Ahmadinejad's new Cabinet of Ministers and Iranian economic prospects: Trend News Commentator

Dalgha Khatinoglu, Head of the Trend Persian Service.

Azerbaijan, Baku, September 5 / Trend /

Ahmadinejad's new Cabinet of Ministers has a strong influence on Iranian economy, despite only one agency, the Ministry of Economy, determining Iranian economic program is represented in the new government.

During the first term of Ahmadinejad's presidency, oil revenues were earmarked for the so-called "Employment centers giving rapid result". Money supply on the domestic market reached $150 billion, resulting in a 26-percent inflation, despite the Central Bank told about 21 percent.

According to the Iranian State Customs Administration, import of goods reached $56 billion in 2008 or 2,5 times more than export. Import of goods increased 1/3 compared to 2007. It led to a large number of unsold local products. There is only $25 billion in the reserve fund despite $300 billion was received by Iran from export of oil and oil products.

On the eve of the presidential elections (June 12) Ahmadinejad's opponents, mainly criticized Iranian economic sector, because during his first presidency, Ahmadinejad, who has changed head of the Central Bank three times and Minister of Economy twice, failed to remove economic stagnation in Iran. But anyway, the Parliament approved a new candidate nominated by President Ahmadinejad. Shamsaddin Husseini was appointed economy minister.

However, views about Husseini's professionalism, differ. A member of the scientific group of the Iranian Plan and Budget Organization, Jamshid Pezhuyan, said that Hussein worked as a minister and proved his knowledge and abilities during a year.

Liquidation of subsidies

As opposed to Pezhuyan, ex-chief adviser to the Iranian Central Bank, Bijan Bidabad, thinks that economic problems will aggravate "as he is young and inexperienced" during Husseini's activity as a minister.

During his speech in the Parliament, Husseini stressed importance to liquidate subsidies for economic sector, which reach $50 billion now. Ahmadinejad hopes to reduce state's expenditures by liquidating subsidies.

However, when prices for oil are relatively low, liquidation of subsidies and the authorities' intentions to allocate direct funds worth $50-70 per capita, can be very risky.

First, the prices for energy were artificially kept at the low level through subsidies in Iran for a long time and their liquidation would increase prices for electricity, gas and water. It will automatically increase prices for goods in Iran and lead to inflation. On the other hand, giving of direct funds to Iranian population will more increase money supply on the domestic market. Bidabad said that it will lead to inflation again.

Pazhuyan said that "Employment centers giving rapid result" did not actually reduced unemployment, on the contrary, the unemployed owed to banks.

On September 3, head of the Iranian Central Bank, Mahmoud Bahmani, said that at present volume of uncleared loans hits $40 billion.

Drawing of foreign investments

In August, Iranian Foreign Minister, Manouchehr Mottaki, said that Iran needs to draw foreign investments worth $100 billion. According to the Iranian newspaper "Sarmaya" ("Investments"), total amount of investments to Iran hits $5.3 billion for the last 16 years. However, Deputy Economy Minister, Bahruz Alishiri, said that about $28 billion of foreign investments was drawn to Iran in 2008. But according to Iranian official statistics, amount of foreign investments hits $4 billion.

It is impossible to draw foreing investments worth $100 billion taking into account the international sanctions imposed due to Iranian nuclear program.

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