C4 -%rr r% 1% Ir- r- A Ea I n Ito I Eu
Rep oir t N O.AS-76b Public Disclosure Authorized
Thicr e uae nranaer fnr en within the Banit in mal/ina if .I evypen f as ue o umu OWN navw ov.1151u s u wus rn. gig gurg oila available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized
CURRENT ECONOMIC POSITION AND PROSPECTS OF IRAN Public Disclosure Authorized
February 11, 1960 Public Disclosure Authorized
Department of Operations C u+ AS; a ~a iLAAdl East CURRENCY EQUIVALENTS
1 US dollar - 75.75 rials rial. - 0.T3 U.S1. dll'a r 1,000 U.S dollars - 75.750 rials 1,000 rials - 13.2 U.S.dollars T ABLR OF rONTE.NTS
Man~ nP Tran......
Forewd . 0AL *ee * * * * . .. . * *..
Bai ttt.c .. . . C Petroleum ...... 1
Agriculture ...... 2 nd uS nry...... National Production ...... 6
II. FinaneandTrade...... 8 B nkingty ...... Veneral Caracteristics ...... 10o Allocation of Oil Revenues ...... 9 GovernmentFrinance...... 9
Trade and Payments...... 11
111. Pubilc Setor Development ...... 13
IV. Frospects ...... 19 LongerRun .n...... 19 Bhort Term ...... 22 Creditworthiness ...... 23 I - Oil Revenues 2 - Petroleum Statistics 3 - Direction of Oil Exports 4 - Main Exports of Minerals 5- Production of Principal Agricultural CommoditieS 6 - Industrial Production 7 - Per Capita Consumption
8 - Changes in Money Supply 9 - Bank Melli index of the Cost of Living in Seven Major Cities in Iran 10 - Budgeted Expenditures 11 - Actual Treasury Expenditures 12 - Actual Budget Revenues 13 - Estimated Revenues and Expenditures of Government Bongahs and Agencies for the Year March 158 March '59 (Excluding Plan Organization and NIOC) 14 - Banking Statistics of Private Sector 15 - International Transactions 16 - Exports by Commodities 17 - Imports by Commodities 18 - International Transactions in Goods 19 - Mission Forecast of Foreign Exchange Receipts on Current Account 20 - Summary of External Public Debt Outstanding and Undisbursed as of September 22, 1959 with Major Reported Additions up to November 30, 1959. l R A N
U. S. S. R. JU H K t T TABRIZ
Qasr+Sh \ HAMADAN
R A u~ .. *.
k~ 1, k opur
ff z. KhorromsrahrW B.nå_.-, hk,'hapu r? 41 t .Kerman
SHIRAZ
NEUITRAL \ · uhr a TERRITORY \ushir.ý Zahid
Bndar ROADS _ -n- - Metclled - -L- Dry weather . \igl
Standord gauge vm Norrow gauge -.---- 7 \j ) IN I EKNA l IUNAL0 BOUNDARIES
0 100 200 300 400KM
APRIL 1958 IBRD-295R The last economic report on Iran was circulated to the Executive Direcors on July 23, 1950 kAO-ofuj anu was the result of a visit by two Bank staff members during the first quarter of l958. The following report is the result of a Bank Economic Ission to Iran in the summer of 1959 and the analysis of data received subsequently. BASI! STATISTICS
Area: 164 million hectares - 628,000 square miles (nan 6 million hectares is the average ara nronned)
Poation.y^Y4 a-+mna n+. ?-W np1r ;r
or roughly $120 per capita
Exports of Crude Oil.and Petroleum Products in 1958 44. 2 million cubic
Government urdinary uget: (a)~ OrdnargReenu / 1 (billion) 1) rials)K ka) Ordinary Revenue 4.J (b) Oil Revenues 7.7 e;) Total Revenues (d) Expenditures 31.3 (e) Deficit
Flan urganization Budget: (million $) (a) Oil Revenue, cash receipts1 (b) Expenditures 208.0 (c) Deficit before borrowing 04. (d) Long term loans, disbursements 62.7 (e) Short term borrowing from Central Bank 20.0
Balance of Paym)nts 59actual- (million $) (a) Transactions of oil sector, net 316.2 (b) Exports of other goods and services 127.1 (c) Imports (outside oil sector) -489.3 (d) Private Invisibles, net - 47.9 (e) Official donations and capital, net 67.9 (f) Errors and omissions - 22.4 (g) Change in Foreign Reserves - 48.4
Foreign Exchange(Reserves (estimated as of' Jajn. 20. 1960 million $ or $ equivalent): 200.0
External Public Debt 7(asof' September 22. 1959, with major reported additions until November 30, 1959 milion I or euivalent): ( 5o8.6
NO~TR! The Iranian calendar year which corresponds to the fiscal year nf the Iranian government runs from March 21 to March 20. SUIARY AND CONCLUSIOlS
11W jJuepV_UU UUUn rU1urvl. unI !.I;L.-U. \nP1ur IIU* f-U, U Vty A. , 1958) concluded that there was room for a considerable amount of new external deub in view or tne eeaduly growing foreign exanunge unoue of the country and the substantial reduction in existing debt due to take place over the next five years. It expressea concern aboUt Ute Government's ordinary budget which was draining oil revenues away from the development program for which they were originally intended and about the resulting deficit facing the Plan Organization. The report also pointed out various inadequacies of government administration, particularly in internal economic and financial matters, and noted an increasing tendency on the part of government agencies other than Tne Plan Organization to borrow abroad. These conditions still prevail but the present report notes some recent improvements in the fields of public finance and development planning.
2. The viability of the Iranian economy has and continues to depend mainly on the contribution of the oil sector to the balance of payments; this rose from $167 million in 1956/57 to $316 million in 1958/59. Oil production in 1958 was up 14% from 1957 and 24% as compared with 1950, the last year prior to the nationalization crisis. A further increase has been indicated for 1959. Drilling and exploration are moving forward quite rapidly.
3. Under the impetus of investments connected with the Second Seven- Year Plan, supplemented by a sharp expansion in private industrial under- takings and bumper crops, the gross national product probably rose about 5% annually during the last three years and per capita income may have reached about $120. However, monetary expansion, principally because of rapid expansion of bank credit to the private sector, has much more than kept pace with this arowth of real economic activity and the cost of living rose at least 6% between January 1958 and June 1959. In this situation imports have not been restricted and foreign exchange reserves fell by some $100 million or over one-third during the 19 months ending October 1959. However, the deline in rePrve- wqq reverqed subsenuentlv. and by the end of January 1960 a substantial part of the preceding loss had been recovered.
4. Financial operations in the public sector were kept comparatively well in balance in 1958/59. Part of this was accomolished by an increase in revenues and decrease in expenditures as compared with budgetted amounts but. as in the nrevious year. a maior factor in maintaining fiscal balance was the increase in the oil revenues accruing to the ordinary budget.
5. It now appears unlikely to the PO that total financial resources for the Plan will eeed 91-162 million during the seven-vear neriod. September 1955 to September 1962, about $860 million from oil revenues Andl theirpmnirlp-r fromn net. foreign lonsng A arnft program has hApn wnr1cP. out on this basis which is nearly 25% smaller than was at one time expenditure by the PO will have to be reduced. There is no doubt that
-1- -1i- the program will help in raising Iran's economy to higher levels, althogh the PO recognizes that major nortions of the investment were not the result of thorough analysis.
6. The Government has become increasingly aware of the need to put the country's financP- in nrcer_ Leisintion has been submitted to Parliament proposing the establishing of an independent and strong central bank with iide authority to chanty the reserve ratios of com- mercial banks and prescribe credit ceilings. The Government has also begun to prepr a nomnrehenirve 4-year Pinancinl Plan for the nublic sector and has stated to the Bank its intention to balance its ordinary
DUG5CV W1.110JJLUV tA- -± '_ -3.L JA -42 _-1 - -- in the allocation of oil revenues. Of immediate importance is the fact
credit, but the measures taken so far appear insufficient.
7. The short run prospects for the Iranian economy will depend largely on tne success of the authorities n preventing a continuance of the present excessive rate of monetary expansion. While foreign exchange reserves are now equal to about five monrns- o muuVroZ Uo Lkmv,Lo, measures other than a sacrifice of reserves are clearly necessary.
8. The longer run economic outlook for Iran depends mainly on petroleum exports and the development of oil-based and other industries for which there are reasonably good prospects. To be sure, agriculture is likely to remain by far the most important source of the country's income; out it will not be easy to increase agricultural output considerably. Deep rooted customs and social traditions stand against any rapid change in agricultural techniques. For this reason and in view of rising internal consumption, it is unrealistic to expect any significant increase in agricultural exports which now account for the bulk of non-oil exports.
9. For a long time to come the maintenance of a satisfactory level of development expenditures as well as Iran's capacity to service increased foreign debt will, of course, depend largely on the growth of petroleum exports. The possibilities for the growth of petroleum exports are not limited by conditions in Iran. Iran's proven and probable resources are fully adequate to support a rapid growth. The limiting factor in such growth is the world oil situation. The recent discovery of large quantities of oil in North Africa renders the prospects for growth in Iran's oil revenues less favorable than was thought some two years ago. For purposes of this report the assumption of an increase of 57 annually over the next six years has been selected. On that basis Iran's total foreign exchange earnings would rise to somewhat above $600 million by 1965/66 as compared with $467 million in 1958/59.
10. The Dresent external public debt of Iran is about $500 million. The PO is seeking additional external loans totalling approximately $150 million to finance its deficit during the remainder of the current -iii-
7-year Plan. This includes the proposed Dez loan. With such financing Iran's external debt service would increase to apnroximately 8% of the foreign exchange earnings which have been projected for 1965/6. This would be a substantial debt service burden, but it should not be beyond Iran's capacity to bear, particularly in view of the relative stability of Iran's foreign exchange earnings; additional borrowing of $150 million appears reasonable. However, several government agencies other than the PO are now seeking substantial new short and medium term credits which could quickly increase annual debt service beyond prudent limits. It is extremely important, therefore, that the Government exercise firm control over all further external borrowing. CHAPTER 1
PRODUCTION
million cubic meters (300.8 million barrels). This was 14 higher th-i n L7r an 214 "i gher than. Jn. -1nifr\ A 41 41 -t ---- ~L~ L LJ( cLLLU c-z+lu i"llt%C WI11t .L(L -L7)JU. ji I U L uiiei ±-LL-;. 5o;!a ft likely in 1959. Output is almost wholly from the Consortium area; vupuu vy ioneIL-utIna trania-1 V uumpany 1Lu 6L1L minor.'2 rcLLL"y as a result of the increase in production, the value qf Iran's oil exports 4-... .L. _ -. &e"r , , -- ,nO r 2 ,- ~Led LLy L11L.Lt-_cLjU LU I-t--aull )( ITU.L-LLul ±U 1x y O/).' £I[ ia receipts from the Consortium are the oil revenues received by the Iranian Government, wnich are one-half of the Consortium's profits from the production and sale of crude oils, plus part of the Consortium's cost of production and investment expenditures in Iran, since 1e Consortium purchases the rials it requires with foreign exchange.2! Oil revenues reached $2 5 million in 1958/59 as compared with $208 million in 19-37o (Table 1), while the Consortiumt s purchases of rials were $74 million and p'qo,,, . .- million respectively in those years.
2. NIlC had small oil exports, amounting to $4 million in 195o/59. This company is at present engaged primarily in the distribution of oil products throughout !ran and its imports of goods and services, amounting to $25 million in 1958/59, greatly exceed its own exports. The NIOC completed in 1957 a 10-inch pipeline, 940 kilometers long, linking Abadan with Teheran to be used for the transportation of refined products. The company has completed two smaller 6-inch pipelines and has contracted for the construction of two others serving the provincial capitals of Rasht and Meshed.
3. The NIOC has agreed that the Consortium should construct a new oil port on Khar.k Island in the Persian Gulf to handle 100,000-ton tankers. This port is to be connected by pipeline to the production area. Work on these facilities which are to cost about $140 million, is now well advanced.
I/ This area is the former concession of the Anglo-Iranian i Company now being operated by a consortium of 19 American and European oil companies under an agreement with the Iranian Government.
2/ Unless otherwise noted the Iranian year (calendar and fiscal) will be used in this report being the period of twelve months commencing on March 21. Thus, 1958/59 ended March 20, 1959.
S/ The Consortium obtains some rials from the sale of refined products at cost to the National Iranian Oil Company for domestic use in Iran. -2-
4. In 1958 there were 103 producing wells in the Consortium area compared with 79 in 1957 and 65 in 1956. Both the Consortium and iouC nave increased their drilling; the Consortium drilled 13 wells in 1957 and 32 in 1958 while NIOC drilled 4 in 1957 and 9 in 1958 (Table 2). Qualified opinion believes that there are still very large oil reserves in Iran both inside and outside the present producing fields. In August 1957 a new oil law was approved giving NIOC authority to enter into agreements with foreign companies wishing to explore for oil. Under this law, companies would be established in which foreign organizations and NIOC would be equal partners; the mixed company would pay 50o of its net profits to the Iranian Government and the remaining 50% presumably would be shared equally between NIOC and the foreign enterprise. Under these arrangements, since NIOC is a public organization, the Iranian Government would, in effect, receive 75% of total net profits. Three new regions have so far been opened for exploration in accor- dance with this law. Agreements with NIOC establishing mixed companies were signed by the firm of Agip Mineraria (Italy), the Sapphire Company (Canada) and the Pan-American Oil Company (U.S.). The latter paid a cash bonus to the Government of $25 million, half of which would be deductible from future income tax payments, if oil is found. The Italian Iranian Company (SIRIP) and the Pan- American Iranian Company (IPAC) have already started drilling in their respective zones.
Other Minerals
5. Production and export of minerals other than petroleum has been minor imnortance: in 1958/59 mineral exports amounted to $3.7 million compared with $5.3 million the previous year. Lead, zinc and chromito arp the nrinninal items together with some manganese and iron. Exports of the first three have been relatively stable over thez lastq thiree yersnalthoug irn ore has- trinped to reachi ?2-nof metric tons in 1958/59 (Table 4).
6. There has been little geological exploration done outside the present -etroleumr area beyond preliminary inrestiga_-t.inR_ Thprp are, however, indications of both iron ore and coal in commercial grades and quantities near Kerman, north of the por of Pandar Abbas. An agreement has been concluded with the German Government for technic14. al assisanc ao,r. a, More in.tenSiv ge-lgia prsetng ' ofV~~V'-~~ this area. During 1958/59 the Ministry of Industries and Mines
Agriculture
7. Because of climate and terrain only about one-third of Iran's Land area is amenable to agricultural produution, including pastures and orchards as well as field crops. At present, owing to generally -3- low level of technology and shortage of water, only 11%0 of the total land area is under cultivation (or 18 million hectares), and of this nearly two-thirds is usually left fallow in any given year. About 2.5 million hectares are irrigated and the irrigated lands produce more than one-half of the crops harvested. About 80% of the irri- gated land received its water supply through underground irrigation canals (ghanats), a method practiced in Iran since prehistoric times.
8. Wheat and barley account for about two-thirds of the cultivated area; wheat is the peasant's main source of food supply and is largely consumed in the villages. Barley is used primarily as feed for livestock.
9. lbre than 80% of the population live in small towns and villages and depend chiefly upon agriculture for their livelihood. It is estimated that there are 41,000 villages of 15 or more houses, the inhabitants of which M1l the urrunding land. Mosqt. of the cultiva- tors do not own their own farms and their work is performed on a land about 50%o is owned by absentee landlords, 25% by religious endowmnentso, 10%/1 is public or royal dom-in, abu 1r5 is 4n t-he hands of small peasant landowners.
10. In 1950 the Shah announced a program for the distribu- V.LUJ U. V1U'WA_UW11UU UUVLl U1LJ.E1,t-, W.LU XUUUALL.j ULLAUUJ .L.LLR,S and in 1952 a Development Bank (Bank Omran) was founded by the Crown
Imperial land distribution program, about 145,000 hectares have been u1sUrloube u o some 2U,ou villagers living in some io- viiiageS, mjuy in the Caspian area in the north. This means that about 1/5 of the available Crown lands nave been distributed. Inere has oeen "ttle progress in the distribution of other large estates; one difficulty has been that the landowners were not preparea to finance the sale o1 UneV land to tenants on long-term as the Shah has done, and other sources 01 LUng-term Linacing have been lacking. However, the and tenure problem has been a point of concern to the Government for some time and, with tha introduction to Parliament in December 1959 of a bill regarudng the limitation of land holdings, there are now some prospects that a solution can be worked out. If adopted by the legislators, the maximum permissible land holdings of a family would be limited to 300 hectares of irrigated land or 600 hectares in dry-farming areas. The actual distribution would take several years. The new owners would pay to the Government over 15 years the price of the newly acquired land and the present owners would be compensated over the same period out of the proceeds. The Government also is to provide additional agri- cultural services, such as extension, and promote the establishment of cooperatives which the new owners would have to join. It is obviously uncertain how the bill will fare in Parliament and, -4,- if passed, how it will be executed. A revision of a tenure system which has developed over centuries is a fundamental step that would necessitate substantial re-orientation of established interests. In any event the introduction of the bill can be considered as a first step in the direction of solving the complicated land holding question.
11. The Government has been takina some steps towards improving agricultural productivity and its programs have been expanding. For example, in 1957/58 almost 1.000 tons of fertilizers and insecti- cides were distributed to farmers at subsidized prices whereas in 1958/59 7.400 tons wLrp distributed. Tn 196/59 21 million hpad of livestock were vaccinated compared with 13 million the previous year. ThF- nprinmiitrpl extension sevice~ esalse o-nly yyArs Ago, has been steadily expanding its operations, and officials of that service state that inceassof oup+nu+ in +he arena where they operate are already evident. There is also an official Agricultural Machnyinr O-rgarniatn ( ^riV) ~T.T1,1i 4 m-+c nnrl nll +n~ InAnwnarq and farmers on credit, tractors, combines and other agricultural cii-r,mnv) in 10 ago. Its resources have been strengthened by allocating to it ITI_... Ui L~.. d-IIUd.Ly LJj (, t LL 1y WL I±1VL.t L ~ U Li 1, UU referred to below (para 17). Among its activities the Bank nas uee ±IenungLour tule repair anu contruUU UUL 81uICLL,- CL Une sinking of deep and shallow wells in order to alleviate the critical water proleum. anuouer government agency, the rrigatiuu oDongl has carried out directly many projects in these fields and has also constructed a number of small dams; large dams have been or are being built by the Plan Organization.(PO) i.e. the government agency entrusted with the execution of irans current Seven Year Development Plan. The most important of these are the Karadj dam designed to supply Teheran with potable water and power, and the Sefid Rud duam near the Caspian littoral. Some preliminary work has been done on the Dez Multi-purpose dam in Khuzestan and discussions are in progress to arrange financing for its completion. The Mission was not able to obtain any reliable estimate of the total area which has benefited from improved or new irrigation, but it received the general impres- sion that it was not as yet substantial. It has been estimated by independent agricultural experts that the construction of large multi-purpose dams at all suitable sites would, at best, result in an increase of some 10 in the present irrigated area of the country. -5- 13. Statistics of agricultural production are not very reliable in Iran but estimates indicate that wheat production increased about 35f% and barley about 201 between 1950 and 1958 (Table 5). In general, weather conditions have been very favorable during the last three years and production of major crops has been exceptionally high. In the last quarter of 1958/59 a severe and out of season frost and heavy snowfalls did much damage to pastures with resulting unusually heavy mortality of livestock and a consequent shortage of meat supplies. Tnrlustry 14. A in the cs of agriciuture, industrial statistics in Iran are very sparse. Cotton textiles, sugar and cement, in that order, are by +frt mos+ imp+oran+ indstrie,n Other factory type industries of some significance are woolen textiles, matches, ciga- rte, glass and building materials n some chemicals, matches and rubber shoes and some increase in sugar and cigarettes occurred in '719575 (Table v01 WhLile there is no index of ind1ustrial production, it would appear from available output statistics that the inreasbe inl industrU±i prouctL UUi was. cniderabl grae in1,819 than in 1957/58. Moreover, in the last two years there has been a large growth in private industrial investment, particularly during 1958/59, which the Government is assisting and guiding in a number of ways. With the recent increase in industrial production, the Government now estimates that Iran can supply all of its require- ments for cement and cotton oiece Eoos; local production can meet two-thirds of the demand for sugar which, however, has been rising swiftly over the past few years. lb. The Ministry of Mines ana inaustries licenses new enterprses. While unlicensed enterprise is not prohibited, the grant of licenses carries with it the right to duty-free import of equipment over a five-year period. In 1957/58 the Ministry issued 116 permits for construction of factories for products such as textile furis, plastics, nuts and bolts, fiber, aluminum utensils, netting and batteries. In 1958/59 the number of permits issued was 307 as compared with a previous high of 78. The most important were for a tire manufacturing plant, an automobile assembly, several textile factories and three factories for the manufacture of sugar. The Government has a trading monopoly in sugar. 17. The increased interest shown by private entrepreneurs in f1hp P.qf.q±-h1 iq1rPhm n f now~ -iniiiq+.rinI r+ ~'n' l inr nn-rf resulted from the greater availability of industrial credit. 1 During- 1957)/9R +V%nn~rm-- f^ +Inn note aisu izas rv -- jn line with the devaluation of the rial which wqs made official in lmay, 1957? and the "profits" of r7 boillion riaIS Vrere alloc.^ated to productive lending, half to industry and half to agriculture, were screened by the Ministry of Mines and Industries and if (.J~1.J~ C ± C UiIiIC U L ,U WA)LIZ;I.an i 1% 24e L..L-L, .JLJLlO.I 1MOVK to private entrepreneurs rose from 1.7 billion rials at the end -P 1L- ,(eL7) / :UP,U -LU n) ,r- UL_._1_V I I L 1_dLJ_j. -d-I CU-. LL:LiC :[U_[I3 U.X.lU.L -Ineo/en - -P4. ul.Lo1-- latter amount, 1.8 billion have been disbursed for the expansion OLex-'LUinglr, or- tCVCULIUCIE1 le U A±C soapy, U__ exCLL-U1 flour, ice manufacturing, and construction materials plants, and ining. These loans nave resulteu in tne moilzauiUri of a consi- erable amount of additional resources, including private capital, since they have been granted to provide only up to 3U7 of tn 0oa cost of each project. The emphasis of lending to the private industrial sector, however, is now likely to shift to the new "Industrial and Mining Development Bank" which recently began its operations with total lending resources of about $43 million equiv- alent. It is a private institution established to finance and stimulate private industrial project, and has received loans from IBRD and the DIF of 0?52 million each. 18. The total sum invested in private industrial enterprises over the last two years probably exceeded 12 billion rials. Until recently, the PO-was entrusted with the management of, and invest- ments in, Government-owned plants. Although some of these invest- ments consisted of the erection of new plants, most cfthem were made in plants built under the reign of Reza Shah in the inter-war period and which had suffered greatly during and after World War II from lack of maintenance. However, the PO's responsibility for the bulk of Government-owned industry has recently been discontinued and given to the Ministry of Industry. It is the declared policy of this Min- istry to sell these plants as soon as possible to private interests. National Production and Consumption 19. No satisfactory estimates of gross national production are available. The High Economic Council, a top policy-making body, has published rough estimates of GNP at current prices according to which output grew 7% in 1956/57 and 8% in 1957/58, to reach Rials 1,800 billion ($2.4 billion), or about $120 per capita. -7- 4 Deflatin oP +hnes rr+h v +rc 41 mas-i.r, +nUIan k 'y awn 1 Bank of Melli cost of living index (Table 9) does not give accurate n %A zl... LI-. .t...... --- I a2- - -.. 2LL2 - -- - .0 4.. r,FPYf - ..- ur.V , Ai ulr Urlu l uriouLUXIdi- U-.s9UV-LVuUL.Io 0u. uRe uivr~, aM e6tILRU, published by the High Economic Council suggests that for the years in question L >/ 6-1,577/0)0 private consumption was about 75% of gross national product, public consumption about 10%, and gross investment about 15% - half of which was government and half private. -8- CHAPTER 2 FINANCE AND TRADE General Characteristics 21. Iran's money su-ly has exoanded nuite rapidly during the last two years. Its net growth amounted to 23% in the year ending June 1958. and to 21% in the quhsenuent 12 mnonths. The increase was occasioned principally by growth of bank lending to the private sector. The l.tter mrnP v Rb.. Q-A hllin (54%) in the 12 months ending June 1959 (Table 8). Indications are that the government's fiscal nTAr-:+r%n. n w1nl wioereon -r HTn+.m1-T in, 'hjq1.qn-P Aiirin flint. np-rind. 22. T~he atrieshave followed libeal imor policies asa result of which the value of imports l/ increased 32% during 1958/59 availability of imports did not prevent price increases. The inadequate V L.J -L.LVJ.Lllr -Liff-UAJ., WI.l"Ul WC&D~ V-LILOLLa..Y D VCXULCJ UW. L115 UM~ .1 . ,;--~ ended June 1958, increased 12% in the following 12 months (Table 9). IIVWCyVUI aCCU4-uding tv oruie estJJ-nMav-&eA:, uS inuex m1ay 11avu UVvoL-Ovavu%. actual price increases by as much as fifty percent. 23. As a step to put the country's finances in order, legislation has been sumbmitted to the laj'is proposing the segregation of central banking and commercial banking functions (both of which are now performed by Bank 11ili), and the establishment of an independent and strong central bank. This legislation would give the new central bank authority to change the reserve ratios of commercial banks and prescribe credit ceilings. The Government proposed to exercise closer control over all expenditures in the public sector by means of a 5-year Financial Plan which is to go into effect in March 1961 (see para. 53 below). The Government has recently stated to the Bank its intention to pursue sound fiscal and monetary policies, in particular to balance its ordinary budget without recourse to the central bank and without further changing the share of oil revenues allocated to the Plan Organization, and to control the incurring of external debt. The Ministry of Finance recognizes that its present staff is inadequate. It has therefore made arrangements for the establishment of a new Financial Planning Department which is to work out policy proposals and which will be staffed with qualified personnel. With the help of the Ford Foundation similar improvements have already been accomplished in the Plan Organization. I/ Imports in exchange record, i.e., not including imports of PU, NIo, the Consortium, or imports financed by grants and loans, or trade with USSR. -9- Allocation of Oil Revenues 24. Iran receives by way of income tax and royalty payments 50% of the net profits of the Oil Consortium derived from the production and export of crude. This has provided substantial and increasing resources rising from nothing in 1953/54 because of the dispute over nationalizatJon and only $19 million in 19'A/.5 to 82A5 million in 1958/59. 25. These oil revenues are shared among the Ministry of Finance, the NTnn and the Pn (Table 1) The P0 received annrnimately 53I% of the total oil revenues during the first half of the Second Seven-Year Plan qri A 1Ilf -"an -ir nTnn ,n,-ra.a I-r i-In onyo r r n -+ n Al-incr -Hhp c2prn-n-n half'. In the face of difficulties in balancing the ordinary budget, the alloca- of the Plan, thus reducing the PO's share in the second half by some $200 Mlio to14a bout 4wk53 0 milli;o n . In-accordance -ith n undelorstandr- ing between the Government of Iran and the Bank, the PO is to receive the remaining 2 years of the Plan. Government Finance 26. The last economic report noted the Government had been experiencing chronic difficulties in balancing the ordinary budget. Except for the year 1956/57, current expenditures had been rising more rapidly than revenue before taking into account oil revenues and U.S. aid. The Government has responded to these difficulties partly by increasing certain taxes but, as pointed out above, principally by reallocating oil revenues in favor of the budget at the expense of the Plan Organization. Iranian Government Ordinary Budget (billion rials; cash transactions) Years ending arch 20: 1955/56 1956/57 1957/58 1958/59 1959/60 (Budget propord 1. Ordinary Revenues 10.6 13.9 16.1 20.6 22.5 2. Expenditures 14. 17.9 21.7 26.5 31.3 3. Deficit before oil revenue and U.S. aid -4.3 -4.0 -5.6 -5.9 -8.8 4. Oil revenues 0.8 2.8 5.6 8.8 7.7 5. U.S. budget aid -6 1.5 0.3 - - 6. Balance after oil revenue and aid /0.1 /0.3 /03 /2.9 -1.1 Source: Ministry of Finance, Teheran -10- 27. The 1958/59 budget as presented estimated a deficit of R1s. 1.4 billion after allowing for the reallocation of oil revenues. The last economic report warned that the deficit might be even larger since it was then regarded as doubtful whetner the increase in revenues from direct taxes ex-ected in the budEc. would materialize. However, actual budgetary results for 1958/59 were much bLetter than expected; data for this year are available in reater detpil thnn for earlier vnrs as a result of the preparatory work being done in connection with the 5-year Financial Plan (para- 23 above and TnblPn 11 And 12)- ThpsP indicate the ordinary budget had a surplus of Rlc. 2.9 billion, due mainly to unex-ectedlv large oil reve-npq- cnilcnltinn- of incomeot and mrecpints from customs duties as well as to a shortfall of expenditures in comDarison Lith budget. approprintiona 28. Thep o-rdina-r bvr get+ for lOrOlfr) estim ated a AnPi4~+ n-r o? ni revenues of Rls. 1.1 billion. However, it appears that the current ve------1 - -- t- - Jt .J- L.V - . -1-. 2 a.-Y . LAL >4OC 414 - .2 2.L it2 4-- expected to result in substantially higher customs revenues than budettd.The orary-budge doso cover all govern-ent financi;al transactions. In addition there are 16 quasi independent agencies 1-udin1 onahsao and government compa-Us, pUartialy suorUate oU various ministries (a list appears in Table 13), the PO, and the Natviona-l -Iranianri, omay IYU comprehenlve 9o cata for the transactions ol the gover- ment bongahs and companies are available. However, analysi's of banking statistics together with ordinary budget transactions indica.,e tnat the government sector as a whole was approximately in balance for that year. There is also an indication that the fiscal operations of the Government as a whole will be in surplus during the current year. Banking 3(1. Tlip -nnp.itio able mnnn.ny~r imv--niy rln ivri na ±.i ni -+. i.n vp-rqc was caused primarily by bank lending to the private sector. The latter increaed l. billionI rnirin june 1Q7/50 and l C Q -Ahllion during June 1958/59, or nearly 120% in the two years (Table 14). This ian h n t.hi +,- +.ha +.o f v- ,rldi. annr +n +h.In increamm,ztincrasewas e ue othto the strongerean, demnd forr -- e--- ra to+h' special factors which made it possible for the banking system to sti -~f-tr theu demad.A I,++la-- - ( ) +I -r- -P--j Mo r'7 billion, referred to in paragraph 17 above, (b) the new policy that the Bank M-e11A a+dopted i m4Ad0 of granting credit facilitie +o th private banks, and (c) foreign participations in the capital of four w hanks rne+aA Aen4rn +h-a --- +an. VY 24-JLAJ.2.L IVAVJ~2.- ACt. .. 45 UIX jJ V '4 J Il . ThJe*eC I-u0--LO-uiu L mya 17 f57L theU0.V ani 'Jovu4rnmieuuvuu u o avalu tJ1V foreign exchange reserves, and to use the profit therefrom for industrial and agriultural credt o the private secor, was expected to cause some monetary expansion partly offset by a reduction of foreign exchange -11- reserves. Such reduction was considered likely to be particularly large because of the heavy requirements of imported capital goods for projects financed by the revaluation fund. In respect of point (b), previously no recourse by the commercial banks to the Bank Melli had been permitted. The new facilities were in the form of Bank Melli loans against the banks' legal minimum deposits with the Bank Melli. The latter were fixed at 15% of the banks' demand and 5% of their time deposits. The new loans were extended up to two-thirds of such deposits and this, in effect, reduced the legal minimum ratios considerably. 32. These developments have produced serious inflationary dangers which call for stringent control measures. The Bank Melli is, in fact, now reducing its loans to private banks. It is also curtailing its own loans to importers of luxury goods and has discontinued granting direct consumer credits. Additional and more drastic measures are under consideration and will undoubtedly be required. Trade and Payments 33. The balance of payments of Iran has been characterized by steadily increasing income from oil permitting a continuous growth in imports (Table 14). Petroleum exports by the Oil Consortium which were $26 million in 1954/55 rose to $575 million in 1958/59. As we have noted above Iran's oil revenues increased from $19 million in 1954/55 to $245 million in 1958/59, compared with $208 million in 1957/58. The Oil Consortium's expenditures in Iran due partly to production costs and partly to investment reached $74 million in 1958/59 comnared with A8 million in the nrevious year. 3L. Non-oil P-nort.. havp hnn virtinl1v -tahle at a level of $120-130 million with little significant change (Table 15). In 1Q4;Fk/1'Q rawr rotn++r e,nrrat-F,: ncf'-itnrnonted for r)4;' of' slich exports by value. All non-oil exports are of agricultural or pastoral origin. excent carnets (17 of total non-oil exoorts) and minerals (3.5%). 35. The other principal accruals of exchange resulted from nffininl lonn frnm the UhT- uroan countrie, the TBRD and from grants from the United States. Receipts from loans and grants together nmin,i1 +.rN 1In ifl4nn in~ 10r7/'9 onrl AAA mnillinn in 149q 36. Imports wre $15ilio,i 1956/5,7, $384 million in 195,7/4;A and $500 million in 1958/59. Imports of foodstuffs (sugar, tea and 'JL.Ld QLA.. £ d U0/ I CVU. %A..L11LL1.DJ.±LUt LLA VL1U~ I-ICJ0 U VW Y .4.L-A - W44* and relative terms owing largely to the exceptional sequence of ULU11J.Jt,L- LLu±uUj \!dU ±_t: .LJ.U & ulJ1YUL. s I L Q.iiLL D WII.LJOU L lk±JA.LUC.dLO Llr somewhat absolutely, have diminished in relative terms. Imports of machinery, iron and steel, cnemicals and drugs, anu tres have increased both absolutely and relatively. -12- 37. During the 19 months ending October 1959 foreign exchange reserves were reduced by about $100 million, or over one-third, as compared with a gain of $57 million during the preceding 12 months. Late in 1959, however, reserves began to rise. and by January 20. 1960. about $30 million of the loss had been recovered. As of that date reserves amounted to about 8200 million or the enuivalent of annroximtely 5 months of imports excluding the oil sector at their 1958/59 level (Table 18). -13- CHAPTER 3 PUBLIC SECTOR DEVEL,OPMENT 38. Plan Organization expenditurel/have risen successively in each year during the first half of the Second Seven-Year Flan.z/ yi58/oy ex- penditures were $167 million bringing the total of PO expenditures for the 3I years ending March 20, 1959, to an equivalent of $456 million (see table below). (in million dollars) 1955/56 1956/57 1957/58 195b/59 Total (6 mos.) PO Expenditures Program 32.6 96.5 147.6 157.8 434.5 Non-Program 1.3 -3.0 8.0 8.9 21.2 Total 33.9 99.5 155.6 166.7 455.7 These Expenditures were financed by: PO share of oil revenues 23.5 72,6 100.3 130.6a/ 327,0 IBRD - 10.0 55.0 10.0 75.0 DLF - - 6.3 6.3 Cash balance and short- term credits (primarily from Bank Melli) 10.4 16.9 0.3 +198 .,7 Total 33.9 99.5 155.6 -166.7 455.9 T -n1 -.A - d 5" T D,2 71 I - 4A1 1 4 - f -, ra , d ev r - -r m en + . 4 , , rv, -r u e s t P .0 . i n previous years. 39. During the initial one or two years of the Plan period the PO .1. 11 '4 11 U1 ~ . "J_LA 'J. L J.L1 CLLIt- L V U V y J-.IS %.J.L Y .L V '.Q The construction and execution of projects really got under way in the y~Ib±~( )Odu. JI)-/ -?;,. - -~1 sector by- sector- breadrUcum[ C-L eX-pUe11Ui- itures below indicates, the bulk of PO funds have been devoted to improv- ing Iran's transport and communieptions systems. Also, sizeabLe expenu- itures were made on agricultural and irrigation projects. and to a lesser extent for industrial projects and social development. 1/ It is estim-ted that such expenditures account for -bout 6O% of aggregate public investment. 2/ Second Seven-Year Plan covers period September 21, 1955 to September 20, 1962. %LIL UZ±LJUL1l IL-LaLol to 1956/57 1957/58 195859 Total L(1uiv. Agriculture ana Irrigation 2,569 3,676 4,467 10,712 142.83 Communications 4,287 3,988 3,704 11,979 159.72 Industry 1,442 1,776 1,957 5,175 69.00 Social Development 1,386 1,633 1,701 4,720 62.93 9,689 11,073 11,829 32,586a/ 434-48a/ ./ Tnt1nci-n '1q '1ll millinn (ny AZZ.2 million) for roinnnl HPvPlon- ment such as the Khuzestan and Baluchistan schemes. Allocations to these schemes are i_ncluded in the P1 an. 40. During the first half of the Seven-Year Plan period several pro- jects have been completed in each of the maJor sectors. The execution of other major construction projects is making progress. In addition, the PO is engaged in campaign activities such as disease prevention and train- ing programs. Campaigns will have to be kept up in these fields to avoid Jeopardizin- results already obtained. They account for between 10 and 15 percent of PO expenditures in each fiscal year. 41. Within the scope of its agricultural and irrigation work the PO has made a contribution of Rh 300 million towards the comnletion of three medium-sized irrigation dams. In Azerbeidjan, the first nhase of the Whan Pljn irrigntion snhee ws nomnletd at a cost of R1s. 600 million, putting 18,000 hectares under irrigation and cultivation to retenmqrdin trihP.cz Abniit Rlmt A-10M millinn- r-,r nmt tuwn-fiffths of the PO's total expenditures on agriculture, has been devoted to finanning th atr-nq. nf ti.n bgnrCoPr rqm_ Tbi Rfr-il rinn (irrigation and power) which is to cost Rls. 4,900 million is expected to e o ,mletedin 1 92 while the ra dam_ - - __ for Tehran) estimated at Rls. 5,100 million is to be finished in 1961. Uhnde r C ntini-1-1i ng - -f -l - -ra - --- , +1,-. DO has so - - - A5 ~~F- anJ- A I.- v A -' 4-S* J" -~CS Rls. 300 million on plant5 pest control with considerable effect in the - V11 UJ..LI ~ VrjUI CLAU L11 M4,. WVLLUJCL1* _LU LICIO k±A L U LLUV 'U CLILU V.LI~~A ported chemical fertilizer whose consumption in Iran has risen from V U J uunsI anuaw",y LULLW-yat ag UQ L.'UU ~11 W) ±1_LLA 7JO/ )7- Through an agricultural machinery credit system, partly assisted by a ------I------n i_-i- JJJLX -oan, mahinery WoUrh R&Is. QVU0 LiLLU±"U11 WU5 MuutUValaLU_t: It U L.Va-Lul farmers. Agricultural extension work has received PO subsidies and loans of Rs. 400 million have been made to finance the construction of small local irrigation systems (ghanats). -15- 42. In the transport sector, R1s. 3.800 million equivalent has been spent to extend the railroad network by 700 km. and thus to complete the lines from Mianeh to Tabriz and from Shahrud to Meshed. These two lines provided rail facilities to the agriculturally important Azerbeidjan and Korrasan provinces. in the far north-west and north-east of the country. R1s. 700 million was used to expand and modernize the Railroads' rolling stock. In 1958 the Tehran airnort was substantially comnleted. The reh!b- ilitation and extension of the ports of Khorramshahr, Bandar Shahpur and Pahlav_ is ranirilv nearinp rnmn1tion The estimated cost of these proiects amounts to Rls. 2,100 million, The PO is also engaged in a R1s. 13,900 million rad bnilding nrogram which is nrtv finannned hv n TRRD loan of $72 million. On its completion by the end of 1962 Iran will have 2,500 km. rf an+Aco+ry main eans Rls. 3M0 millinn has been snent on the rehab- ilitation of secondary roads. 43. In industry most of the PO's expenditures were used for the repair and rehabilitation of obsolete gover--+ plt s, particularly of f-v4!10 factories, and only about one-third of industrial expenditures was devoted to new plant conStructiOn. Among +h more- m-4-4o+ +a-tP terwenre two cement plants costing approximately R1s. 800 million each, recently expanded at a cost of Rls. 600 million. 44. The PO's activities in the social development field consist of of schools and teacher training, and the improvement of municipal facil- devoted to equipment and construction of hospitals. The construction of .Le o-LL P.kV.LLULd_L P1_JL11c±Ly iLlU Z):kVLUU Ly_11UU_Lo L1-_- ULL t!;U -_.D 7%jlj million. In the 270 towns covered by the municipal improvement program, and streets asphalted at a total cost of Rls. 2,250 million. 45. The development of the Khuzestan Province is handled on a regional basis under the supervision of the Development Resources Corporatien ci New York. So far a power transmission line from Abadan to Ahwaz has been completed and an access road built to the site of the proposed Dez dam. Another regiinal development scheme was initiated in 1958; it covers the Baluchistan province and is to be planned by the Italian firm italconsult. 46. There have been considerable capital investments in the public sector which are financed by budget appropriations outside the Seven-Year Plan.!/For instance, the Ministry of Roads is proceeding with the construc- tion of a 290 km. railroad link between Kashan and Nain; the Ministry of Post Telephcne and Telegraph has expanded and improved the Tehran tele- phone network; the Tehran power bongah raised installed capacity from 30,000 kw. to 80,000 kw. (with a further expansion of 50,000 kw. under way) and the Tehran Water Board has about completed the laying of pipes to serve Tehran with uncontaminated drinking water. The Ministry of Customs and Monopolies has spent Rls. 300 million on cargo handling and other port equipment and Rls. 330 million on modernizing the Tobacco Monopoly's cigar- ette factory. Additional capital investments, outside the scope of the 1/ See footnote #1 on page 13. -16-- Seven-Year Plan, are in an advanced stage of consideration or have been Contracted. Among them are a $0 million steel mill, a $20 million fertilizer plant near Shiraz, both to be executed by the Ministry of industry, the irrigation Bongah t s project for two irrigation dams, each to cost about $15 million near Shiraz and Tabriz respectively, and the $20 million Latian dam which is sponsored by the Teheran Water Board to add to the city's water supply. 47. The National Iranian Oil Company (NIOC) spent about $70 million during the past three years on capital investment, primarily to improve the distribution system for refined products. 48. No doubt, the development works in the Plan will contribute towards raising Iran's economy to higher levels and have, in general, been in fields that logically were in need of development. However, the PO fully recognized that the composition of the Second Seven-Year Plan was not the result of a thorough study. During the execution of the Plan the:uticertainty regarding the funds available for the PO program because of the poor initial forecasts of budgetary demands on oil revenues has reduced further the efficiency of investment planning. Furthermore, development works - some of uncertain justification - have been initiated by other Government agencies with little or no coordination with the PO. 49. These problems still exist but efforts have been made recently to remedy the situation. The PO is currently reviewing the results of its activities with a view to establishing the direction and effectiveness of Iran's future economic development. Considering the PO's limited resources for the remainder of the Plan period (see para 50 et seq.), this program review is not likely to lead to drastic changes in the Second Seven-Year Plan since the great bulk of available funds will be required to complete or to continue projects already under way. The review can, however, be expected to have a substantial bearing on the formulation of a subsequent development nrogram to follow the current Seven-Year Plan. While the final results of the review are not yet known, PO officials have indicated that their tentative conclusion is that small-scale agriculture projects, such as extension work and seed improvement, should have priority over large and nostly i rricntion nrn)ie-ts The PO also favors i rediuntion of govern- ment investment in industrial development which is felt to be an appropriate field for orivate enternrise_ Due to nast exnerience the PO is convinced that high priority has to be given to training of manpower needed to oper- ate and mRintnin nroiects when comnleted. While the PO t s nrogram review is likely to take some time, before it is translated into action, work on it. mqy e ntcoi-rl +.r) nr)int. un st-%me nf. the nrnhlems tht. 1ie imm'dite1v ahead. 50. For the remaining three years of the Second Seven-Year Plan period Prlnrr anoyha-r 99 1 QA9) +hc PO) i v.-iei~~ hnnflrnnprl~ 1w_Ik r)f funds required to carry out its original program. While it had hoped at million), the reduction bf its oil revenues for the second half of the Plan, -17- will necessitate a reduction in the program level. Although 'he program recasting has not yet been completed the draft outline of a lis. 87.2 billion ($1,162 million) program has already been worked out. Since during the first three and a half years of the Plan Ris. 34 billion ($456 million) have been spent, expenditures during the second half are thus unlikely to exceed about Ris. 53 billion. 51. The aforementioned draft outline of a Ris. 87 billion program (which in order to become effective would probably require parliamentary sanction) is as follows: Last half 1959/1962 $ million Total $ million (3&-years) equiv. Program equiv. (million Rials) (million Rials) Agriculture and Irrigation 11,060 147.4 18,858 251.4 Communications 18,429 245.7 30,408 405.3 Industry 1,969 26.2 6,774 90.3 Social Development 7,139 95.2 11,668 155.5 Regional Development 8,878 118.3 12.192 162.5 New-Programs 1,000 13.3 1,000 13.3 Non-Program 4.500 60.0 6.282 83.7 52,975 706.1 87,152 1,162.0 The emnhasis of the nrogram continues tx he on the conminications sector largely due to heavy outlays that are required for the improvement of Iran's road neturk- and on the nomnletion of rap irriaton nro et. C;? Tr recast-fing i+t.- progvrm fo-r t.he remninepr o)f thenrwt Pqn- fhe PO was guided by several criteria such as the elimination of projects not character, dropping projects that private enterprise could handle, and magnitude of commitment is required. In this connection, several irrigation survey%S were abandoned and proJects fr a fert+JIlizer= plnta Ah z theIfn extension of the railroad to the Turkish border, the port of Bandar Abbas, postponed. On the other hand, the PO felt it had to take into account the make provision for preparing Iran's next development program. Also, the nez dam prujeU in nIUA-t811 On WhiCi avUUU W±) uILL1114u1EU el.Lu l expended, required substantial further funds to complete. 53. In respect of financial resources to be made available for the next rlan, tne Fillnistry of finance nas aLso Decome increasingly aware of the neeU to put the country's financial affairs in order. Expenditure requirements in the ordinary budget have been rising from year to year largely due to the expanding social services, defense, and the need to maintain and operate public projects when completed. As more projects are completed, expenditures are ikely to rise. But it is hoped that a satisfactory solution to these problems will be -18- included within the comprehensive financial plan, the preparation of which has now been initiated. The latter would project over the next five years the estimated financial resources and expenditures of the public sector for both current and capital purposes. The plan will guide the Finance Ministry in the preparation of the annual government budget, and will also include the financial requirements of all government agencies. If carried out as projected the plan should provide the basis for a more effective investment program in a setting of monetary and balance of payments stability. -19- )4. ~ L _L~p1_&.LL WLyd t:Vt::iUUcL_L.LV Ut-Vt:J-L/fJ CL reasonably extensive industrial complex based on her oil and possib-ly otherl MineU.1a-L resojUrEs(t, agri.CUuure Ib J.lke-ly C'towemain by far her most important source of income. 55. It will not be easy to increase agricultural output over much of Iran's territory - natural conditions for agriculture are not favorable due mainly to lack of rainfall. Therefore the in- crease in the area of cultivated land will depend in large measure on the growth of irrigation. As pointed out earlier in this report, it has been estimated that utilization of all known sites for large dams would increase the present irrigated area by only about 100. Further increase will depend upon construction or new underground canals and the sinking of wells; nn estimate exists as to how far this could increase the irrigated area or provide more .intensive use of areas already irrigated. 56. There appears to be little doubt that agricultural output could be considerably increased by improvement in agricultural techniques and practices. This, however, requires continued experiment and research and a dissemination of knowlcdge about improved practices in the farming communities through extension services and village cooperatives. 57. This diffusion of knowledge, and any marked response to incentives to apply it, i.9 hampered by the fact that the great majority of cultivaters are landless tenants whose landlords on the whole have evidenced little interest in the technical aspects of farm operations. It is difficult to see how the full benefits of modern farm technology can be applied in Iran so long as the present structure of land tenure exists, but it may be hoped that with the recent introduction of a bill to limit land holdings to Parliament, beneficial changes in this pattern will intervene in the years ahead despite established customs, traditions and the social structure which are deeply rooted. 58. It is somewhat easier to forecast long run growth in Iranian industry. Entrepreneurial ability and private savings exist, and the Iranian workman when trained is efficient. However, if agricultural incomes fail to expand, -20- the growth of industry to serve the domestic market would be correspondingly hAmn-Perd -Irnn dmo not seem +i miff'p-r frnm n"i scal Miaanaigc" ml e would limit her long run possibilities in industrial exports. However, the I_~~titiue positio o4-v~f hani~v _-1 ~indu_w is not~4 e. stro..., at~ -lc presentv time and industry will have to rely chiefly on the internal market for some - £L OS. ~ AA U VL. 11 1- L L±5 U4. LUAA JJ UOSL U.QJ. W.L.L.L.tO 5 depends, of course, to a large extent on the level and effectiveness of I V . LA3, _LIJ %iir'IV t underL AI .l ii lUblemor ~ ~ LvJLu L VZpt ~AI U_L UUL VOC L 1IA J.A immediate future - that is, not only investment in physical facilities but ex-pem'"-u--es on "'caIUWj. educal-k-n ---- !~~wa--- -viCn~ 1.LL and the like. Iran does not lack official resources for such expenditures: at present total oil revenues are around $13 per head and budget revenues (other than oil revenues) are around $14 per head. Ibreover there is good prospect that oil revenues will continue to increase. The question therefore is whether the authorities will be able to restrain the growth of non-developmental expenditures, including defense, in order to permit adequate and growing development expenditures. If the pressure for current non-developmental expenditures leads to further diversion of oil revenues from investment, longer run growth will be correspondingly impaired. 60. In the private sector there is good prospect that private initiative will be active in the fields of industry and services. It is more difficult to feel confident that private agriculture will show any great impulse towards change in the near future for the reasons stated earlier (para. 56). In any event it is clear that there will be considerable demands for bank credit from all sections of the private sector, which, added to the probability of a continued precarious fiscal balance, will lead to an ever present danger of undue monetary expansion. The proposed establishment of a Central Bank should help to meet these dangers. 61. The maintenance of a satisfactory level of official and private developmental expenditures without undue monetary expansion will depend to an important extent on future exchange earnings. There seems little prospect that over, say, the next 7 - 10 years, Iran's non-mineral exports will greatly increase. Iran's agricultural exports are likely to be restricted by supply difficulties since it is not foreseen that their output will increase with any rapidity despite continuing population growth. The output of fine quality Persian carpets is dependent upon low paid female child labor which is rapidly diminishing with social advance- ment in Iran. 62. The prospect of growth in export earnings therefore depends largely on the discovery of commercial quantities and erades of minerals. which. althouah possible, cannot yet be forecast precisely, and on the growth of petroleum Pxnnrnt - ThA nonsibilitien for thA latter are not limited by conditions in Iran. Iran's proven and probable resources are fully adequate to support a -21- rapid growth in the volume of petroleum exports from the Consortium area alone, where investment in development and exploration is increasing. in addition, new drilling areas are being opened and in two of them foreign companies are already actively exploring. 63. The limiting factor in the growth of Iran's revenues from oil exports is the world oil situation. Until recently it would have been reasonable to exDect Iran's oil revenues to grow by something like 8 to 10% annually. The picture has, however, been changed by the discovery of large auantities of oil in North Africa. It is now considered likely that at least for some years to come the world's supply of petroleum will exceed demand with a consnqAnt dnmward nrpnnm -n nriops. whinh may induce the major producers to limit production increases. The response of Iranian gnvernment to the price fall which anirrid in Februarv 199 was to urge the producing companies to increase production sufficiently to maintain the growth in their 7ilrevenu T In the fiit.arp thp Cnnsortium may be more reluctant than formerly to increase production and exports rate of growth in Iran's oil revenues; such action would aggravate the 64 . T he pr s e t fo gr-t in- Tran'sI o il revenu,, fs om time atn least, are thus less favorable than would have been thought some two years -0. T1, . 4 av 4- - 4-U-4-na - w-1-41- 1 --u -uwn wutho u o sea C' '1*LJLJ.~..O so I')V ov U11C L Du 5 %,J Sa V IU W111J. 410k ,±10WWI wiia u Vvl i .L revenues; an understanding with the Consortium provides that Iran will d.±.L-- U-LUf ~ 1l uI~LIU.Iea u~1~.her cas~ toriary sh r of toaJU.l 1-duleU-4- Easc1 4Ue1 LI---', output. It is not, however, possible at this time to predict with any degree of precision tne rate at which Iran's oil revenues will actually grow. The figure at present being used by the Iranian Government for planning purposes is 76per annum for the next three years. 65. An average increase of 5' annually over the next six years (i.e. for the period ending 1965/66) has been selected for the purposes of this report. This takes into account the possibility or a severe impact on Iran resulting from oil exports from the Sahara and perhaps Libya. On the oasis of a 57% compound annual increase after 1)9/6u Iran's oiL revenues would amount to $348 million in 1965/66. For purposes of evaluation it may be noted that on that basis they would be 068 million less in 1965/66 than they would have been if they had increased at 8% per annum, and $17 million less than if the increase were 6% per annum. 66. Iran's exchange receipts from oil exceed her oil revenues, which are based on net profits. In addition the Consortium purchases rials for cost of production expenses; so do new concessionaires in connection with their exploration in the newly opened areas. From balance of payments data it would appear that these amounted to some $30 million in 1958/59. 67_ Thp A.YpAn+A_r producitioAn nf-Inaper voluime o%f ^AIl wuTildl -requi rp increased "cost of production" expenditures within Iran, although the increase i such n-Xpen-,AJt4-J.e-s prdo-all boe- 1-S th.Man propory.io y,.nal. to the increase in volume. It may be reasonable to assume that these may ~ .. J~ Vd ILL~.4 At- -7'-J.L- I %,%fhJVL1.L L - I , I'r)% 1L.LL.L.Li _LIL *,17 * 1965/66 NIOC exports may have increased to perhaps $15 million. These ing to somewhat more than $400 million in 1965/66. 68. It is improbable that exports other than oil would increase since, as has ueen:aiu earlier, the Lucrease in agricultural output is likely to be slow at least over the period being considered and would probably be Largely absorbed by domestic consumption; exports other than 0il have therefore been estimated for the purposes of this report at $130 million in 1965/66 compared with $127 million in 1958/59. Gross receipts on current invisibles have been projected to rise from $61 million in 1958/59 to $77 million in 1965/66 partly because of an expected increase in tourism. 69. Iran's total current account receipts in 4965/66 have thus been estimated in this report at somewhat above $600 million as compared with $467 million in 1958/59 (Table 21). The 1965/66 estimate does not take into account the possibility that explorations currently under way in new areas in Iran may result in additional petroleum exports from those areas. Moreover, if the assumptions regarding volume and price adjustments to the new oil supplies from Sahara, upon which the 5'1bincrease in oil revenues is based, prove unduly pessimistic and an 8fo increase is in fact realized, current account earnings could be some $70 million higher. 70. In addition to current account earnings it seems reasonable to expect a continued and fairly steady flow of foreign investment capital into Iranian oil facilities. Direct investment by the foreign oil compan- ies, mainly the Consortium,amounted to $54 million in 1958/59. To be sure, if a reduced rate of increase in volume of exports were to materialize, the Consortium might perhaps not maintain the 1958/59 level of $54 million for its investment. On the other hand, as pointed out before, two compan- ies are now actively exploring and by 1965/66, they would, if oil is found, be engaged in oil development on a large.scale. Moreover, by that year there may also be other companies active in exploration. It would there- fore seem not unduly optimistic to expect an inflow of oil investment of something like $50 - $60 million in 1965/66. Short-Term 71. The short-term prospects, say over the next two years, will depend largely on the success of the authorities in their efforts to diminish the nresent rate of monetary exoandion which is the expression of an excessive financial demand upon available real resources. Continuation of monetary eXnannqn at nvt.hina like the recent. rate will create serious balance of payments difficulties and would hamper economic development. -23- 72. As noted earlier (para. 32), the authorities are becoming aware of the situation. The measures thev hnve so far (NovembRr 1959) taken, however, are not yet sufficient to remedy the situation; it remains to be sean whether t.he auth.1itiAn sill hp h1m +n tnrvy ont additional and more rigid measures. Moreover, although the drawing in of the r-yarn Financial Plan for +.he onarnment.cor+n and t.he establishment of the Central Bank are clearly highly desirable, it will behme ti.5+me befrn-o eithe"rof theseaa -I -- n+-rorn--+n Deanwhile, there is sufficient time for the situation to deteriorate 4 1 1 orm. aT 1- +-aIin'e threeAe+h +4a, on+ a l rr tcsurve--- l i agricultural production due to adverse climatic conditions could .LiU~LJa.L .L V ..Ll V Vi U J.IOLI 11J iL. kLL]QLY't1e eV -1 p n of Sahara oil will affect Iranian oil exports. It is possible that U.Li ± U W-L-LJ. VV CL -LU.VII ULWUUltr -- essure on4 woor.L" U.L.L, pr4es Some.ji slowing down in the rate of increase in oil revenues may therefore occur. :). iakei uogener tnese considerauLons adu up to somewau unfavorable short-term prospects. The Iranian authorities should take early and vigorous action through monetary and fiscal policy to reduce the excess of total demand over available resources in accordance with their undertaking to the Bank referred to in para. 23 above. Creditworthiness 76. Iran's creditworthiness depends essentially on the level of oil revenues and upon the use made of those revenues. An increase in the production of other export commodities sufficiently large to yield any significant growth in exports cannot be forecast in the foreseeable future, particularly since any increase in agricultural production will most probably be largely absorbed by rising domestic consumption. 77. Due to the appearance of substantial oil exports mainly from North Africa, it is difficult to forecast the rate at which Iran's oil revenues may increase. In this report the assumption is that they will grow at an annual rate of 5%. 78. The disbursed and still outstanding amount of the external public debt of Iran as of September 22, 1959, with major reported additions to November 30, 1959, amounted to $353 million equivalent. -24- in addi-tion tnere were '$kl %/ nd.L±uli of Udisursed ba-lnces on~ contractual debt. These amounts do not include net purchases from the UFiI of 07.7 mill-ion. 79. Total service payments on existing debt iuncluuing Unu±LuU±;v portions) are at a peak of $89.4 million in 1960/61 and thereafter steadily diminish (Table 20). Service on external debt contracted for the purposes of the Second Seven-Year Plan falls annually until 1965/66 and thereafter runs at a level of around 415 million until 1970/71. Estimated debt service is summarized in the following table. ESTIMATED DEBT SERVICE ON EXISTING DEBT (including undisbursed) (million dollars equivalent) For Other Government Private (Guaranteed) P.OA Tno_+.=m Mrldiiim-+rm TMIDRT Other Total -10 If-nA( c 0 £ n n-i 19- 8 -11 1961/62 34.2 10.7 13.5 0.4 8.7 67.6 'I /-Lf IL f I,r 11 1) rel1.1 107 '4- 1970/71 14.6 4.2 - 1.3 - 20.0 0U. Service on existing dubt IS e5miMUeu( u veUtJ U muzLJ±.Lon n u1, representing almost 6% of probable current exchange earnings if oil revenues increase at 50 a year in the meantime. This compares with about 10% in 1958/59 and about 14% in 1959/60. The last year, however, is exceptional because of unusually large amortization payments on short and medium term obligations. If about $150 million additional external loans which the P0 is seeking in order to finance the remainder of the present Plan are taken into account (including the proposed Dez loan), the ratio of debt service to the current exchange earnings would rise to 8% by 1965/66 on the basis of a 5% growth in oil revenues and to 7% on the basis of an 8% increase. 81. Such a debt burden would be substantial but would not be excessive in view of the relative stability of Iran's foreign exchange earnings. However, several government agencies other than the PO are now seeking substantial amounts of short and medium term credits for a steel mill, a large public housing project and other projects outside the 7-year Plan. If additional debt were assumed on this scale the annual debt service would quickly rise beyond limits which the Bank would consider prudent. It is extremely important, therefore, that the Government restrain the agencies seeking such credits and that it exercise firm control over all further external borrowing. -25- STATISTICAL APPENDIX Table 1 OIL REVENUES _.;.1-1; - .4 1 k.1- - N MfVnm A1T T ^-/~A Mr tfIT T~.71 T'rp n T l1 C ac UugeL, u 40ou.-- e4o,) --- - 1956/57 140.7 35.3 30.4 72.6 2.4 197~ 208.0 72._1 -1 - 1. 11.6 1958/59 2[4.9 83.3 24.0 130.6 2/ 7.0 Sub-total 641.6 327.0 21.0 Estimates by Plan Organization based on Dovernment's statemnit to Bank of Yhroh 16. 1959 , on distribution of oil revenues 3/ 1959/60 2g- W Tu 3 79- 130 7 1960/61 280 103 '20 150 7 1961/62 302 111 20 162 7 1962/63 1/ 164 62.5 10 88 3.5 Sub-total ioo 379.5 70 30 2L.5 6 months. 2/ Includes 427.1 million for underpayments in previous years. / Assuming 8% per annum increase 4fter 1959/60. Smrc: 1an Oronni7ntion Table 2 PETROLEUM STATISTICS Calendar Years: 1956 1957 1958 DRILLING Consortium: No. of wells 18 13 32 Meters drilled 6726 18377 31504 No. of wells 1 4 9 NoC: Meters drilled 2776 8249 12506 PRODTIOHmr~ ( milo cum. Consortium: 31.05 42c55 48.29 NIOC: 0.31 0.31 0.30 Th:moT? AT C'ATfl'i (million-----m------2a.66 EXPORTS 2/ (million cu.m.) 28.92 39.00 44.18 PRICES i $1 barrel) 1.86 1.93 1*99 1/ Fuel oil, Kerosene, Gasoline, Gas oil. 2/ Crude plus crude refined for export. / Posted prices of crude, Persian Gulf, Iranian Light Ahadn 31-34.9: price july 1959, $1.81. Source: NIOC Table _3 DIRECTION OF OIL EXPORTS. 1957/8 1" (million long tons) United Kingdom 5.1 Netherlands 2.5 France 1.9 Bepinm .9 Spain .8 Germany .4 Ruadon .3 Portugal .2 No .Tay . Europe total 12.5 (4l%) India 2.4 Pakistan 1.2 TA vaa Singapore .2 ey lon 0 Far East total .7 (22") Aden 2.2 Oman .u Kuwait Arabian peninsulauT total (--o) South Africa o, Sudan 4 Alrica total U,4 kC;/0; United States 1.1 \ Others (k9 170) Grand total: 31.3 (uO-) 1/ crude and refined products Source: "International Petroleum Trade", may 1959. Table 4. MAIN EXPOPTS OF 1NERALS ( 000 metric tons) J~j~LI±LI___7X_-)lf~ J21(f) .L7)U/)D7 March 20 neu. uXcLe . .. 0 7.1 Iron 14,0 6.5 10.6 19.9 Lead 24.1 23.3 2o.1 23.1 Zinc 19.4 20.0 1/ 10.1 15.3 1/ Chromite 32.8 45.1 39.9 4o'z Manganese 9.3 2.7 10.6 4.3 1/ Includes some lead. Source: Ministry of industries and Mines, Teheran Table_5 PRODUCTION OF PRINCIPAL AGRICULTURAL COMMODITIES 1950 - 1 958 (In 1000 metric tons) Commodity 1950 1951 1952 1953 1954 1955 1956 1957 1958 Wheat 2000 1800 2057 2125 2100 2300 2250 2800 2700 Barley 800 720 840 820 824 880 880 1000 950 Rice (milled) 285 250 295 350 368 225 350 340 320 Other grains 62 56 65 65 60 60 60 61 62 Pulses 130 126 130 132 135 135 135 136 140 Vegetables & melons 800 790 795 300 800 900 900 910 920 Fresh fruits (non- citrus) & berries 800 810 800 795 810 800 8oo 850 1000 Oranges & Tangerines 45 45 45 45 45 40 45 44 45 Other Citrus 60 55 50 55 55 60 60 61 65 Raisins 45 49 45 48 50 60 62 63 63 Dates 138 124 139 125 140 100 130 105 125 Dried Apricots 6 8 7 8 9 6 8 10 12 Other Dried Fruits 45 49 45 48 48 48 49 49 50 Almonds (shelled) 6 7 7 6 8 4 4 7 8 Pistachios (unshelled) 3 3 3 2 10 1 2 7 4 Walnuts (shelled.) 5 6 6 5 6 6 6 6 6 Hazelnuts (unshelled) 1 1 1 1 1 1 1 Other nuts 19 20 19 20 20 19 20 21 22 Sugar 55 69 71 70 62 75 84 87 108 Tea 5 5 6 6 6 6 6 7 7 Animal Fats 20 20 21 21 20 21 23 23 23 Vegetable Oils 11 10 12 12 16 16 18 20 22 Tobacco 15 12 13 19 12 11 14 17 13 Cotton 28 27 36 52 60 60 62 61 70 4o1 15 15 17 17 18 20 20 19 20 Cotton Seed 56 72 84 100 90 110 124 125 140 Table 6 IDUSTRIAL PRODUCTION Years ending March 20: Unit 1951/55 1955/56 1956/7 1957/58 1958/59 Tea 1000 metric tons An 7 n 7A 7*8 8A0 Sugar 1000 metric tons 61.7 76.8 85.2 86.5 93.9 Cement 1000 metric tons 65.0 1310O 321.5 322,0 4l01 Cotton cloth million metres 64.5 55.3 61,9 63.0 107.0 Tolen clo+ million me+res 10 2,3 3.3 3.4 1.7 Jute cloth million metres 5.4 6.1 5.2 6.0 5.2 Silk. clt milo mere o. o .4 0.1 0, O)0 Cigarettes million Nos 6.7 6.8 6.6 6.7 7.2 JMaiches miOn 'Nos 40U.y )U. ).5 )3Ue 4UL.4 Soap 1000 metric tons 58.0 58.7 53.7 Sh.7 35.0 Rubber shoes million pairs o.6 0.8 2.9 30 8.2 Glass million square metres - 0.3 0.5 0.6 0.8 Soft drinks milion bottles n,a, 965 12o.0 138.5 127.5 Source: Ministry of industries and Mines, Teheran Table 7 PER CAPITA CONSUMPTION 4 1954/5 = 100 Solar years Agricultural Wheat Sugar Tea Tobacco Textiles Cement Electricity Kerosene Products 1955/6 104 106 113 337 97 100 151 447 111 1956/7 112 107 133 273 122 92 183 1045 12.3 1957/8 114 126 120 238 140 100 248 1133 123 a/ Domestic production plus imports minus exports, without allowance for change of stocks. Population increase assumed to be 2.4 per cent per annum. Source: Economic Bureau, Plan Organization. Table 8 CHANGES IN MONEY SUPPLY (in billions of rials) (20th of month) 1957 1958 June Dec. June Dec. June ~11 or -~,~h or A0 :mA *A 11 Time and Savings Deposits 5.27 5.79 _.14 7.30 8.82 30.38 33.48 38.00 43.63 46.07 CHANGE /3.10 /4.52 /5.63 /2.44 (in 12 months) (/7,62) (L7.07) Claims on Government 12.16 12.59 13.52 14.14 14.56 Government Deposits 4.65 6.07 6.51 8.08 10.25 Net Claims 7.51 6.52 7.01 6.06 4.31 CHANGE -0.99 /0.49 -0.95 -1.75 (in 12 months) (-0.50) (-2.70) Claims on Official Entities 8.06 902 941 12.27 13.67 CHANGE /1.03 /0.32 /2.86 /1.40 (in 12 months) (11.35) 14.26) Claims on private sector: Bank Melli 7.1 8-17 10.L6 12.73 13.56 Deposit Banks 5.01 5.61 7.22 9.88 13.70 12.42 13.98 17.68 22.61 27.26 CHANGE /1.56 /3.70 /4.93 /4.65 (in 12 months) (/5.26) (/9.58) Foreign Assets and non-monetary factors /1.50 /0.01 -1.21 -1.87 (including errors & omissions) Source: Compilation by TBRD Mission based on "International Financial Statistics". Table 9 BANK MELLI INDEK OF THE COST OF LIVIG IN SEVEN MAJOR CITIES IN IRAN December 1955 = 100 Weight % Dcc.1956 Dec.1957 Dec.1958 Septel959 Foodstuffs 54 109 109 106 Textiles 18 10h 110 116 Fuel and light 10 il 124 123 Sundries 6 107 11) 11[ Rent 12 116 127 1.4 Total 100 109 113 119 1371/ / Provisional Source: Bank Melli Iran TablP 10 BUDGETED EXPENDITURES (million rials) es«5 endhAin" wei,a _> 95/5 i1956/5A Of,A7 195r7 /z: o 19o5:0/g9 i1959/6M Ifinistry of War 4,500 5,71 6,3 n4,7 ,21r7 P> ,017 1 ii 1 ,1 1 ,52 --- Minstr-. ~ j of Pos+-v'. * -AO OLIIýkTelgrph .27ULýE,139n 14JI(,ni>OC52=2676t6 Minstr j of.J. åäGLUCCIEdcaio ULUU. 4y.LJL2,--4 -n11,1 3,584.2 C4 .23,9 0,ý7 4,14,12 40 e4,50el 4:U iEn Minstru.Y -fj L6Agiutr L k LU uru_7u 309 4UU001 nn1 40iL -68 0100 fu4 762-. yn JRACdL CiJL1InUIC 425 750 950 95w Min istry of nea 5Un19 5>b 774 974 l,U66 MInistry of Finance 581 676 716 798 963 Tobacco Monopoly 840 1,118 1,019 1,369 1,384 Other expenditure 3,582 4,481 5,233 6,756 8,95U Total budgeted expenditure 14,826 19,865 21,946 27,831 1/ 31,122 Actual expenditure 14,838 17,944 21,700 25,261 1/ 1/ Excluding "Special Expenditures" covered entirely by "Special Revenues" of Rls. 1.2 billion. Source: Mdnistry of Finance, Teheran Table 11 ACTUAL TREASURY EXPENDITURES 1958/59/ (million rials) Ministry of War 8217.0 Gendarmeric 1489.0 Police 1473.9 Ministry of Post and Telegraphs 753.8 Ministry of Education 3255.3 Universities and Tehran Education Denartment 1572.7 Ministrv of Agricrul turp. 618.5 Ministry of Roads 577.0 Mi nis-try oAf vnal th 999.J, Mntirof Finance 1152.7 Ministry of Oustom-3 Mi ni-S tr 7 o f CoMerce 36. IMLJLisri of Lab.oL 53CLUU1.6 Mi nistry7 ^fMneanInuty7. Tobacco Monopoly 1235.1 Lsof Bread andi vereal Administration50. t.er 77.3, Total 25,262.0 _j Not including expenditures from Special Revenues, (budgetted at Rls. 1,198 million), and therefore, not directly comparable with the table on page 9. Source: Ministry of Finance, Tehran Table 12 ACTUAL BUDGET REVENUES 1958/591/ (million rinls) Direct taxes Income tx i/.1nn Other 315.5 3,725.5 Indirect taxes Customs 7,434.8 Petroleum tax 1,376.2 Revenue of tobacco monopoly 3,364.8 Other756.5 12,32. Luost anlu lei.Ltlgrapnu14.- Exchange differential 473.1 Profits from sale of: industrial alcohol 501.4 sugar ou.U opium 113.1 Profits of Govt. 'anks & companies 94.2 Other 485.2 2,781.2 19,439.0 Government share of Ail revenues 6,781.8 Transfer from NIOC 1,000.0 Transfer from Plan Organization 1,000.0 28,220.8 I/ Not including Special Revenues (budgetted at Rls 1,198 million), and therefore not directly comparable with the table on page 9. Source: Ministry of Finance, Tehran. Table 13 ESTIMATED REVENUES AND EXPENDITURES OF GOVERNMENT BONGAHS AND AGENCIES FOR THE YEAR RCH 58- RCH 159 (EXCLUDING PLANORG. AND NIOC) (R1s. million) IM_5__tUul____P JZ.4~IU l~u- . TLran T1 _ *n// rublic Domains Bongan O. ou R%UZi Ser-um Inst Itut 23, 234. Unemical Bongah I 7 Livestock Bongah 4 4 Forestry Bongah 91 91 Cotton Organization 18 18 Tea Organization 1,324 964 Foreign Transactions Company 15 11 Iranian Railway Bongah 3,000 3,000 Iran Rug Company 127 127 Pharmaceutical Bongah 250 250 Sugar Administration 6,181 5,461 Bread and Cereal Administration 1,103 1,523 Transport Administration 231 231 Fisheries Company 201 154 TOTAL 12,894 12,182 Source: Ministry of Finance, Teheran. Table 14 BANKING STATISTICS OF PRIVATE SECTOR (June 20) 1957 1958 1959 (billion rials) Bank3 Cash 2.09 3.44 4.57 othpr than th: DemnA Depoi+ 33 5.1'i 66 National Bank : Time Deposits 0.32 0.38 1.98 Advances 5.01 7.22 13.70 National Bank: Private demand deposits 11.11 13.85 16.05 Private time deposits 1.07 2.29 1.45 Private advances 7.41 10.46 13.56 (percent) Deposit Banks as Dercent of Totql dennnits: Demand deposits 23 27 32 Time nenits 2 1. Advances 40 41 50 Ratio of advance o+depnnai+sny /. Private Banks 130 123 118 plus twice time deposits. l.ompu-ati±on uy ]Dw rassion basea on "Inernaional rinancial Statistics". Table l INTERNATIONAL TRANSACTIONS, 1953-59 (In millions of U.S. dollars) Years Ended March 20 1953 1954 1955 1956 1957 1958 1959 1. Transactions of Oil Sector National Iranian Oil Company Exports f.o.b. of oil, including bunker fuel 0.3 2.7 13.6 12.4 6.5 6.8 4.1 Imports c.i.f. -0.6 -.0.6 -2.0 -4.9 -8.8 -21.4 -17.7 Services (net) ....1/ .... 1/ -1.0 -1.0 -7.9 -5.6 -7.5 Foreign assets (increase -) .... 2/ .... 2/ -3.5 0.3 3.4 -0.4 0.2 Total -0.3 1/ -3.3 1/ 7.1 6.8 -6.8 -20.6 -20.9 Oil consortium Exports f.o.b. -- -- 76.L 221.4 382.9 505.6 574.9 Imports c.i.f. -- -- -1.9 -9.0 -43.1 -63.8 -65.1 Direct investment income --- -18.5 -79.8 -140.7 -208.0 -244.9 Direct investment capital, and net errors and omissions -- -- -25.3 -6.1 -18.0 22.4 54.2 Net receipts 2/ -- -- 30.4 126.5 181.1 256.2 319.1 (Income tax and royalty payments to Iranian, Governnent) (--) (--) (18.5) (79.8) (140.7) (208.0) (244.9) (Expenditures in Iran) (--) (--) (11.9) (46.7) (40.4) (48.2) (74.2) Compensation to BPC ------7.0 -7.0 -7.0 Pan American Petroleum Corporation payment - -- - -25.0 Total for Oil Sector -0.3 1/ -3.3 1/ 37.5 133.3 167.3 228.6 316.2 B. Ot.her Goods and Services Exports f.o.b. 86.0 93.1 126.3 100,6 122.9 132.6 127.1 Imports c.i.f. -117.0 -169.6 -158.0 -299.2 -307.6 -375.0 -489.3 Nonmonetary gold -1.7 -2.0 -8.6 -13.6 -7.2 -8.6 -10.9 Services (net) -3.3 1/ 4.4 1 1.3 -10.7 -24.1 -36.3 -26.2 Total -36.0 1/ -74.1 1 -39.0 222,9.- -216.0 -287.3 3993 Table 15. INTERNATIONAL TRANSACTIONS, 1953-59 (Continued) (In millions of U.S. dollars) Years Ended March 20 19 1254_ 15 1 5 197 1958 19 C. Other Private Donations and Capital Donations (net) 0.7 0.1 0.4 2.3 0.4 0.4 0.4 Capital (net) 5/ 10.4 -1.8 6.0 -0.9 8.7 7.0 -11.2 Total 11.1 -1.7 6.4 1.4 9.1 7.4 -10.8 D. Official Donations and Capital (excluding amounts in Group G) U.S. technical assistance grnats (net) 15.6 63.0 56.7 27.6 42.6 Official loans 26.1 18.5 received (net) -- -- U.S. Government holdings -- 42.0 34.9 73.7 47.7 of rials 6/ -- -- 2.5 -2.5 3.3 2.0 -0.7 Commercial banks ....2/ 2/ 0.5 Other 0.4 -1.5 0.3 1.7 -0.6 0.6 1.7 -0.1 -0.4 1.2 0.7 Total 15.0 63.6 61.4 67.4 78.9 103.3 67.9 E. Net Errors and Ommissions -10.2 46.4 -.59.0 16.2 -42.7 -1.4 -22.4 F. Total for Non-Oil Sector (B through E) -20.1 34.2 -30.2 --137.9 -170.7 -178.0 -364.6 G. Monetary Movements Net IMF position ------16.5 -- -8.4 Payments agreements (net) -- -3.0 0.9 5.9 -2.1 Other 10.7 7.4 short-term liaibilities ...... -2.7 Bank Melli -- 14.8 Iran assets (increase -) 19.7 2/ -28.0 2/ -7.4 -1.2 -8.3 -61.3 36.6 Monetary gold (increase -) 0.7 0.1 -0.8 -0.1 - -- 2.0 Total 20.4 -30.9 -7.3 4.6 3.4 -50.6 48.4 1Foreign exchange expenditures of the National Iranian Oil Company for services are included in Group B. 2/ NIOC and commercial bank assets are included with Bank Melli Iran assets in Group G. "/ Net foreign exchange receipts of Iran from the transactions of the oil consortium may be entered in the balance of payments in one of two ways. (1) When the consortium is considered a resident of Iran, which is the treatment followed in the Yearbook, the consortium's international transactions are entered. in the appropriate items, as Table 15. INTERNATIONAL TRANSACTIONS, 1-953-59 (Continued) (In millions of U.S. dollars) Footnotes continued...... shown above. Thus, net receipts represent the portion of the consortium"s foreign exchange earnings which was not retained abroad or spent outside of Iran. (2) If the consortium is considered a foreign resident, the balance of payments would show instead its transactions with Iran; the entries that would be made if this treatment were adopted, are given below in parentheses as memorandum items. / This entry covers (1) disinvestment by the Anglo-Iranian Oil Company (debit of $70.0 million), resulting from the nationalization of its properties by the Iranian Government, and (2) creation of an Iranian Government liability (credit of $70.0 million) by its agreement to pay compensation. 5! Covers foreign private and official deposits in the Bank Melli Iran, and for 1958 and 1959, foreign direct invest- ment in Iran, other than in the oil sector. / Acquired through the sale of U.S. surplus agricultural commodities. Source: International Monetary Fund Table 16 EXPORTS BY COMMODITIES NOTE: Data are based on Customs Returns and therefore not Fully Comparable with Payments Data Shown in Tables 1.4 and 17 Value U.S. dollar millions Percentage distribution J;7 -1-/ _J( L7.)( / ju -L7)U/ -)7 -7-~j/1 -(L7J(-.'[ / ~ /-'' ' Raw cotton 22.3 25.4 19.4 21.3 23.0 18.5 Carpets 17.1 19.5 17.4 16-3 17.7 16.7 Fruits 18.1 19.8 20.4 17.3 18.0 19.4 Wool 8.9 7-1 9.3 8.5 6.6 8.9 Hides and skins 3.94.8 6.0 3.7 4.4 5.7 Rice 0-4 0.6 0 04 0.5 0.3 Gums 4.0 3.2 3.2 3.8 2.9 3.1 Hair 4A 3.9 4-0 46 3.5 3.7 Animal casings 2.7 2.2 2.4 2.6 2.0 2.3 Minerals 4- 53 3.7 4.3 4.8 3.5 Cumin seeds 2.1 2.5 2.5 2.0 2.3 2.4 Oilseeds 2.0 1.1 0. 1 o2 0.O Timber 0.6 0.7 0.8 0.6 0.6 0.7 Other 13*3 1 I4. 6 139 Source: Customs Administration, Tehran, Iran. Table 1? IMPORTS BY COMMODITIES NOTE: Data are based on customs returns and therefore not fully comparable with payments data shown in Tables 14 and 17 Value U.S. dollar millions Percentage distribution 1956/57 1957/58 1958/59 1956/57 1957/58 1958/59 Sugar 28.2 28.5 17.7 10.4 8.1 4.0 Cotton tp7tilps 16_2 17-6 17-0 6.0 5.0 3.8 Silk textiles 17.5 16.7 19.9 6.5 4.8 4.5 Woolen t.ertiles 8.2 9.6 10-6 3.0 2.7 2.4 Tires and tubes 8.3 12.0 15.3 3.1 3.4 3.4 chinar 2. Z.39n 9.2 8.9 11.1 Chemicals and drugs 8.7 12.6 18.5 3.2 3.6 4.2 Iron _-M+St1 2. A q7.1 n 8-7 10.6 11.4 Tea 12.5 21.8 15.6 4.6 6.2 3.5 maine ,. ond 4a+. A 1 . 44 3-0 1.5 1.0 Paper products 7.4 5.6 9.3 2.7 1.6 2.1 Arutf_,+ omotive- and spare parts 36.I. ir, 1.. 32.s 1..+ 46.AA2A 7 134-+1.12/9-2 10.6 Dyes 3.0 4.2 5.4 1.1 1.2 1.2 Glssar 2. 7.1 3 1 n9 2-0 0.7 Leather goods 1.1 1.4 0.3 0.4 0.4 0.1 Lubr-c t1.0 ).2 0 . n 7 0-A O 1 Hats, umbrellas and shoes 1.7 1.5 3.7 0.7 0.4 0.8 na05o n -r "j NJ'/ _."*.2 A** aA - Q -1 A Other 58.2 101.1 147.3 21.5 28.9 33.7 Total 270.7 351.3 441.4 100.0 100.0 100.0 Source: Customs Administration, Teheran, Iran. Table 18 INTERNATIONAL TRANSACTIONS IN GOODS (In millions of U.S. dollars) Years Ended March 20 Exports f.o.b. in exchange record 98.4 86,3 Adjustment for Exports to U.S.S.R. 18.1 22.7 Trade at frontier 5.5 7.4 Fish exports of the Mahie Iran Association 1.0 1.2 Export proceeds not surrendered 9.6 9.5 Total 132.6 127.1 Oil exports by National Iranian Oil Company 6.5 3.4 Oil consortium 505.6 574.9 Item 1, credit 644.7 705.4 Imports c.i.f. in exchange record 280.2 370.7 Adjustment for Gold -8.3 -10.5 Interest and loan repayments -13.8 -36.4 Plan Organization imports 28.0 42.0 Special government imports 1.4 1.3 Imports under U.S. and U.K. aid 31.7 46.7 Imports under other loans 4.0 27.4 Imports from U.S.S.R. 28.2 27.3 Trade at frontier 13.6 10.9 Impnrts without use of foreign exchange 9.6 9.5 Donations and wifts 0.4 0.4 Total 375.0 489.3 National Iranian Oil Company imports 21.4 17.7 Item 1, debit 460.2 572.1 M~L ISI FORECASTr Oru r Vui ,4 Z~AUlJWuz n rlx l,Z1r 1 ON CURRENT ACCOUNT ($ flUiio) Years ended March 20: 1958/59 1961/62 1965/66 (Actuals) Oil Revenues from Consortiumi/ 245 287 348 Purchase of Rials by Consortium (excluding investment) 30 35 40 NIOC Exports 4 8 15 279 330 403 Other Earnings Goods 127 130 130 Services 6W.2/ -1 7 467 530 610 1f Increasing at roughly 5% annually after 1959/60 2/ Travel : 20.1 Transport : 2.9 Insurance : 07 Governmpnt : 10.3 Misc. 26.9 4n n- Table 20 SU14RY OF EXTERNAL PUBLIC DEBT OUTSTANDING AND ITNDTSITSPED AS A SE:PEMER 29 1Q9Q WTTH MAJOR REPORTED ADDITIONS UP TO NOVEMBER 30, 1959 (million U.S. $ or $ equivalent) A. Total Debt MRD loans held by !BRy 3 3 IBRD Loan Participations 1210 U.S. Government Loans 23.u Settlement with Anglo-Iranian Oil Co. 49.0 British Government Loan 9.7 Suppliers' and other medium term credits to the Government Sector 56.2 Suppliers' and other medium term credits to the Private Sector guaranteed by Bank Melli as to transferability 28.4 508.61/ B. Service Schedule2/ Total Interest and Years Amortization Ending Total Total Payments Mar. 20: Plan Org. Other Service Amortization to IBRD 1960/1961 28.2 61.1 89.4 77.5 25.3 1961/1962 3L.2 33.3 67.6 54.5 31.1 1962/1963 24.7 28.4 53.1 41.6 19.2 19A/1964 18.t 2S-3 A.9 33.5 9.2 1964/1965 17.2 23.4 40.6 31.3 8.6 16Q5/1Q6 1 7 19 3 (5.6 27.3 7.6 1966/1967 15.5 9.3 24.8 17.4 7.6 19QA7/I196t 1.3-r 7.7 ~ 637-() 1968/1969 15.0 6.9 21.9 16.0 7.6 19AQ/1970 1-Q.5 20 1r-2 7.6 1970/1971 14.6 5.5 20.0 15.6 7.6 197-1/109 11.7 5.5r 1792 13q51 7-(6 1972/1973 9.1 5.5 14.5 11.5 7.6 107/107 9.1 t:. li1ro n 7-A 1/ of which $155.8 million was undisbursed 2/ excluding service on $2.4 million unallocated portion of Eximbank loan and 28.6 million U.S. surplus property credit; the terus of these obligations are still undetermined. AnnC%uc * -frv Trran Ministry of Finance