be addressing the fundamental issues of Iran’s economy.

Budget and Snow

Severe cold and heavy snowfalls surprised Iranian government and people. Following an interruption of gas imports from Turkmenistan and the gas cuts in some cities amidst brutal cold weather Iranian government had to shut down schools, universities and government offices. In Tehran alone heavy snow resulted in heavy traffic and interruption of daily life. City’s 11’000 workers were struggling to clean the streets in time. Meanwhile Majlis informed the President that snow or no snow it expected the budget to be presented to Majlis in time. He went with a new budget and a new style.

Presenting Iran’s first budget after disbanding Budget and Management Organization, President Ahmadinejad took pride in simplifying the annual budget. Usually Iran’s annual budgets had been well prepared documents that identified sources of income, allocated them to different agencies and determined the priorities for spending. The present document does the allocation without determining the priorities. Prioritizing and deciding on spending have left to government agencies.

According to Etemad daily paper funding for all national agencies have been allocated through 39 organizations and only these organizations have received a funding article in the budget. Through this tactic President Ahmadinejad and his cabinet have gained the power to allocate funds to the subset organizations without seeking approval from Majlis. Majlis only approves the total budget for head agency without having any control over its distribution. The head of agencies can shift funds between different programs up to 30% of their initially allocated budget. For example Ministry of Higher Education can transfer up to 30% of university A budget to university B.

Government also will determine the financial protocols governing its working dynamics with National Iran Oil Company. Previously legislation body would have determined this. The significance of this decision multiplies when one notes the rising price of oil and the fact that oil revenue is the major source of revenue and national income in Iran. While some arguing that such a step will reduce Majlis’s ability to act as a control body, President is happy that “the new budget could be understood by any literate Iranian.” Thus its transparency is controlled by the people’s understanding of its mechanism.

President also has requested permission to withdraw 1.2 billion dollars from Iran’s currency saving fund. This fund established in order to save the increased oil revenue. Despite the fact that Iran’s estimated oil revenue reached 120 billion dollars in last two years; the fund has around 8 billion dollars. President expressed hopes that Majlis allows a withdrawal of 2 billion dollars. He argues that approaching Iranian New Year, Norouz, necessitates such a sum to ease out inflation and to lower prices in market, which usually increase during Iranian New Year shopping season in February and March.

Currently Inflation is a major concern in Iran. According to Iranian daily paper; Donya-e-Eghtesad (World of Economy), last December inflation rate passed 17% mark. It continues on an increasing trend. According to some sources money supply has doubled from 70 thousand billion Thomans to 140 thousand billion Tomans. Meanwhile government is moving to import more goods in order to control prices at a domestic level and to ensure population welfare. Already some economists argue that such policy is equivalent to subsidizing imports; an approach that would affect domestic producers and farmers most drastically. They warned that it might result in more dependence on oil and a sharp divergence from Iran’s 4th five years development plan. It seems government might have to wrestle with more than increasing oil revenues.

Meanwhile snow continues to fall and roads are in desperate need of being reopened and gas pressure is falling in some cities with a falling temperature. Average Iranian family is gearing up for a cold winter.