Too Much, Too Soon

Most developing nations dream of striking it rich and becoming a global power almost overnight. Can it be done? Iran would seem to have a chance if any nation does. Using its vast oil revenues, the country is well into a bold $70 billion, six and a half year development program. New industries, notably steel, autos and synthetic fibers, helped Iran to boost gross national product to a record $54 billion last year (from $26 billion in 1973) and raise per capita income to a healthy $1,570 (from $806); just about any adult in the population of 36 million can find a job. Yet for all that, Iran has run into monumental problems in its drive to develop into a modern industrial state, as shown by the fact that the nation's annual growth rate has dropped from 42% to 17%, and Iran is projecting a small budget deficit this year (TIME, March 1).

Iran quite simply wants to do too much too fast. The trouble can be most easily seen anywhere needed imports arrive. Every Iranian port on the Persian Gulf, from Abadan to Bandar Abbas, has become not a gateway but a bottleneck. Dock facilities are totally inadequate to handle the volume of goods that have been ordered. Despite round-the-clock shifts for longshoremen and feverish construction of new piers, the average time for a ship to get a berth is an almost incredible 150 days.

While the ships wait at sea, they in effect serve as floating warehouses. That cost Iran a cool $1 billion in port surcharges last year. Perishable goods are lost. One freighter unloaded its cargo of rice, only to find that it had cooked into a giant pilaf in the steamy holds.

The sheer quantity of money pouring into Iran's economy raises other difficulties. Pol-e-chah (tea money or bribes and kickbacks) has traditionally added 10% to 15% to the cost of doing business. Now the tab has jumped. A group of Iranian air force officers are awaiting questioning about the building of a $100 million airstrip. According to a government audit, only one-third of the money actually went into construction.

An even more insidious threat to Iran's development is that the benefits flow to the already rich classes. One result is an attitude of largesse oblige--if you have money, spend it. Instead of heading for Caspian Sea resorts, affluent Iranians now fly to Europe for a vacation--or a dental checkup, a visit to a London tailor or a Paris mistress. Some government ministers have tripled their departments' budgets, then put the money into expensive furniture and other signs of ostentation. The governor of Baluchistan province almost lost his job for ending his fiscal year with a $2.5 million surplus. Explains a Tehran editor: "It is considered almost immoral not to spend lavishly."

Shah Mohammed Reza Pahlavi has tried to crack down on corruption. Recently, 17,000 Tehran shopkeepers, butchers, grocers and other small businessmen were arrested for price gouging. A new law combats pol-e-chah by making contractors submit affidavits revealing payments to local middlemen and influence peddlers. Various other laws aim at redistributing wealth. Businessmen must now turn over 20% of their profits to their workers, and employees are allowed to buy as much as 49% ownership in their companies.

While such steps might help to hold down costs and speed the creation of a large middle class, they also make business planning difficult. Ahmed Lajavar-di, chairman of the Behshahr Industrial group, complains that the new rules are confusing. He wants a firm long range policy instead, "so that we know what to expect." Worse, adds a Western businessman in Tehran, the plethora of laws might scare off foreign investment.

Indexing Idea. What frightens Iranian planners most is the unanticipated slump in oil sales over the past two years. To offset a $2.4 billion decline in income, they have postponed plant construction and raised corporate taxes. But the experience has not changed Iran's position as one of the leading price hawks in the OPEC cartel--quite the opposite. Though Iran made a tiny price cut on heavy crude last winter as a concession to the market, its planners fully intend to argue OPEC into raising prices again this year. How much? Hushang Ansary, Minister of Economic Affairs and Finance, voices again the old idea of tying oil prices to an index of important imports: military hardware, capital goods and foodstuffs. Some of these, Ansary insists, "rose as much as 400% in the past nine months."

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