The heads of three branches of power (legislative, executive, judiciary) have recently appointed a team tasked with liquidating state assets. The details of this decision are not sufficiently specific and as the saying goes the devil is in the details. However, the outlines of the plan seem defensible, economist Ali Sarzaeem said in an article for Persian daily Donya-e Eqtesad. Below is a translation of the text.
For starters, the necessity of privatization should be underlined. The fact is that the government is suffering from severe budget deficit which has driven up inflation to an unprecedented level. Iran is likely to see higher inflation rates in the future. The most helpful step for the government to take is sell its surplus assets and meet its needs, instead of fueling the flames of inflation and further weakening the public’s purchasing power. One might argue that sales of state properties cannot finance government expenses in the long run. Cynics might say that the current government intends to leave a scorched earth for the future governments.
Promotion of Democracy
The answer to this argument is that decline in government assets is a good omen for the Iranian society. It definitely helps promote democracy in Iran, the country in which the government does not rely much on the society financially and puts these assets at the disposal of friends and loyalists. A stronger society comes with government having fewer properties, which would be to the benefit of democracy in Iran in the long run.
Moreover, Iran is currently under sanctions so it is important in the short term as well. You cannot turn a blind eye to the short-term needs of the government. The government should sell its surplus assets to survive the sanctions era and introduce fundamental reforms in the structure of the government whenever the sanctions are lifted. Under the current circumstances, the government is not capable of reining in its inefficient bureaucracy.
The next point is that government assets are being used with the lowest level of efficiency. If you go to government agencies or companies, you can easily see how big the CEOs’ offices are; private sector managers do not have such large offices. You often see government buildings or lands being abandoned for years. Seriously, what use do these properties have? If transferred to the private sector, these properties will be put to a better use.
Concern Over Transfer Mechanism
The transfer mechanism to the private sector is the most important concern. A popular belief is that the past privatization attempts were concluded at low sales prices, less than the real value of the properties. In some cases, this claim is acceptable but some cases are being exaggerated. For example, Haft Tappeh Sugarcane Agro-Industry Co. was rumored to have been handed over at a cheap price, but financial statements of the company suggested otherwise. Even if state properties are sold 10% less than their real value, the society will not necessarily suffer financial losses because at times state companies are unprofitable, their remaining in the hands of the government would inflict more losses on the society, and this loss can be far more than 10%. Is it beneficial to keep them in the hands of the government or get rid of them? Saying that CEOs should turn these properties into profitable assets is wishful thinking; after all many of these properties have not generated any revenues for the past 40 years.
Privatization faces three problems in Iran. The first problem is pricing. If a company is on the stock market, its value would be less controversial. If not, there will be strong disagreements regarding its value. There are always people who say a company has been sold cheap. This is especially true when the economy is going through high inflation, both in asset prices and in consumer goods.
People who have a dog in this fight are inclined to throw a wrench into the works by raising doubts about privatization. With the decline in social capital and the prevalence of skepticism in the society toward the actions of the government, this method is effective and usually works. Even if the company is listed on the stock market, there are people who claim that the company should not be sold under these conditions because a better time for putting it on the market has yet to come. Even if the government assets are sold during stock market boom (as in 2020-21 Iranian year), some people will accuse the government of selling the state assets at high prices.
The second problem is that CEOs who carry out the privatization deals are never rewarded but they are always punished. If someone sells the surplus assets of the government, they do not get a reward but if they are accused of selling the property below the real value, they will be summoned to the courts and may even be convicted. Under the circumstances, CEOs won’t dare to take action. Therefore, it is vital to employ managers who enjoy judicial immunity when it comes to privatization. As per the law, the Supreme Council of Privatization has judicial immunity but with the detention of the former director of the Iranian Privatization Organization, this immunity is in question.
The third problem is that, occasionally, some judges are influenced by the people surrounding them; they may opt for reversing the previous privatization decisions under pressure. Unfortunately, such a problem came up during the tenure of Ebrahim Raeisi as the head of the Judiciary. Despite objections made by Iran Chamber of Commerce, Industries, Mines and Agriculture and economic experts, some companies which had been previously privatized, such as Moghan Agriculture and Animal Husbandry Company and Haft Tappeh Sugarcane Agro-Industry Co. were taken away from their private owners. This became a bitter experience for private sector players, they fear someone else will come to power and veto today’s government decisions and all the investments will be wasted. If the new mechanism happens to solve these problems and help reduce the government budget deficit, I believe the decision will be defensible and pragmatic.
