2-Macro Economic Decision Processes in Iran


As we see, the government structure has resulted in an economic policy making and implementation environment where decisions reflect a dynamic flex of competing interests because in practice no institution wields absolute power. The arrangement of each institution is such that makes it vertically and horizontally accountable (even the supreme Leader is subject to a system of checks and balances).

Now let´s have a look at how Iran´s economic system has been portrayed by the Constitution (Articles 43, 44 & 45) with a special emphasize on Article 44, that is nowadays making very much publicity due to the privatization of state owned companies ordered by the Leader:

Article 44 of the Constitution states that the economic system of the I.R.Iran is based on public, cooperative and private sectors, with proper and regulated planning. It then defines the public sector to include all large-scale industries, mother industries, foreign trade, large mines, banking, insurance, provision of power, dams and large irrigation channels, radio and television, post, telegraph and telephone, aviation, shipping, road, railways and the like, which are in public ownership and at the disposal of the government. There have been new interpretations to this part of the Constitution by the Expediency Council, which will be presented further below as it reflects the current on-goings to the privatization of the industries.

The cooperative sector is defined as one that includes cooperative production and distribution companies and institutions established in cities and villages on the basis of Islamic principles, while the private sector includes that part of agriculture, animal husbandry, industry, trade and services, which complements public and cooperative economic activities. Thus, the private sector is given only a residual role in the economy, which in fact is intended to be changed. I may come back to this theme once I have presented a somewhat clear overview of the general framework some Newsletters from now and discuss particular industry and market segments and the impact the privatization has on them.

Amendments to Article 44:
Expediency Discretion Council (EDC) drafted the general policies of which the article 44 of the Constitution as a first step obligated the government to stop all its activities outside the fields specified under the main section of the article 44.
After approving the above mentioned, namely the requirement of the government to abandon activities not enumerated under the main section of the article 44, the EDC approved the second paragraph of general policies, which allows the public non-state sector, as well as the private and cooperative sectors to embark on a number of activities that had been allocated to public sector under the main section of the article 44.

Besides the EDC agreed to transfer maximum 65% of the stocks of government enterprises subject to the main section of the article 44 to private, cooperative and public non-state sectors. The agreement covers all major mines , main industries, banks, insurance corporations etc. But defense and security industries (as identified by the commander in chief) and also National Oil Company and oil producing corporations are excluded.
It was then decided, that in respect of state owned companies, the revenue out of the transfers of their stocks to be deposited in a special account with the Treasury. It then would be spent within the frame of the approved plan and budget for implementing social justice and poverty alleviation policies through: self sufficiency of needy families, strengthening of the comprehensive plan for social security, creation of infrastructure for economic development while giving priority to less developed regions, granting facilities (managed funds) for cooperatives and renovation and improvement of non-government sectors in development of less developed regions, partnership of state-owned companies for a share of less than 50% with non-state sectors for development of less developed areas and completion of semi-finished projects of state companies and their new investments by due regard to general policies.
As regards the transfer of banks, the funds collected from such transfers shall be used for repayment of the government´s debts to the banking system in the first place, and thereafter for increasing the capital of the government in banks that would remain governmental.
The revenue from transfer of insurance companies shall also be used for increasing the government´s capital in the Central Insurance of Iran.

In the last 12 month we do see some acceleration in the privatization process, which for example lead to the trading of the stocks of the National Iranian Copper Co., the Iranian Shipping Lines, some Petrochemical and very important Steel companies and the most recent one, with the biggest trade offering in Tehran Stock Exchange Market belonging to the Telecommunication Company of Iran with around 7.5 billion USD for the first 5% offered.

Article 43 of the Constitution with its delineation of the objectives of economic activities influences the role that the Iranian state envisages for itself. It defines the basic needs for all. Basic needs as laid out in this article include housing, nutrition, clothing, health, medical treatment, education and necessary conditions for the setting up of a family. In addition this section of the Constitution also proposes the creation of work conditions and opportunities for all, for the purpose of achieving full employment or providing opportunities for work.

Article 45 of the Constitution reinforces the primacy of the public sector by explicitly stating that public wealth such as barren or deserted lands, mines, passes, woods, reed beds, natural groves, unbounded pastures, legacy without heir, property whose owner is unknown and public property taken from usurpers is at the disposal of the Islamic Government to be dispensed with according to public interests. It also states that the details and the manner of utilization of each one of them will be determined by law.

At the end it is important to note that a strict interpretation of the definitions of the Articles 43-45 has never been enforced and due to the developments of new conditions and through the interpretation process, new laws has been passed allowing the private sector to be able to play a much larger role than is outlined in the Constitution. The private sector´s increased participation in mining, banking, insurance, telecommunication, oil and gas, aviation, transportation etc. in recent years is an obvious result of this re-thinking.