A Well That Has No Water
but Has Bread!
In recent years, economists have largely focused on monetary policy
independence and ignored the importance of
"Iranian politicians have sent the country’s expert apparatus to dig wells
that it is unclear when will reach water. But because they make profits in
digging more wells they simply do not care about water,” said Dr. Seyed
Ahmad Mirmotahhari, former secretary general of the Tehran Stock Exchange,
on finding the roots of the spread of contingency decision making in the
Iranian economy. He also emphasized that contingency policy making in a
recurring cycle leads to more rent and corruption and prevents the economy
from suffering periodic crises.
Do you agree that the Iranian economy is rapidly moving from rules to
expediency and that policy making in Iran is more contingent than ever?
What you just mentioned has been one of the biggest policy making problems
in Iran for at least the last four decades. First of all, the situation is
the result of a long-term political equilibrium, and I think the
policymakers’ contingency approach can be analyzed in this context. That is,
the situation we are in is the result of the decision making and decision
taking of a political structure that has decades of governance experience,
and I think this structure has partially accepted the status quo. You want
to criticize policy making in this structure, with the proposition that
decisions are contingent and short-lived. Yes, the basis of contingency
policy is defined in accordance with the rapid developments of the time, and
from a theoretical point of view in this way of decision making, the goal is
to obtain an effective management approach based on the recognition of the
But the point is that the status quo has been accepted and defended by
countless stakeholders in politics and economics. In the meantime, what is
needed to improve the status quo is the impossibility of continuing this
situation, intergeneration advances and possibly external pressures. Since
the 1979 Revolution, our politicians have faced many events and have made
contingency decisions for each of them. To my generation who lived and
worked in the war time (1980-1988), it is somewhat acceptable that decisions
in terms of contingency were usually far from expert logic, but at present
it is unacceptable for new generations to see decisions are made based on
political and security considerations.
If we look a little optimistically at this issue, we can say that since most
of our politicians are accustomed to the crisis, the way they resolve crises
is also contingent and short-termed. Then the solution that comes to our
minds is that if there is a revolution in the management of the country and
managers take over who are clear of such characteristics then many problems
will be solved. But that’s not the case, and the reality gives us another
signal. I think our politicians would rather have a certain level of crisis,
and we should always be at “this critical juncture”. It is as if some
politicians are in favor of a crisis. If there is no crisis, the
incompetence in policymaking and decision taking could not be concealed. If
the crisis escalates, the administration will be hard-pressed, so it is in
our politicians’ interest that there is a degree of crisis that is
reminiscent of the current critical juncture, and that the society overlook
the existing weaknesses.
Would you recommend contingency management in the realm of economics?
In Iran we have nothing called policy making. So what should we call the
mechanism in place in our country? In my opinion, what we have is a division
of resources, not policy making or even resource allocation. In all these
years, the government has only sought to influence the economy, not through
policy making but by relying on the distribution of money. According to one
of the Plan and Budget Organization’s chief, resource allocation is also
based on favors. So we have no policy at all.
The next point is that the very mechanism we call policy making has always
been subject to populism. So basically the same mechanism we have which is
not resource allocation but resource sharing is also destructive. Third, we
specialize in digging endless pits. Dozens of wells have been dumped into
the Iranian economy that devour resources at a very large level, and it is
unclear how much money will be spent on these wells.
The secret of economic stability and market order is in
rational, transparent, and predictable policy making.
The next issue is the decision-making arrangements in the bureaucratic
system that has very strange fluctuations. Let us also consider how economic
decisions are made by economic systems in the country. What you will notice
is an organization becoming the star in the sky of economic policies for a
temporary period, that is, even the role and life of the organizations
depend on contingency decisions. One day the Plan and Budget Organization
(PBO) is the actor, and another day the Central Bank of Iran (CBI) and the
Ministry of Finance and Economic Affairs appear like a comet for a moment
and then disappear. However, macroeconomic performance arises from the
interaction of a set of internal and external events and variables, subject
to the long-term decisions of the various institutions that influence them.
In this case, sometimes the role of the PBO is highlighted, but we have seen
that based on a contingent decision an organization that was in charge of
planning in Iranian economy for decades and had expert experience, was shut
down completely and after a pause it was authorized to resume operation but
with a multitude of difficulties and recourse to the contingency management
the organization is driven to the sideline and its role is diminished and
becomes so quiet as if it did not exist.
But the forex story at once highlights the role of the CBI, and we see
monetary policies become a priority, with hasty decisions and insistence on
specific views and contingency decisions in this area squeeze the national
economy so hard that makes it hard to move based on regulations. We have to
wait and see if the CBI will follow the same line as the PBO or not. But
what are the consequences of these contingency decisions?
First of all, it seems that this will weaken the specialized structures and
the next problem is the defective political cycles. These two faults are
enough to disrupt and render ineffective macroeconomic programs and reduce
the effectiveness of anti-inflation and anti-fiscal monetary policies.
In the Iranian economy, recourse to contingency management has long been a
principle. In this type of decision making, there is no holistic view of all
the problems and predicaments, and every manager in his position just wants
to make his own decisions. Decisions that are not necessarily consistent
with other developments in other sectors and subdivisions. Like a group of
musicians who are supposed to conduct an orchestra, but they don’t have the
coordination of a street music band.
Let me give you an example of economics; most of you must have been
following the gasoline related news and developments. You can see the same
dissonance in the music band here. The well dug for fuel price is one of
those endless pits that only swallows resources and has several negative
effects on the economy. Part of the decision-making system raises the excuse
of social consequences of fuel policy and closes the way for a sound policy
making. The other part puts forward political excuses.
The government, fearful of implications of new pricing, prefers fuel
rationing. In the meantime, the problem of the economy is not solved and the
problems remain in place. Consider the problems of the banking system as it
grows bigger, but no one has the will to solve it. Issues related to water,
the environment, recession, negative economic growth, and dozens of other
big and small problems need policy making but nobody cares. As a result,
the small problems in the Iranian economy grow larger and persist because of
the negligence of policy structure.
In your opinion, how has the diminished role of experts in policy making and
ignoring the results of expert work in decision making exacerbated this
Our structure works in such a way that healthy and specialized executives
cannot survive. A healthy manager in our bureaucracy cannot survive. When
the bureaucracy is depleted of healthy people and professionals, unhealthy
people take responsibility for the political rent and the result is the
catastrophe we see today. The corrupt political director has not come to the
government to unravel the problems or formulate policies for the elevation
of the country. He has come to collect enough wealth before he steps down.
The output of decisions in such a structure would certainly generate more
corruption itself. The root of corruption must be sought in faulty and
misguided policy making. The biggest drawback of contingency management and
decision making is the severe weakening of expert structures. When it comes
to organizations that rely on expert views, they offer some form of
regularity and timing. But if they are an impediment to immediate
decision-making, bypassing those views, insisting on rash decisions and
specific opinions and neglecting legal packages will be the outcome. For
example, if the inefficiency of anti-inflation and anti-fiscal monetary and
fiscal policies is the result of a contingency decision, it can lead to
lower levels of revenues and deepen recession by reducing investment.
In your opinion, which area of the economy is the most dangerous type of
contingency management in the Iranian economy, and where is it more urgent
The secret of economic stability and market order is in rational,
transparent, and predictable policy making. The expectation of a stable
fiscal policy is that it will continue in the long run. There is no need to
intervene in the pattern of income and expenditure.
So when the budget base is adjusted to short-term goals, virtually the
basics of budgeting, such as spending and revenue, are unpredictable. As far
as the oil income is concerned we know that these revenues are not
permanent; the oil price is fluctuating and is determined in world markets.
circumstances, fiscal policy plays a decisive role, and if the theorists’
views are to be heeded, the country’s ability to adhere to the requirements
of fiscal policy is stable, so the area of influence is largely program
and budget. In recent years, economists have largely focused on monetary
policy independence and ignored the importance of financial policy
independence. Budgetary policymaker independence seems to precede monetary
policymaker independence because it is much easier for the politician to
influence the PBO than the CBI. The origin of many of our problems today,
including budget deficits, is inaccurate fiscal policies. To overcome the
challenges of Iran’s economy, we need an independent, expert, and robust PBO
to create financial sustainability.