Gambling on convertibility.

Position:Iran's economic reform program

As President Rafsanjani prepares to start a second four-year term as Iran's head of state, he has committed himself to far-reaching economic reforms. The centrepiece of his strategy is the freeing of exchange rates. The success of his programme depends on the credibility of the government's economic management, a long-term reduction of imports and an improvement in oil export revenues.

VOTING TAKES PLACE this month to elect a new Iranian head of state. President Ali Akbar Rafsanjani is certain to be voted in for a second four-year term and, as the law stands at present, he cannot seek further re-election. His reputation when he finally leaves office will depend very much on his handling of the economy over the next year.

In his first four years as president, Rafsanjani has laid the groundwork for reinvigorating Iran's postwar economy. He has sought to appeal to the interests of the middle class, cautiously adopting a free market approach and relying on Western-educated technocrats to push through reforms.

Inevitably, this has aroused the hostility of Iran's revolutionary purists, whether they are conservative clerics in the mould of Ali Khamenei, Khomeini's successor as Supreme Guide, or unreconstructed radicals. Both tendencies are suspicious of Rafsanjani's attempt to adapt the revolution to the unwelcome realities of the outside world. If the president is to prevail, his crash course in economic reorientation must show signs of success in 1993.

He has certainly been bold. Devaluation of the rial has been debated for some time, and in the process has become something of a symbol of economic redirection. Rafsanjani chose the start of the new Iranian year at the end of March to confront the issue head-on.

The official exchange rate of the rial was devalued by almost 100%, wiping out subsidised rates for everything except an estimated $3.8bn of essential imports. Within three weeks, Mohammed Hossein Adeli, the governor of the Bank Markazi (the central bank) announced that the rial was henceforth "fully convertible" and that the government was determined to "put the foreign exchange markets in order and harness prices".

Currency and price stability will be the criteria by which the success of economic reform is judged by the population at large. After the devaluation in March, the rial lost a fifth of its value on the unregulated free market. Several newspapers criticised the Bank Markazi for failing to intervene or give reassurances about its policy.

Adeli's announcement of full convertibility was accompanied by a further 6.7% devaluation of the Bank Markazi's floating rate. Importers have been promised that they will be able to purchase all the hard currency they need at the new rate of $1-IR1,648. On presentation of proper documents, banks will sell foreign...

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