Economy, Domestic Economy

When All Things Came Undone

Business & Markets Desk
When All Things Came Undone
When All Things Came Undone

The tenure of former president Mahmoud Ahmadinejad is gaining notoriety as one of Iran’s worst periods in history.

Squandering of public funds on populist policies, systemic corruption, poor foreign policy and outright lawlessness are hallmarks of his two terms in office.

Ahmadinejad’s tenure is mired in controversy. The biggest yet less cared for of them is how his administration spent Iran’s largest windfall of cash while creating the biggest economic recession in contemporary history.

Oil was found in Iran in 1908 by the British. In 1909, the London-based Anglo-Persian Oil Company was formed. Needless to say, the contract favored the British. Iran received a total of $500 million until 1941—when the country was invaded by the allies during World War Two—from oil sales.

During the next 38 years, oil contracts were renegotiated. Anglo-Persian’s holdings in Iran were nationalized and National Iranian Oil Company and British Petroleum were born in the 50s. Iran’s oil revenues shot up to $136 billion during the period during the former monarchic rule.

In 1979, came the Islamic Revolution. Damage to Iran’s oil industry during the Iran-Iraq eight-year war and the exodus of top technicians brought Iran’s crude output down from 6 million barrels per day to below 4 million bpd. The ever-rising crude prices mean governments made over $450 billion in the 26 years after the revolution until Ahmadinejad took office in 2005.

How much oil did Ahmadinejad government sell in the following eight years? $650 billion, according to Mehdi Pazouki, advisor to the deputy head of Management and Planning Organization of Iran.

That’s $63.5 billion more than the previous century. Almost all of it was squandered.

The MPO, revived by President Hassan Rouhani, is in charge of the government’s fiscal planning. It was dissolved in 2007 by Ahmadinejad.

What did all that money bring about in general terms? Growth was negative in three of the eight years of his tenure: once in 2009, and later in 2012 and 2013. The result was a reduction of per capita income from $7,600 in 2012 to $4,900 in 2013.

Inflation fluctuated wildly and rose from over 10% in 2005 to 34.73% in 2013. The rial lost nearly 70% of its value during the 2012-13 currency crisis.

Iran fell from the 112th on World Bank’s ease of doing business in 2006 to 152nd in 2013, 28th from the bottom.

But his tenure was not bad for everyone. On the pretense of privatization, control of 1.37 quadrillion rials (roughly $144 billion based on average exchange rates of the time) of government assets was handed to quasi-state organizations.

Defaulting on government debt, a subsidies program that is bankrupting the Rouhani administration and forcing banks to lend to uneconomic projects, the damage list is hardly exhaustive.

The tenure of Ahmadinejad’s successor has all been spent on stabilizing the country. The damage will take a decade or more to undo. Some are irreversible.

However, invoking ghosts of the past does no good, unless we learn something from it.