AS OPEC'S NUMBER two oil producer and the owner of the world's second largest natural gas reserves, Iran should arguably be the Middle East's pre-eminent economy. Indeed, strong oil revenues driven by record highs in prices have given the country a boost in recent years. And in the Iranian year ending in March 2003, the IMF estimated that real GDP grew at 6.8%, led by non-oil sector growth of 7.9%.
Yet Iran is also a country in desperate need of reform. The state controls more than 80% of the economy, almost a third of Iranians live below the poverty line, and inflation stands at almost 16%. The economy remains overwhelmingly dependent on oil revenues, which make up between 40% and 50% of budget receipts. The tax system is underdeveloped and inefficient, and tax avoidance is commonplace.
The country also faces a demographic time bomb. Some 70%...
