For the past two decades, Iran’s administration has implemented economic reforms to enhance the country’s gross domestic product (GDP), productivity, and competitiveness in the Middle East. Several changes were initiated after the Iran-Iraq war, which severely affected the state’s economy. An example of the most recent initiative is the 2010 economic program known as targeted subsidies reform, which was introduced by the federal government to reduce financial aid directed to the oil sector. For years, the plan has fostered domestic growth in the nation since the incentives that were initially offered to oil manufacturers are redirected to social assistance programs. Despite having several incredible reforms in place, Iran’s plans for achieving economic independence, full employment, and better living standards for its people are hindered by external sanctions and lack of cooperation among the individuals in authority.
Drivers of Economic Reforms
Economic Independence
One of the key drivers of reforms in Iran has been the need to achieve economic independence. According to Pesaran (2013), the country has made significant steps to overcome unwanted foreign interference in its economy since the fall of the old order of the Pahlavi monarchy in 1979. For instance, a new policy was introduced after the revolution to grant the federal government power over the financial system. Such measures have been implemented based on the notion that the national economies are still subject to a dependent form of capitalism, despite Iran gaining independence from its colonialists (Harris, 2013). As a result, most debates in the country, for the last twenty years, have been about ways in which Iran can gain total control of its wealth without the need to adapt to the forces of globalization.
Full Employment
The need for the realization of full employment has also been among the driving forces of economic reforms in Iran. Since the republic gained independence, the level of unemployment has skyrocketed. The highest degree of joblessness was first experienced after the Iran-Iraq war, with studies showing unemployment rates of up to 15% between the 1980s and 1990s (Aghazadeh, 2014). Despite the nation recovering from the aftermath of the conflict, unemployment has remained relatively higher at present times. For instance, a report issued by the World Bank (2017) showed that the number of job seekers in the country increased by 1.07million in 2016. To control this dramatic growth, the federal government has recently proposed some reforms, such as movement towards economic liberalization, which allows more private firms to operate in the region to create jobs for its growing population of youths.
Better Living Standards
Some of the proposed economic reforms in Iran are also triggered by rising concerns over poor living standards among the citizens. Though studies have shown variation in the situation, with higher rates of poverty being experienced outside Tehran, the condition has remained dominant in the republic for a while. According to a survey by the Statistical Center of Iran, the rate of poverty in rural, urban, and Tehran stood at approximately 7%, 4%, and 2% in 2016, respectively (“Financial Tribune,” 2018). These and other previous reports have driven the nation to develop new economic reforms to control the dramatic growth in poverty, which is expected to prevail in the subsequent years following reinstatement of U.S sanctions. For instance, the government resolved to adjust its annual expenses to spend more money on the poor and increase salaries to boost living standards in the state (Eqbali & Fitch, 2018). However, despite such measures being adopted in various parts of the region, unemployment remains a considerable crisis in Iran to date.
Factors Affecting Economic Reforms
Sanctions
Iran’s effort to achieve its economic reforms is greatly affected by unfavorable external sanctions. Studies show that while the country has for years strived to gain economic independence, the vision may take longer to attain given the already in place sanctions, which have severely contracted its economy (Toumaj, 2014). A significant number of these sanctions have been implemented by nations that were initially in the Joint Comprehensive Plan of Action (JCPOA) with Iran, such as the United States. For instance, In May 2018, the United States declared its abandonment of the nuclear deal and prohibited Iran from participating in international financial systems (Johnson, 2019). Since then, the state has faced several challenges, striving to fulfill the agendas of the 1979 economic revolution. Reports also indicate that following reinstatement of the sanctions, the republic’s GDP shrank by 3.9% in 2018. Besides, the trend is expected to drop further if diplomatic talks are not initiated (“BBC News,” 2019). Such external policies that target Iran’s financial development are the key hindrances to its economic reforms.
Lack of Cooperation
Iran operates under a hybrid, semi-authoritarian regime, which means that several stakeholders influence major decisions in the country. According to Pesaran (2013), this form of ruling has had a significant impact on economic policies because each factional group has a varying interest in every proposed reform. Similarly, Geranmayeh (2016) argued that the tension over Iranian identity had been an internal obstacle for changes since the 1979 revolution. In his observation, Islamic and Republic have had different opinions regarding the integration of modernity, nationalism, and religious ideologies in the economy (Geranmayeh, 2016). Therefore, several economic reforms in the state are yet to be achieved due to the ongoing misunderstanding between dominant parties in Iran.
Regardless of the multiple challenges that Iran faces in trying to achieve its economic reforms, there is hope that some of them can eventually be overcome. Lately, several attempts have been made by the European Union (EU) to initiate diplomatic talks between Iran and the United States. With the most recent conflict resolution between the UAE and Iran, the two rivals may finally agree to settle their differences and reinstate their nuclear deal. Should this happen, Iran will have the opportunity to take charge of its economy, free of external adversities. Besides, the EU has been making essential steps to develop alternative ways in which Iran can trade in the international market. Apart from external measures, the current Iranian regime should also create new methods of fostering cooperation between factional groups to ensure that critical policies regarding the country’s financial system are supported. These and other ongoing efforts may enable Iran to achieve its economic reforms.
Overall, Iran’s strategic plans to achieve economic independence, full employment, and better standards of living are inhibited by international sanctions and internal tensions. The most recent adversity has been the economic sanction initiated by the United States. All in all, some of the internal and external challenges can be controlled if tactical measures are taken. The country should consider holding diplomatic talks with the United States to uplift its sanctions. Additionally, the federal government should foster cooperation between the Islamic and Republic.
References
Aghazadeh, M. (2014). International sanctions and their impacts on Iran’s economy. Research Gate. Retrieved from https://www.researchgate.net/publication/275690662_International_Sanctions_and_their_Impacts_on_Iran’s_Economy
Harris, K. (2013). Iran’s struggle for economic independence: Reform and counter-reform in the post-revolutionary era. Iranian Studies, 46(3), 484-488
Pesaran, E. (2013). Iran’s struggle for economic independence. London: Routledge.
Toumaj, A. (2014). Iran’s economy of resistance: Implications for future sanctions. A Report by the Critical Threats Project of the American Enterprise Institute. Retrieved from https://www.criticalthreats.org/wp-content/uploads/2016/07/imce-imagesToumajA_Irans-Resistance-Economy-Implications_november2014-1.pdf
World Bank Group. (2017). Iran economic monitor: Oil driven recovery. Retrieved from http://documents.worldbank.org/curated/en/344651498863986174/pdf/117165-WP-P162048-OUO-9-P162048-Iran-Economic-Monitor-FINAL-web-Jun-29-2017.pdf
Geranmayeh, E. (2016, August 17). Iran’s evolutionary road to reform. European Council on Foreign Relations. Retrieved from https://www.ecfr.eu/article/commentary_irans_evolutionary_road_to_reform_7100
“Financial Tribune.” (2018, January 30). Poverty and living standards in Iran after JCPOA. Retrieved from https://financialtribune.com/articles/economy-domestic-economy/81131/poverty-living-standards-in-iran-after-jcpoa
Eqbali, A., & Fitch, A. (2018, December 25). Iran plans more spending on poor as it copes with new U.S. sanctions. Wall Street Journal. Retrieved from https://www.wsj.com/articles/iran-plans-more-spending-on-poor-as-it-copes-with-new-u-s-sanctions-11545745747
“BBC News.” (2019, May 2). Six charts that show how hard U.S. sanctions have hit Iran. Retrieved from https://www.bbc.com/news/world-middle-east-48119109
Johnson, K. (2019, September 18). Trump sanctions Iran again, inching toward economic blockade. Foreign Policy. Retrieved from https://foreignpolicy.com/2019/09/18/trump-sanctions-iran-again-inching-toward-economic-blockade-saudi-oil-rouhani/
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