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The national capital does not belong to the government

  • 29 July 2023
  • 07:42
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The national capital does not belong to the government

The President of the National Development Fund's Presidency and Public Relations Department mentioned in a statement that the second phase of the Fund's constitution, aimed at directing capital towards profitable and value-creating projects, has not been fully implemented. The excessive allocation of resources to current expenditures has been identified as the main hindrance in achieving the Fund's constitutional objectives. The key to establishing a sustainable intergenerational fund lies in the reform efforts, as the President emphasized that the national capital should not be under the sole ownership of any government.

According to a report from the National Development Fund's public relations department, an article written by Alireza Kangarloo in the newspaper "Shargh" mentioned the following points:

This is not about delving into complex economic discussions or discussing the theories of Adam Smith and Alfred Marshall that may be beyond the understanding of most people. It's as simple as "two plus two equals four": Rational individuals don't use their life's savings to cover everyday expenses. They don't sell their personal belongings to maintain their garden, and no businessperson spends their capital on a family vacation. The fundamental principle of economics is to invest capital and use the resulting income to cover current expenses.

For us, oil represents our national capital. However, instead of investing and growing it, we have been depleting it over the past century. Every year, we sell millions of barrels of oil and use the substantial revenues to fund current expenditures. Throughout these years, whenever the country's economy faced difficulties or people's livelihoods were at stake, instead of implementing reforms and finding solutions, we simply relied on oil revenues.

Whether it's compensating for damages from natural disasters, supporting a subsidized economy, or funding inefficient state-owned enterprises, all of these actions have been like a "bottomless pit" consuming the income from oil and gas sales over the last three to four decades.

Throughout the years, we have been selling oil and gas much like Saudi Arabia, the UAE, and Norway. However, our economy now lags significantly behind theirs. This gap cannot be solely attributed to the damages caused by the imposed war or unjust sanctions. In the 1370s, 1380s, and a substantial portion of the 1390s, the Iranian governments chose to use the abundant revenues from oil and gas sales for current expenses rather than addressing fundamental economic issues, such as resolving production challenges, transitioning away from a state-run economy, and supporting the growth of the real private sector. Instead, they engaged in aimless cash distributions and trial-and-error schemes.

Meanwhile, other countries with oil, gas, and economic foresight utilized their resources differently during those years. They directed their earnings as capital towards the establishment of sovereign wealth funds, which aimed to preserve the capital and generate returns for the future. These funds were established to safeguard intergenerational resources and increase national wealth. As a result, these sovereign wealth funds have grown into some of the world's largest economic entities, not only achieving their initial goals but also influencing the global economic landscape.

Despite having oil, gas, surplus earnings, and abundant revenues from mines, where do we stand in this game? Do we have savings? Have we successfully invested our assets and reaped benefits from them? Have we secured the share of national resources for future generations? Regrettably, with some exceptions for specific efforts, the answers to all these questions are negative. Despite possessing the legal framework and capabilities to preserve capital and create wealth, we have fallen short in doing so, especially over the past decade.

The National Development Fund, established in 1389 and modelled after global sovereign wealth funds, was created as a response to the unsuccessful experience of the Foreign Exchange Reserve Account. The fund's primary objective in its first step was to maximize the allocation of oil and gas sale revenues into the fund. Subsequently, in the next step, the focus was to direct the capital towards profitable and value-creating projects. In the past decade, the first step has been successfully achieved, with over 150 billion dollars from oil and gas sales being deposited into the Fund. However, the second step, which aims to invest these resources into viable projects, has not been realized due to the same funds being utilized for current expenses. This key issue has posed the most significant obstacle in achieving the constitutional goals of the National Development Fund, emphasizing the need for reform to establish it as an intergenerational fund, where "national capital does not belong to the government."

For the National Development Fund to truly become an intergenerational fund, a pivotal turning point would be reached when the general public, including lawmakers, executors, supervisors, opinion leaders, and the Iranian people as the main beneficiaries, collectively agree that the national asset of oil should not be used for current expenditures. Instead, these funds should be prudently invested in sustainable and justifiable projects. Such a shift in mindset and approach will be crucial for the Fund's successful and sustainable future.

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