Wednesday, April 26, 2006

Déjà vu of New Initiatives and Praises

Even before president Ahmadinejad last week aired one of Shah’s famous initiatives regarding rising oil prices as his own, economics pointed out to the consequences in 1974 of importing vast amounts of petrodollars into the country, and advised him against what then became known as the “Dutch disease”.

The current generation should be reminded that after the increase in oil prices in 1973 which lead to a sudden five-fold increase in the income of the oil exporting countries, Iran’s planning and economic experts advised the Shah on a course that pushed those countries that followed them to economic and social levels that now makes them completely beyond reach of others. In short, their advice was that instead of pumping that vast influx of money into daily life and operations – which would inflate the economy and inflation to their highest possible heights thus denying the fruits of their new-found wealth – the money should be kept outside the national economy. They recommended that the money should be invested in those countries from where Iran imported its needs. They also said that the bonanza should only be used to strengthen the country’s infrastructure. This advice however, was ignored by the Shah. The fifth economic plan was modified on his orders and the vast amount of money that was pumped into the national economy could not be absorbed by it. Later it became known that the Shah was suffering from cancer at the time used this opportunity to witness the fruits of his economic development strategy. Five years later when he was caught by the waves of the revolution he understood what the experts had advised him.

Initially, the Shah agreed to extend some of the new wealth to poor countries which would bring him influence and indicate that he was not indifferent to the problems of the world and regional countries also indicating his intention that only the rich countries bear the pain of higher oil prices. This is exactly what is going on in Ahmadinejad’s head when he announced his proposal. With the Shah’s announcement, poor countries in Africa and Asia lined up to visit Tehran and get a share of the pie. Many heads of state came or invited the Shah to their countries. During these visits, poor countries that received cheap oil and assistance tried to make up for this benevolent gesture by holding glamorous welcome ceremonies and by bringing millions of people into the streets. But what the Iranian planners and decision makers had in mind did not materialize. The industrial countries raised the prices of their products which were imported by Iran, and thus made up for the higher costs of importing oil, while the poor countries became even poorer and so engulfed in their plight that when the Shah’s dynasty was rapidly collapsing, did not even express their regrets. Four years later, the Shah himself made a statement that showed oil rich countries had actually suffered because of the rise in oil prices because they paid more to the West for their needs than they received.

And this is exactly the situation we are currently in right now. Economic experts now caution authorities about the Dutch disease and call for using the money on infrastructure projects and not bring it into the country thus causing uncontrollable inflation.

The second effect of the rise in oil prices was the boost in the military of Iran indicated through the show of force of the Iranian air force and navy and the large and grandiose military maneuvers. As if this impressive show (and making Iran’s military the fifth largest in the world and the largest in the Middle East) would bring security to people and the regime.

Two years after the increase in oil prices, the opposition to the Shah made demands similar to what the current opposition forces are making of the Islamic regime. Students belonging to the Confederation of Iranian Students outside the country were the most vocal while local armed groups became active inside Iran. The foreign press too was critical, which annoyed the Shah. Two things were mentioned as the regime’s weaknesses: 1-Why must a poor country in which people live in tin houses outside its major cities provide loans to other countries, and, 2-Why does this country need to spend so much on weapons.

The few proclamations of Mr. Khomeini that remain from those days and which made their way into Iran as well indicate that he too referred to these two points and attributed the rampant inflation to the corruption of the regime.

This public attitude before the victory of the revolution – just like now – forced the governments of Sharif Emami, general Azhari and Shahour Bakhtiar to stop the departure of known entrepreneurs and government officials with promises of their prosecution.

The absence of an independent press leads officials to be ignorant of past events and thus stay unaware that their “initiatives” had been tried before. Ironically, the press that is now publishing articles of praise for the “new initiative” did the same thing in the past.