News ID: 133461
Published: 0333 GMT December 22, 2015

Importance of putting structural reforms into practice

Importance of putting structural reforms into practice

By Pouya Jabal-Ameli

The emphasis on the need for economic structural reforms in the post-sanctions era expressed by Masoud Nili, an economist and top advisor to President Hassan Rouhani, and his comprehensive analysis on the future of the national economy, indicate that state officials have come to a clear understanding of the mechanisms effective in achieving sustainable economic growth.

Such articles will not only regain the economic experts' trust, but also form a basis for economic reforms, the main requirement for which is a consensus among domestic economic experts, the people, media and state officials.

Although everybody may implicitly accept the approach and approve of it, in reality, what is of utmost importance is to shift the balance of power in favor of reforms.

For instance, a nuclear accord with the P5+1 would not have been possible without a balance tilted towards those who were in favor of resolving the nuclear issue. Although this balance was slightly in favor of the proponents of the talks, it was effective enough to help the negotiating team accomplish its mission successfully.

The government subtly managed to gain the consent of a number of opposing parties by forming new fronts. It also adopted a prudent strategy towards other adversaries and obtained their tacit approval to implement the Joint Comprehensive Plan of Action (JCPOA).

The project of economic reforms is quite complicated. As evident in the earlier experience, this calls for greater prudence, tactfulness and a multi-tier effective management. Some people are benefiting from the country's present unfavorable economic condition and view any change in the current status quo as a threat to their interests. Even worse, is that some of these people are involved in state organizations and ministries. Although they are not against the government's overall policy package to stimulate the stagnant economy; they object to parts that pertain to their field of activity. Each clause of the package addresses, at least, one of these organizations.

The question is how can a policymaker who intends to enact these reforms emerge as the winner?

The managers of those organizations and entities that are benefiting from the current economic condition are required to understand that the reforms will be in their best interests in the long-term. Although it is quite probable that the reforms may not produce favorable results during their tenure, people will always remember them as those who initiated them. The more they believe in the long-term benefits of the economic reforms, the less they resist or oppose them.

Organizations and entities are required to form a national attitude. It is quite likely that reforms only inflict losses on a given entity or organization; nevertheless, it should prioritize national interests and improvement of the domestic economy over its short-term benefits.

Opponents of reforms often adopt an accounting approach rather than an economic one by trying to defeat those in favor of the changes using unlikely predictions about economic indices such as GDP and market prices. An economic approach will help policymakers overcome the challenge.

In some cases, immediately after implementing a reform, it is possible to turn those who have suffered losses into beneficiaries. Policymakers can encourage the manager of a plant — that has gone into bankruptcy due to, for instance, a reduction in tariffs — to sell a part of the factory to a rival in order to gain a share of the future market. This will be much more prosperous if the tariffs are lifted.

To effectively enforce the reforms, the government is required to demonstrate the same firm determination as it did in the nuclear talks with the sextet. It has to stop shoring up economic agencies that have failed to show a significant progress despite the government's backing in the past decades. There are a large number of such agencies in the domestic economy. The government will have to implement structural reforms even if the process leads to the shutting down of a number of firms.

The Rouhani administration can also turn to specialized international organizations to tilt the balance of power in favor of reforms. The World Bank, International Monetary Fund, World Trade Organization and other global organizations can contribute to the process in various ways. For instance, to obtain an IMF loan, the state budget will require a number of structural reforms such as cutting government expenses.

In addition, careful consideration should be given to other issues, such the time of initiating the reforms and establishing concord among their various dimensions. Although an incumbent government can better put into practice and push through the reforms in its second tenure, this does not mean that bringing about such structural changes will definitely reduce favorable votes for the same government in the next round of elections. Most citizens welcome reforms in a large number of issues. For instance, a great number of people currently expect the government to shut down quasi-governmental organizations.

Perhaps, it is plausible that the government initiate reforms at the earliest in the post-JCPOA era.

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