Thursday, September 21, 2006

Majlis Warns of Economic Crisis

Hamid Ahadi, Rooz Online:
The annual reports released by various ministries throughout the week indicated that, despite an exponential increase in the size of the government budget and expenditure, a number of major ministries are facing severe financial problems. Some of the troubled ministries have even warned that the country could be in crisis unless they receive new funding. Meanwhile, members of the majority faction in the Majlis (Iran’s Parliament), i.e. the hardliners, are refusing to approve any additional funding without first receiving reports of the government’s budgetary expenditures.

Many Majlis deputies are concerned about the consequences of the government’s abrupt decision to increase the size of the budget this year. Economists had warned earlier that a sudden increase in equity spending would lead to higher inflation rates. President Ahmadinejad and his advisors shrugged off the warnings, though the Ministry of Finance and Economic Affairs tacitly acknowledged the rise in price levels in its report. READ MORE

Earlier this year, officials within the administration argued that the growth of the budget was largely due to a sixty percent increase in development projects, which many experts dismissed as unrealistic right off the bat. Given the current state of the country’s economy, many Majlis deputies are convinced that they should approach any further increases in government expenditure with caution.

The former head of Iran’s Management and Planning Organization, Baradaran Shoraka, noted that an addendum to the budget could be passed only after the government released reports of its annual expenditure. Such reports, however, have not yet been published. Shoraka also warned that the government would have to tap into Iran’s foreign exchange reserve account in order to finance any additional spending.

The concerns of Majlis deputies have been exacerbated by the failure of a joint committee to reach an agreement with the administration over many contested issues, including the pricing of gasoline. Majlis deputies are currently working on an independent initiative to reduce the country’s dependence on imported gasoline.

According to an expert, many Majlis deputies are unhappy with the way in which the administration has tried to impose its initiatives in the past. On many occasions, the administration has proceeded by sending its initiatives to the Majlis only after the fact, forcing the Majlis to ratify them under extraordinary circumstances. The deputies, however, resisted the administration’s attempts to receive additional funding for the import of gasoline, requiring it to formulate a new petroleum policy beforehand.

Among the various reports released by the ministries, the one belonging to the Ministry of Finance and Economics was of particular significance. The ministry’s report tacitly acknowledged that the warnings of many economists had come true, stating that the consequences of the government’s fiscal policies were slowly becoming apparent.

In the same report, the ministry also acknowledged the overall rise of price levels, which was formerly denied by government officials.

The ministry’s report also indicated thatthe 20 to 25 percent increase in wages without a corresponding increase in productivity has contributed to the rise of price levels.”

Another interesting report was released by the Ministry of Public Health, which stated that most state-run hospitals are in financial crises and unable to pay wages or purchase equipments. According to the ministry’s report, sixty out of the eight hundred state-run hospitals are in danger of shutting down their operations at any time.

The report released by the Ministry of Roads and Transportation was so revealing that E’temad daily (Mr. Karoubi’s newspaper) referred to it as an “unexpected admission” given that the administration usually attempts to hide or deny the existence of problems. The ministry’s report touched on issues regarding the country’s ailing transportation infrastructure as well as petroleum and airline companies, many of which are in danger of going bankrupt. In E’temad daily’s view, the bitter admissions reported by government officials demonstrate the contrast between idealism and harsh economic realities.