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The people's trust and support in the government's economic
plans offset many shortages and create the essential grounds for relative success in some
areas.
In the year 1377 (1998), the
state economy was broadly scrutinized by non-governmental organizations and institutes,
and arguments were raised for expert debates to work out solutions to fundamental
problems.
Capital formation remains a frail
sector of the Iranian economy. In order to fill up the vacuum, more leeway should be
granted to the private sector.
The government is urged to keep
up with its efforts to release the state economy from its dependence on oil revenues and
pay serious attention to the expansion of non-oil exports.
In the year 1377 (1998), the
Iranian government struck a large number of buyback deals with foreign firms.
In a late Khordad 1377 (mid-June
1998) report, the Ministry of Industries announced the country has exported 690 million
dollars worth of industrial products.
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1998 saw the Iranian
economy influenced by a wide spectrum of domestic, regional and international events,
particularly fluctuations in oil prices which nose-dived in October 1997.
The steep stumble in global oil prices diminished Iran's oil revenues by almost 40
percent.
Compared with the post-revolutionary years, particularly the wartime era, and cognizant of
such major indicators as foreign exchange revenues, population, food requirements,
education, health, and employment, 1998 marked the year of people's support for the
government.
Such support provided the basis for a better state economy in the new Iranian year.
In the meantime, the government concentrated much of its efforts in restructuring the
state economy. The release in early 1998 of two reports, dubbed as the "Plan for the
Restructuring of the State Economy", drawn up by the Ministry of Economy and Finance,
and "Outlines of the Country's Economic Policies", prepared by the Plan and
Budget Organization and the Central Bank, stirred heated debates on key economic issues.
The Iran Chamber of Commerce, Industries and Mines (ICCIM), an economic consulting
government agency, also put forth a strategic Nation-Wide Ownership proposal. Thus, the
public and the private sectors took comprehensive steps towards the restructuring of the
state economy.
The proposed plans were widely debated by experts throughout 1998 and until early 1999.
Yet, one of the fundamental woes of the Iranian economy is the lack of investments
analogous in relation to the country's needs. The ratio of capital formation is
confessedly not in accord with the national requirements.
In order to remedy the problem, the government should urgently overhaul and restructure
the capital market, and seek further support from the people in economic affairs.
In the meantime, the private sector should join efforts to boost the minimal share of
investment to the level of national output, an issue that requires sweeping reforms in
many sectors, and build confidence among the investors.
The determining factor to success pollitical stability along with economic and judicial
security. Based on these two issues, the state can guide national liquidity towards
investments.
As to foreign trade, during most of 1998, exports and imports were typical in the past
four years affected by the regulative and foreign exchange policies of the government. The
looming recession in the global economy, particularly in Southeast Asia and Japan has left
adverse effects on the progress of Iran's exports.
Despite the continued US oil embargo against Iran, oil exports faced no major hurdle. But
as oil prices stumbled to a record low, the Iranian economy was dealt a heavy blow.
However, non-oil exports took an upward trend. If the global economy copes with its
appalling stagnation, the prices of export commodities will recover and earn Iran large
sums of foreign exchange.
Experience gained from the expansion of non-oil exports has spurred the government to
adopt sustained policies to ease its heavy reliance on oil proceeds.
In other words, economic policy on exports should be directed toward a sustained growth in
non-oil exports, and to exploit the country's relative priorities in the global economic
forums, with the private sector playing a major role.
Finally, the issue of the national budget bill. As a matter of fact, fulfillment of the
fiscal 1998 budget was bogged down by the unprecedented slump in oil revenues. In order to
patch up budgetary constraints, the Plan and Budget Organization (PBO), in collaboration
with the Majlis, revised and drew the national income based on a 12 dollars perbarrel
revenue.
But as the government fell short of earning the already diminished forecasted income, it
tabled a finance bill in the October 1998 legislature , to settle the 1.8 trillion rials
income gap. The bill passed the assembly and became the basis of action for the
government.
The government was, however, punctual in offering the draft budget bill of fiscal 1999 to
the Majlis. The draft bill predicted oil incomes at 11.8 dollars per barrel. The deputies
passed the bill without any major trimmings; thus, it is expected that in 1998, the
government will navigate a safe path through proper economic management.
A Review of Key Economic Events
During 1998 many bittersweet events punctuated the economic setting, foreign trade
relations, and investments, chief among which included:
- With the slump in oil prices in the early days of 1998 the
Islamic Republic of Iran opted to slice down its daily oil output from 3.941 million
barrels per day (bpd) to 3.820 million bpd.
"In order to stabilize the turbulent oil market and secure a favorable price in the
future, Iran plans to cut its output by 140 thousand barrels per day as of April
1st," said an Oil Ministry official.
- The Ministry of Commerce announced the government has
decided to allot 11.2 trillion rials in subsidies on bread and other major commodities.
The ministry also disclosed that of the amount five trillion rials, would be used to pay
for bread subsidies, with the remaining to be allotted to other life essentials.
- A mammoth gas field was located at Kordan, Fars, in June
1998, a development which drew attention towards Iran as a major source of gas deposits in
the world.
The deputy oil minister put the amount of the basin's deposits at 2.1 trillion cubic feet
of gas, and 10.5 million barrels of oil and liquefied natural gas (LNG).
- In June 1998, withnessed sharp declines in crude oils
prices.
"With the contraction of the global oil market, and the sharp slump in prices, the
rates of all kinds of Iran's oil export have sharply slipped," wrote a London-based
oil weekly magazine.
In December 1997, Iran's light crude was traded at 16.68 dollars per barrel on the
average. A month later, its price stumbled to a dramatic 2.47 dollars, to 14.21 dollars.
The downturn continued during the next months.
In February 1998, the rate of Iran's light crude fell to an all time low of 12.81 dollars
per barrel. In March trading, the Iranian crude closed one dollar weaker.
During winter, the price of oil further slipped down by 4.83 dollars per barrel.
Iran's oil exports had dropped by slightly more than one million dollars.
- The US energy secretary declared in June 1998 that the
American administration is still opposed to a trans-Iranian route to carry the Central
Asian and Caucasian oil to the international markets.
The announcement further confirmed U.S. hostility toward the Iranian nation.
- In the same month, Iran and Saudi Arabia struck a protocol
on mutual technical, industrial and engineering co-operation.
Under the deal, the two countries undertook to projects in such sectors as copper mining,
establishment of refineries, joint ventures, and others.
- The oil minister announced that domestic oil consumption
has exceeded 1.3 million bpd.
The remarks were published in the bulletin of the Organization of Petroleum Exporting
Countries (OPEC).
The amount, he added, accounts for one-third of Iran's oil production and is steadily on
the rise.
- In another important decision to boost sagging oil prices,
Iran announced further cuts in its oil output by another one hundred thousand barrels per
day.
- Deputy Oil Minister for International Affairs introduced
20 oil tenders at an international seminar in London. As the projects were of buyback
nature, the contractors were to be reimbursed or paid through sales of oil after the
projects came on stream.
The projects included seven oil basin development plans, six recycling plans of oil
reservoirs, four gas field expansion plans, two liquefied natural gas (LNG) extraction
plans, and one refinery project.
The plans, which are slated to become operational after 3-5 years, will raise Iran's oil
and LNG output by 1.4 million barrels per day, and gas production by 70 million cubic
meters.
They will collectively enhance national oil and gas revenues by eight billion dollars
annually.
- In July 1998, Spain signaled interest in investing over
1.5 billion dollars in Iran. "In talks with the representatives of Spanish
manufacturing firms and industrial companies, contracts worth 1.5 billion dollars were
struck," said Iran's Deputy Minister of Mines and Metals who had led Iran's
trade-economic delegation to a joint seminar in Madrid, Spain.
- During the same month, the Ministry of Mines and Metals
announced it has earmarked over two billion dollars for the implementation of mining and
metal projects.
- In August 1998, the Iranian press announced news of the
supply of gas to 45 new towns and townships. "The plans for the construction of gas
supply lines to 45 towns have been completed, a major part of which will be inaugurated
during the Government Week, and the rest by the yearend," said the Deputy Oil
Minister for Gas Affairs.
- Canada's Bow Valley Company signed a 1.2-billion-dollar
deal with the National Iranian Oil Company (NIOC) to develop the Balal oil basin,
south-west of Lavan Island, Southern Iran.
The basin's oil reserves are estimated at 80 million barrels. Western oil analysts believe
the field, once put on stream, will churn out between 35 and 40 thousand barrels of oil
per day.
- The Deputy Oil Minister for international affairs
announced foreign that oil and gas giants have warmly welcomed the introduction of buyback
oil tenders by Iran.
"Ever since the opening of the London seminar, more than 80 foreign firms (including
three American companies and eight Iranian firms) have bid for the projects," the
official added.
- In October 1998, Iran and Britain announced they will
boost mutual trade co-operation.
Iran's exports to Britain grew slightly in 1998, up from historic lows of 35 million
dollars in 1997, according to official releases.
In the first half of 1998, Iran exported 35 million dollar of goods to Britain, in return
for imports of 300 million dollars.
- The United States eased its regulations on petrochemical
trade with Iran. This was a scoop headline in November 1998.
Quoting a US State Department official, the Reuters news agency said the measure is not to
be viewed as a sign of thaw in relations between Iran and the Clinton Administration, nor
does it convey any special gesture toward Iran.
- Italy announced it would extend one billion dollars of
credit to Iran.
Managing director of an Italian economic union said that a privately owned Italian bank
would extend a credit line of 1.2 billion dollars to Iran to purchase the necessary
industrial machinery.
- February 1999, the Ministry of Commerce announced that it
had signed deals to purchase 1.9 million tonnes of wheat, 268 thousand tonnes of rice, 130
thousand tonnes of oil, 84 thousand tonnes of white sugar and, 200 thousand tonnes of
crude sugar for the next Iranian year.
- Deputy Minister of Industries said that over 690 million
dollars of industrial goods have been exported, focusing world attention to the industrial
capabilities of the Iranian companies.
- "Petrol consumption has grown by seven percent in
Iran," announced the Managing Director of the National Iranian Oil Production and
Distribution Company (NIOPDC).
Describing the trend as dramatic, the official said, "Soaring petrol consumption will
impel us to import petrol."
- The Iranian Majlis, or parliament, approved the proposed
draft budget plan of the government. The budget bill envisaged 276.215 trillion rials of
income for the government.
- A senior advisor to the Plan and Budget Organization (PBO)
says the Third Development Plan should create 600 thousand jobs annually.
- "Twenty-six percent of the country's energy is
consumed by the industry sector," announced the Managing Director of the engineering
services bureau of the Ministry of Industries in March 1999.
- Iran's exports to Italy are increasing, said a report from
the Italian Ministry of Foreign Trade.
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