Dilemmas and prospects for economic reform and reconstruction in Iran

After more than a decade of revolutionary turmoil and external war (with Iraq), in the late 1980s the Iranian government embarked on an extensive economic reform and adjustment programme. The First Five-Year Development Plan, introduced in 1989, provided a framework for liberalizing the economy and dismantling the centrally-administered model of resource allocation that had evolved during the war years. The market reforms in this phase were intertwined with a broader, state-led, reconstruction drive to resuscitate the economy.

After a short success phase in the early 1990s, the liberalization effort stalled in the face of heightened macroeconomic instability and a severe foreign exchange crisis that came to a head in 1993. As emergency measures were adopted to deal with the debt crisis, the reforms were scaled back and the familiar spectre of stagflation – the malaise of the 1980s – came back to haunt the Irauian economy. Approaching the late 1990s, a combination of economic populism and another severe slump in international oil prices during 1997-99, has again blurred the prospects for economic reform in the country