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Iran's business future fettered by politics

Iran's strong headline economic figures are out of kilter with the weakness of its private sector and feeble foreign direct investment flows. Can the authorities boost private sector growth and investment inflows so long as influential ruling groups remain suspicious of free enterprise?

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Foreign direct investment is needed to drive
Iran's economy forward

HIGH OIL PRICES pushed up Iran's real GDP growth by an impressive 6.7% in the financial year ending March 20 2004, according to the IMF. Urging the Iranian authorities to take advantage of these favourable conditions, the Fund stressed in August 2004 that "the current period of high oil prices... provides an opportunity to implement major reforms that would put the economy on the long-term path of high growth and job creation". In the IMF's view, Iran missed such an opportunity in the previous financial year, when GDP growth was 6.8%. The Fund noted in its 2004 Article IV report that "progress in structural reforms slowed down in 2003/04. While the preparation of medium-term reforms advanced and some progress was made in trade liberalization and banking supervision reforms, little progress was made in reforming the labour market, implementing privatization, or streamlining administrative procedures."

Among the pressing problems that look set to be neglected by the Iranian government is a stubbornly high inflation rate, currently running at about 15% a year.

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