-R E S T R I C T E D R e p o r t N o. AS-67b FIII (i)PY I This report was prepared f-or use within the Bank. in making it. available to others, the Bankt assumes no responsibility to them for IIthe accuracy of com,pleeteess ov the intormation contained herein. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT ECONOMIC SITUATION AND PROSPECTS OF IRAN Department of Operations South Asia and Middle East CURRENCY EQUIVALENTS 1 US dollar a 75.75 rials 1 rial * 0.0132 US dollar 1,000 US dollars a 75,750 rials !,000 rials 13.2 US dollars Page Map of Iran Basic Statistics i Summary and Conclusions ii-ii I. Recent Economic Developments and Present Problems..... 1 Developme.er. of Pro.ductiL' 1. .4- Development of Investment and Consumption ....... 2 FV iinancial aniu Monetay Situatior.. L .*......... . 3 General Characterization ............. 3 UU'±LlAis stfl a _ _ .L W ,.. '' ime!!lltil r - L"cLlUt * 0 v . . e . e e . . . . . . . . . . . . . . . 4 Foreic-i Trade and Balance of Payments .. ......... 9 Im2,2,.dlate Fl2 inan-'l- rlo Fj.-U-S-.Pt::',.; 9. II. Deve'Lopmenlt Progress ... . 1' Spending on Development .11 facZors Lirmlting DeveLopment .................... Sec½or Inalysis ........... 13 III. Prospects and Creditv7orthin,ess o ... o........ ......... 14 Oil Revenues and their Allocation . . ...... i4 The Ordinary Buaget Problem ..................... 15 The Prosp3ctivG P.O. Deficit . . . .16 External Borrowing ... 17 The Need for Improved Progrqiraing . 18 Annex: Development Progress and Plans by Sectors .19 Agriculture o ............. 19 (a) Improvements in Husbandry 19.1 (b) Silos ....... . ..... 29 (c) Mechanization . 20 (d) Agricultural Credit 20 (e) Irrigation ....... .. ...... 21 I?adustry . ..24 (a) Private Enterprise . 24 (b) Expansion and Rehabilitation of P.O. Industries ........ .. . 24 (c) Transfer of P.O. Industries to Private Ownership . .25 (d) New P.O. Industrial Projects ........... 25 Mineral Resources Development 26 Transport and Communications .27 Electric Power . .. . . . .. . . . . 30 Social Services .. . .......... ...... 32 Regional Approach to Development ....... 32 Page Statistical Appendix Tables: 34 1 - Basic Economic Data ........ 35 2 - Agricultural Production (Estimate) 36 3 - Industrial Production ............... , 37 4 - Number and Ownership of Factories in Major Industries *.... *.....9*....... . 38 5 - Main Exports of Minerals ..... .. oe ... ... 39 6 - Expenditure of Non-Tax Revenues in Iran ho...... 40 7 - Change in Iran Money Supply 41 8 - Bank Melli Index of the Cost of Living in Seven Major Cities in Iran 2........ 2 9 - Budgeted Expenditures *.* ....* ............... 43 10 - Ordinary Budget Revenues ............ 44 11 - Balance of Payments .4.....5............... 45 12 - Imports .. . ....... .. ......................... 16 13 - ExKorts . . r . . o . . . . .0. ..1.4.......... 4 7 14 - 1°56/57 Iranian ImDQrts and Exports by Countries, 48 15 - U.S. kid to Iran (Receipts) ................. 49 16 - Iran - Barter Trade with USSR 50 17 - Plan Organization - Disbursements for Investment. 51-55 18 - Budget of Plan Organization - Hypothesis A: nssll.int7 qa In% O"rowth rate inr total oil rev~enue after 1958/59 °°°°-° * 56 19 - Thkicat. of Plan Orgaiztion - HRvotheiR B: assuming an 8% growth rate in total oil revenu_e afTer 19 --8/ - = 57 20 - Revenues and Expenditures of Plan Organization asE Proje;cted. MrowA andl at+ t.he 'Time of t.he IBRD Loan .............................58 21 - Iran External Debt as of September 20, 1957 ,9 IRAN $. U. S. S. R. S R. 4 I'._ f z ,21 > U. S S. R. K H U A IV %. .. . . H 4 At~~~~~~~ I R A Q -------0 ;f , '7/> ja , 7 ; St.x;'. ' \\e; ~ X t D < 4 h ._' \~. h , ~ ~ ,F z R S ' /> E ' P MS N5. ROADS . 1r- N, RA LR . ' - . ' B- .- 'ALi <-;-' w * i S 4 LU C H / T N '''RAILR. H4 PROOC .: . _f OIL FIE- SONDARIES @-*IfltrratO>anl 4 1 eh= ) V@ __-_- _ rwl a I . l.-..... .J j .= 0 5,, 00 ISO 0 0 ' MAy 1958 18RL-476 Area: 164 million hectares - 628,000 square miles (about 4 million hectares is the average area cnroned) Ponulation estinate: 19 million (Grrwt.h nsnintnf.8 wh 21__ nor v_nr) 1\TtAri1 ITneomer ptmn±e. $ 2.1 b-i----n or roughly $110 per capita General Government Budget: 1957/58 estimate 7LU..L.LiJU4 r4.as (a) Ordinary Revenue 16.1 (c) Deficit before US aid and oil revenue -5.6 (e) US aid 0.3 (.L)U eU1aLL. UbaLance t I-lan Organization ljudgej.! w97'0 t'stllilute (million $) (a) Oil. Rte-renue _luV. (b) Expenditures 161L5 (c) Lefclut 'oefore LDIDJ -aJ -6i.2 (d) IBED Loan 65.0 ke) unan-e in Casn Balances internal Debt of Treasur (s of December 20, 1957, billion rials): 11.8 Treasury Cash Balances (as of December 20, 1957, billion rials): 6.0 Balance of Payments 1957/58 estimates (million $) (a) Receipts from trade other than oil 110.0 (b) Oil Receipts (oil revenue and rial purchases by foreign Consortium) 254.4 (c) US aid and Eximbank Loans 35.7 (d) IBRD Loan 65.0 (e) Other Foreign Loans 20.0 (f) Total Receipts 485.1 (g) Total Payments 424.3 (h) Increase in Foreign Reserves / 60.8 Foreign Exchange Reserves (estimated as of March 20, 1958, million $ or $ equivalent): 280.0 External Public Debt (estimated as of September 20, 1957, million $ or $ equivalent): 350.0 i'1uiM: T-ne iranian calendar year wnicn corresponas to tne Iiscal year of the Iranian government runs from March 21 to March 20. ThlfThITr' e.TmTT A mI-C7~T A f'Sff T~n r IM 9r' It' TIN A AT tn 1`OMTif, SL I r~±imT A ±rTui'j IK±'vrA rnLvorD.±o vx LELA± oummary and Conclusions i. Rising oii income resulting from the rapid recovery oI oii produc- tion and exports over recent years has brought an increased measure of pros- perity to Iran. Lnis income, supplemented by U.S. aid and the proceeds of foreign borrowing, has greatly stimulated purchasing power. Agricultural and industrial production have risen, partly in response to increasing demand and partly, particularly in industry, in response to higher investment. Above all, there has been a sharp rise in total imports, which have expanded from $232 million in 1954/55 to an estimated $375 million in 1957/5S, and some decline in exports other than oil - a process which has not prevented foreign exchange reserves from rising in recent years to a level of about $280 million, a sum equivalent to about two-thirds of last year's foreign exchange payments. ii. In spite of the growth of imports, a considerable part of the foreign exchange income has at least initially been monetized, resulting in a sub- stantial and continuing inc-easc in money supply. This in `urn has precipitated speculation in. land around the major cities and a marked increase in the prices of goods and services which either cannot, or cannot readily, be imported. Rent, livestock products, fruits and vegetables have particularly gone up in price. This type of inflation, however, will remain limited as long as Iran's growing foreign exchange income enables it to import adequate quantities of such staples as cereals and textiles. iii. The proceeds of oil and foreign borrowing have created an unusual opportunity to devote resources to the financing of development. The Plan Organization (P.O.), which accounts for the bulk of such spending, has raised its disbursements on developme--t from an annual level of $65.2 million in 1955/56 to $151.2 million in l?)7/58; and the National Iranian Oil Company (N.I.O.C.), which is also allocated a share of oil revenues, apparently invested on the average $27 million in distribution facilities and exploration in the last two years. iv. The P.O. has authorizations to spend money over a seven-year period (Sept. 1955-Sept. 1962), and these authorizations are allocated by five broad chapters (agriculture; communications; industry and mines; social development; and Khuzestan) and in varying degrees of detail over a consider- able number of sub-chapters and individual projects. The projects and programs are not defined in particularly meaningful economic terms. The P.O. has not yet worked out overall goals in terms of total production, agricultural or industrial output; nor has the P.O. calculated the impact of the Plan on the volume and pattern of domestic production and foreign trade. This in turn makes it extraordinarily difficult to test the adequacy of the Plan's efforts to expand the "service industries". such as transport (roads. railroads and ports) and electric power. v. Chronic difficulties in balancing the government's ordinary budget have affected thA amount of oil revenues which could be devoted to develon- ment. While tax income has gone up in response to growing economic activity, cnirrent expenditures hqve heen rising more ranidly and the difference has been made up with U.S. aid and increasing amounts of oil revenues. During 1958/59, - ii - - iii - in order to provide for an extraordinary increase of Rls 7.3 billion (aout,-,, 33%) in. expenditures, the government changed the law governing the allocation of oil revenues. Under the new formula, beginning 1959/60 the P.O. is to receive 60% of the total oil revenues, And theo 7mnini'n is to be divided between the budget and the N.I.O.C. -- total oil revenues from the international consortl'ir. will probably increase at an average annual rate of 8%. The government should be able to manage its budget problem 1*nftr this formul ie 4^ stiteooy r u, +exedtrsi observed and a determined national campaign to collect more taxes is made. Fu,r+h e rmo.re, +thne goW-v e ,en+ hm a raecr.+ly,r cobtair.edy a e 25 ,-Urion I connection with an oil concession to the Pan American Oil Company and it is possib1le that the goverrmen+ ray obDtain naddi+ional bo.u -Jezn+ i .L SLL'.LS vaJau theJ. g veumnan V UJ 4S.4..LySd.J~O ~ S'. connection with future oil concessions. vi. On the basis of the revised oil revenue allocation formula, the P.O. * ~~A-_ A_> 4 _4. A d-)7n ~ w nnz _n._ A- - _U : x 1}1 -IF +U- z d.U C UE.LLC. L.J *1, U.L M'.J uL % - - L-L.L V .U11 ±.L" I 1JS 42 Y`Lx D U.L Seven-Year Plan. The P.O. apparently hopes to cover all or most of this deficit by externaL borrowing. A considerable amount ir new external debt could undoubtedly be cerried in view of the steadily growing foreign ex- change income Of the country and the very substantUial reduction in the existing debt which will take place over the next 5 years. At the same time, howeverl, it should be Kept in mina that government, agexcies other than the P.O. have shown an increasing tendency to borrow abroad in recent years. Tne government will therefore need to keep a careful check on all new commitments to ensure that the total will not exceed reasonable bounds. vii. The large deficit faced by the P.O. makes it imperative to avoid new commitments which would add to the total outlays now envisaged. Within this total more efficient use of resources could be achieved by better planning and programming. The recent establishment of an Economic Bureau in the P.O. is a recognition of this need. Improved planning could result in a tighter program in which the component parts are properly related and in the grading of projects and programs by priorities so as to establish a basis for judging the soundness of substituting new projects for projects of relatively low priority now included in the Plan and of temporarily deferring certain pro- jects if a shortage of resources at any time should make this necessary. I. Recent Economic Developments and Present Problems Development of Produc+40on 1. D)uring recern. ye-rs rap-ly ir.ceasing 4i1 producti,on anrd oil revenues have provided the basis for growing prosperity and rising government expendILL ures ir. Iran. SCi ce . 19, hen Ite - -inernational Oil Consortium took over operation of the properties of the Anglo-Iranian .L Company wIicL1 tIe goverrmenti lizUe UiVona-" un rd1-19L7)±1, oiL.-L production has recovered at a remarkable pace. Output has now attained an annual lvel of e' nai.lion Iarre±9 01. W-lwhIc a' oUL C/7) MLil.LlU tI ar e being exported. Oil revenues paid to the government during 1957/58 amounted -to $20L million; and an additional $45 million in foreign ex- change income accrued to the economy as the result of local expenditures by the Oil ConEortium. Crude oil exports are unquestionably largely responsible for the growth in G.N.P. They are now about 10% above the pre-nationa1izationa peak, but are destined in the future to grow at a slower pace. 2. The rise in oil income, supplemented to some extent by foreign aid, has primarily stinulated investment and consumption. So far tne impact on agricultural. mineral and industrial producuion appears to have been rather smnal. Table 2 of the Statistical Appendix shows the trend of agricultural output; the fi-ures indica'e that the volume of produc- tion rose by around 6%o in the three-year period following 1952/53, byr 7% in 1956/57 and by almost 10% in 1957/58. The large increases in the last two years appear to havc been primarily the result of exceptionally good weather conditioDs. If the efVect of the latter is discounted, output of most crops appears to have juSG keptpace with the annual population growth of around 2% per year. Production of cotton and sugar beets has, however, risen more rapidly. The overall increase in output is probably due pri- marily to an expansion of the area under cultivation, since there is little evidence that efforts to increase productivity have as yet borne fruit. 3. The output of minerals other than oil has never been very large in Iran despite widespread mineral occurrences. Production and export of ores has fallen somewhat in recent years under the influence of declining world market prices (see Table 5, Statistical Appendix); and the output of coal has suffered from the competition of oil. Mineral development continues to be handicapped by transport difficulties, inadequate attention to exploration and lack of capital and enterprise, both domestic and foreign. 4. Progress in industrial production has been spotty. Much of industry has been developed and is operated by the government (see Table 4, Statistical Appendix). Rough estimates of the value of industrial pro- duction made by the Ministry of Industries and Mines (see Table 3, Statistical Appendix) indicate that cotton textiles are the most important product, wV.itLh sugar and cemel-i.e taklLing second an'" th"Lrd place andu tIh.i outh11ers ranking far below. In the last three years production has risen mar- kedU.lJy iLn1 sU.i1e ubrarnc,i=s ofI± ±nLusOU±-,Y Uefiaten±ib uy )UU70b wUVoen textlles by 79% and tea by 30%. Cn the other hand, output in a number of in- dustries, particularly in cotton textiles and cigarettes, nas stagnated; and it has declined in still others, e.g. matches (-15%) and soap (-16%). In terms of thle total value of ouTput, nowever, an upward trend is un- doubtedly apparent. 5. During the past several years expansion in government-owned enterprises has been and is being concentrated:on the sugar industry, which has been reserved entirely for government development; on the cement industry, wvhere, after the completion of two government milis and one private mill now under construction, the government irill control roughly 60%; of total capacity; and, finally, on the textile industry, where the government's share in total capacity has recently dropped to about 25% but is slated to rise to 457 during the next four years, Private industrial investment has largely been channeled hnto cotton textiles and tea processing, and to a lesser degree into the manLfactur- ing of matches and of soap. In a number of fields, particularly tea and matches and to some extent cement, local capacities have outgrown internal derand; in others, foremost sugar and textiles, local capacities still cover only a relatively small portion of 1ranian consumption (1/3 in the case of sugar and cotton textiles). 6. Vlith the progressive relaxation of quantitative import restric- tions, import conipetition has become more severe, in spite of the fact that the average customs rate on imported manufactures is 40% ad valorem. This has been the main reason for the stagnation or even decline of production in certain industries. Unit costs of production in many factories are too high. A large part of the equipment is obsolescent because much of the industry ivas established in the early 30's and in many cases little additional investment took place until recently. A further handicap is poor management, not only in the public sector but also in most private mills. iuoreover, many mil'ls lack adequate capital, particularly working capital, because of the general preference for in- vestment in trade and real estate speculation. However, there is evi- dence tnat interest in industrial investment is growving in view of the stimulus provided by expanding internal consumption. The government has provided some financial assistance to private industrial investors. Develorment of Investment and Consumption 7. As already indicated, the oil revenues and foreian aid and loans have had their principal effect on investment and consumption. No overall estimates of investmPnt existj but tthe increase in iM`norts; of capital goods from roughly s50 million to $150 million during the last three years givep some yn inriinntion of +.hp ecrp1prant- on in i nvqt±mpnt Thoe in- crease in private investment is reflected largely in the building boom arondnci t.he bia citie;p primnrili- in Thepran; hu,t. 21sqo to sorne exYt.pnt. …_ -DZ _ 1 _ _ ./ - -- - - - - u in industry; in agriculture rising investment outlays have largely taken the form of the acquisition of agricultural machinery. In the public sector, the expenditures of the Plan Crganization point to rising development outlays on irrigation and agriculture, industrial plant, transport and communications accompanied by complementary investment expenditures for public health, education, agriculture, training, etc. (See Statistical Appendix, Tables 17a-d). Data on rising consumption of a number of staple articles indicate that the standard of living has somewhat improved. This is particularly evident in Teheran where per capita income is considerably higher than in the provinces and seems to have risen much faster than in the rest of Iran. Apart fron the general impression of a continued excessively unequal distribution of personal incomes, there is no evidence how the recent gro.th in national income has affected this distribution. As a matter of fact, there are no national income data available except for a rough estimate made by staff members of the U.S. Onerations Mlission for last year, which shlows a total income of $2.1 billion at current prices. Financial and 11onetary Situation General Characterization 8. In the last three years the economy has been characterized by h uhstantnal inflationnryr pressures- These ste-.m in the first. inqt-nce from the expenditure of an increasing amount of revenue coming from abroad. Total expenr1itmri. of such nnn-tax revenne-s inr luAing oil revenues, local expenditures by the foreign oil Consortium, and foreign mal anrl lons,t r"ose frnm. M"r90 millionv in 195/5 to 375[ millinn in 1957/58. (Statistical Appendix, Table 6). Less than half of this revr.u .s been, spn A y vd mos o Af it has bee-n,w vr.v"+rt into rials and spent in Iran. The expansionary effect of this on the money supply ha- s been con-iderale and 1-s been -c^e.tuated by a steady increase in bank credit to the private sector, and, from tiLne to time, by 4o.ere.0 reor t a.-1 cre A;4 t.S-;nce m'uch of the-, -ontr-4-,S lnco.ne JJ JV LL)UYI~. U~'. L L~' U "I.f L,. ~U.U LI ~L ~ J LU I '...L w4I; .'JW~L'U1.L' -LII~W is received in foreign exchange, ($485 million, or perhaps 20-25% of presen-t- rat-o r.a 'i.come), the supp'y of foreign ,,'-M has been a cte to finance all necessary imports. In recent years imports have risen considerably, bLut, for a nnr.bL-er of rteCasons, notU V1oU6'L1 LI offset~- the expansionary factors and attendant pressures on prices. There was some delay in liberalizing i-mports; some rise in prices was necessary before merchants found it profitable to import; and, above all, imports never fully replace or supplemient certain domestically produced goods and services the production of which may not be susceptible of rapid expansion. 9. Cnanges in money supply and prices are shown in Tables 7 and 8 of the Statistical Appendix. During the last two years money supply as a whole rose from Rls 24.6 billion to an estimated Ris 34.O billion or by 38%. The single most important factor in the increase in money supply was the accelerating expansion in bank credit to the private - 4 - sector under the stimulus of a rising volume of trade and some innerPeP in hbilrLina and qnPm31n+Avative actv+ity, all of wrhich in tuvrn was greatly stimulated by rising disbursements of oil income and for'ein aid. Th,v'g lns 1 Je- th 1Tffi +bds for~ foeg exhog AF not keep up with the rate at which foreign exchange income was monetized, thus bringing about a subtantial icrease in the f serves. 10. Wlith rising money supply, prices have shown an upward trend. 7hile --+he Bank1rb 1U- aL iS oveIr alll cos+t ofC "Tlvrg -in'dex APor SU-Min MM Jor cities has risen by 13% during the last two years, certain prices have gone up ,uhmore, pa-Lti-cular.---l,y- those% Vow 0se,.L-;1=Zi (2C 25)-G,)j rer,ts- (2%L,IO animal products (17-39%), charcoal (39%) and leather shoes (25%). It shlould e noved tuhU these alre)u GL b-vlce nd proVUcLtsb WLAJXL cninivL Ube or are not imported. During last year there was a trend toward price utability even tho-ugh s-oe -uipnellulus in the cost of li-ving cuntin-ued to rise in price. This trend was due partly to the cumulative impact oI rising imports and more particularly to an unusually abundant harvest. On balance, prices and the cost of living over the last twfo years have increased mucn less than tile grawth in mOney supply would seem to nave dictated. To some extent this can probably be explained by a declining velocity of circulation. Another factor accounting for the relatively moderate rise in the cost of living is undoubtedly the fact that muLc1 of the money pumped into the economy has evidently gone into construc- tion, and, above all, into a rather wild speculation in both urban and agricultural land. This speculation has phenomenally appreciated land prices and continues unabated. 11. In May 1957, the government created the possibility of a rapid acceleration in the extensioin of bank credit to the private sector by revaluing the rial from 32.25 to 75.75 rials to the dollar. This revaluation affected only gold and foreign currencies held in the Issue Department of the Bank Melli (the central bank) as 40% note cover under the 1954 Note Reserve Act. Foreign assets held in the Banldng Department of the bank and, consequently, commercial transactions had already been valued at the new rate since early in 1956. The revaluation released Rls 7 billion or $92 million in gold and foreign assets from the note cover and transferred it to a Special Revaluation Fund in the Banking Department. The Banking Department can convert these foreign exchange assets at liberty into rials by sales to the Issue Department, but the latter cannot use these assets for any note issue beyond the rial equivalent of the foreign exchange. Half of the rials realized in this way are to be used for certain industrial loan operations; the balance, for additional credit operations of the Agricultural Bank. Through this device it will be possible utlimately to add Rls 7 billion or 20% to the present money supply. Government Finance 12. The large amount of income from oil and foreign aid, including particularly the IBRD loan of $75 million to the P.O.! have enabled the government generally to live within its means. It has therefore been possible for the government to adhere to certain iegislative restric- tions which prevent excessive government recourse to bank credit. 1/ As a matter of fact, the data on money supply (see Table 7, Statisticai Appendix) show that the government's fiscal operations were somewhat deflationary in 1955/56 through 1957/58. This was due to the fact that in each of these years an estimated $25 million in funds transferred by the P.O. to a number of ministries carrying out certain activitiles on behalf of the P.O. were not spent owing to administrative and technical difficulties. 13. It should not be inferred, however, that government finances have been in a satisfactory condition. There have been chronic diffi- culties in balancing the ordinary budget. Except for the year 1956/57 current expenditures have been rising more rapidly than revenues before taking into account oil income and U.S. aid. As the table below indicates, the annual increase in expenditures averaged about Rls 3 billion over Iran-f n Government C dinarv Budiset (b2lion rials; casn;h transactiows) Years ending March 20: 125] l955/56 l956/57 l957/5S 198/!59 (Revised (Budget estimate) proposal) 1. Ordinary Revenues 10.0 10.6 13.9 16.1 19.2 2. Expenditure3 12.3 14.9 17.9 21.7 29.0 3. Deficit before oil revenue and U.S. -2 3 -4.3 -4.0 -5.6 -9.8 aid 4. Oil revenues - 0.8 2.8 5.6 8.4 5. U.S. budget aid 2.3 3.6 1.5 0.? - 6. Balance after oil revenue and aid 0 740.1 40.3 4.03 -1.4 Source: Ministry of Finance, Teheran the last 3 years and jumped by over Rls 7 billion in the current year's budget. Factors responsible for this steady rise in expenditures can be inferred only from successive budgets, since the government possesses no breakdown of its actual expenditures. (For the budget figures, see Table 9, Statistical Appendix). During the last 3 years all maJor P,/ The law on Central Banking provides that borrowing by the government from t-he Cen-tral Bank for purpn2es nther than capntAl expenditu_re and state trading requires parliamentary approval; borrowing for develonment and state trading activities by any government agency must be recommended by the Minister of Finance, and the Central Bank is t-hen theoreticclly free to decide on such lending. categories of expenditures have risen by at least 50%. Out of a total increase of Rls 9.4 billion, roughly Rls 3.2 billion was probably due to defense and about Rls 2.0 billion to education; expenditures in these fields have more than doubled. In the current fiscal year the government considered it necessary to raise total budget spending by Rls 7.3 billion or by about one-third. Of this increase, Rls 3 billion was earmarked for higher pay for military and police personnel and Rls 1 billion for higher remuneration of certain other groups of civil servants. Even these increases were considerably below the demands made by various government ministries and agencies. 14. Ordinary revenues have risen by Rls 6.1 billion or 61% over the last three years as compared with the above increase in expenditures by 76%. The rise in revenue, which would appear rather gratifying, was actuallv not so large considering the fact that during this neriod the rapid recovery of oil production gave a great stimulus to the economy, producing a continuous expansion in imnorts and domestic trade. a considerable monetary expansion, and some degree of price inflation. Table 10 in the Statistical Annendix shows that revenue from direct taxation has risen almost twice as fast as that from indirect taxation, but the latter still accounts for about, QO of total aovernment r venue other than oil. In the opinion of competent observers collection of direr,t taxes h2s been less than one-third of w_hat legislati on would have permitted had it been properly enforced. Enforcement is made difficult byJ such factors as the absence of conmTMercial records and professional auditors, and the absence of any legal provisions for punishment of tax evai S-i r% 'it hr fines or v T - m"*rvmom.n. and has, in presenting the 1958/59 budget, proposed a number of steps to of tax evasion are to be incorporated in the income tax law; the rental vralue o,' bv-4 g in;bte by-- 4t.e4-- prpie- 4hchsprvoul be V .LU L 'J J U. L 1.L6 .1L;UI .LJJUVl LiY LIALJV k. ~jJ . s1 YS51±~Q JJ 4.dL~I. tax exempt is to be made taxable, though at only half the rate of other r-er,itaIl properLU±y; in ord^r t,o cor.Jbat land speculation.L'Jx, tas on real. estate transactions are to be more than doubled, and a general property tax of 1.%4 on undte-veloped 'LdHU n' -Ls tUo w. L1r.1'LUUU, i±L.Lly thle CJxistU.L1Jg tax exemptions for new industries for a period of five years are to be repealed. At thte ime of wriVin.g this report thk,ese pr-oposals are still pending in Parliament. The Director of Revenues and other competent observers have estimated that even if all these proposals become lawV and the government makes a real effort to improve the collection of direct taxes, the latter would at best rise from Ris 1.0 to RnLs c23) bllion during 1958 as compared with a budgeted figure of Rls 2.7 billion. The government thus continues to depend almost excl-usively on reven-ues from indirect taxation which are budgeted fairly realistically to rise from Ris 45.> to Ris i6.5 billion. In summary, the rise in Orduirary revenUxte9i during 1958/59 will depend somewhat on the extent of reforms in the field of direct taxes and may be between Rls 2,3 and Rls 2.7 billion as compared with a budgeted rise of Rls 3.1 billion. 16. Past deficits have been met by U.S. aid, which has, however, been on a declining scale and ceased in mid-19 7, and above all, by oil - 7 - revenues. The latter are apportioned among the ordinary budget, the Plan Organization and the National Iranian Oil Compoanv (N.I.O.C. - a government company whose principal responsibility is the distribution of petroleum products in Iran and the develo-ment of certain oil resources on Iran's own account). Prior to 1958/59 the minimum guaranteed annual oil revenues of A188 million were dividPd among the budaet, the P.O0. and the N.I.O.C. in the proportion of 10:62:28; and the budget received qnny ees nver +.hisT minimum as well as any unspent balance 0f± the N.I.O.C. share. In 1958/59 this allocation was to remain the same, ex- Cenn +.hm+ +.Iha hiirloca+ wnc:1 mn+. " + n "irnaj;vnn [c!0 n-P +In& minjv"im qiino- on +.n'M ept ta_ t b was at most to r _ of te amount, 1/ with 75% going to the P.O. and 2C% to the N.I.O.C. A more radic*al chan.ge in. theallocation for.-1a 4s env.isansed -"r 1959/6 and subsequent years; the budget was to receive a maximum of 5% of total oil rer.ues, O th P 75%, - t,h NI. T fl 9 t T+ .,-1 A &1 al^ b-e noted that the annual compensation of $7 million payable to the British Petrole--', - r, - ('-.. --r t4-,e A-,- loTrar r. (1 1 CI . r-- -,ma- faci ties were nationalized in 1951) wras shared by the budget and the P.O., -4 4h th former paying -1/7 -and 1 1- -4 -h late 6/7 of 4 -4 -he toal. VVLULI U l=L,J L ±J±IIi.L paJC.J.L% .LI I C,.J±u UII I.5IJ'Z;± V/ I V.J.I wJiu W -LJ~O,. 17 . In thlbe faPceL- ofL presuresLU forL an.L UexVtraor.A;niary rieinepe; tures during 1958/59 the government decided that the budget could not be balanjced vwRithout the use of mor-Le oil reven41ues. New! legislation was accordingly enacted. This allocates to the 1958/59 budget 25% of the $188 maillion gudarsti.eed iii±iu.n±wI, p'us all revenuesi xes ft; minimum and the unused portion of the N.I.O.C. share. The N.I.O.C. is to receive 157% and' th-ne rP.O. o'-.o of the guarcaunLeed Mu -IUJi±1uI-I. IM1n addiU.Lvo the P.O. is to turn over to the budget $13 million of its share in ex- change for an equivalent amount of unutilized ICA procureme-r-nt authoriza- tions remaining from previous U.S. aid allocations. Beginning 1959/60, however, the P.O. is to receive 60% of total oil revenues, and th'e budget and the N.I.O.C. the balance. Allocation of oil revenues under the old and new legislations, on the basis of the P.O. paying 6/7 of the compensation to B.P.C. and thie budget paying 1/7, are showm in the following table: 1/ The legislation made the receipt of this 5% dependent upon approval by a special Commission chaired by the Minister of Finance but there was hardly any doubt that this approval would be given. Allocation of Oil Revenues V ~ ~ ~ OC(. rllor US " eqiae.s YWears en,9;rM nglarchL 20: Wr A T L-ist -' T^';. T^ ilai 1957/58 1958/59 1959/60 195599 v>+ Tota n;1 evnues. t_-^ estimates; assuming no prices) 210 260 281 260 281 2. Budget share after coapens±atior to B. P. C. 74 97 4L of 3. N.I.O.C. share, net of payments of unspent oil revenue to the Budget / 214 24 24 24 24 4. Plan Organization share after compensation to B.P.S. 0uO 132 2i2 94 163 5. Compensation to B.P.C. 12 7 7 7 7 1/ Assuming no increase in N.i.O.C. expenditures. 18. The 1958/59 budget shows a deficit of Rls 9.8 billion before taking account of oil revenue. 1-ith the likely shortfall in budgeted revenue from direct taxation (see para. 15 above) this deficit is likely to be increased even if the government should succeed in keeping expendi- tures at budgeted levels by means of strict pre-auditing and a continued policy of deferring payments to suppliers. Moreover, the parliament has already approved Rls 0.7 billion for certain extra-budgetary expenditures, and there is also a considerable amount of unutilized authorizations for extra-budgetary expenditures outstanding from last year. Consequently, the total ordinary budget deficit before taking into account oil revenues may well be Rls 11-12 billion. As against this deficit the government has conservatively budgeted oil revenues of about 4110 million or Rls 8.4 billion. However, if there is no decline in the posted price of Persian Gulf oil and if the present volume of oil exports is maintained, which appears likely, oil revenues accruing to the budget may ;lell be in the neighborhood of $135 million or Rls 10.2 billion. (See above table). In that event the ordinary budget deficit may be between Rls 1 and Rls 2 billion. 19. The juggling of the ordinary budget for 1958/59 has in fact simDlv transferred the deficit from the budget to the Plan Organization. (Table 19 of the Statistical Appendix). The 1958/59 P.O. deficit, after taking into account recent changes in the budget, amounts to about $75 million as compared with a surplus of $6 million during 1957/58 after receipt of `65 million from the IBRD loan. This deficit would be increased if the procurement authorizations cannot be fully utilized either by the P.O. itself or by sale to private importers. The deficit is the result of an increase in expenditures from $160 million to $182 million in the face of more or less unchanged oil revenues and the termination of IBRD disburse- ments. Of the rise in expenditure $8 million is attributable to a decision of the Cabinet to make the P.O. pay back-taxes on account of its sugar factories which had so far been considered tax exempt; this is in fact an additional shift of oil revenues from the P.O. to the budget. The P.O. hopes to be able to finance the bulk of the above deficit by external borrowing - about $40 million from the U.S. Development Loan Fund, and the balance from the IBRD and commercial banks. Foreign Trade and Balance of Payments 20. Despite an apparently declining trend in non-oil earnings (amounting to approximately 25% of the total) and a steady rise in total payments, the balance of payments has in the last two years yielded a growing foreign exchange surplus. (See Table 11, Statistical Appendix). This has resulted from the spectacular rise in oil income (including investment), continued U.S. aid and, particularly in the last year, the disbursement of the IBRD loan. By April 1958, foreign exchange reserves had risen to roughly $280 million, a sum equal to two-thirds of last vear's foreign exchange payments. Free reserves. i.e. reserves not used as currency backing, amouinted to $2C5 million. The restrictions on imports and invisible navments have been ranidlv removed;. with the ex- ception of a few import prohibitions maintained for protective purposes which may also be di5continued. As a result;. private imnorts have almost doubled and private invisible payments have increased sevenfold during tbhe lastf threp vPyear.s Tmnport..s of minn+. onnsimer gnorid nd of n11 rcnitsl goods have followed an upward trend (Table 12, Statistical Appendix). 21. Receipts from exports other than oil have declined from $120 ;nilli o n §oc,IOA to -t1 millrm in 1956A/57, mvninlyr b eiit of ninr-rcad local consumption of fruits and rice; rice exports have fallen from :shout. 61,Y to ns. in 1 oiU)1fr< +.o sinq+. .er W.n-n+.t.s of' nr'srPt.. whir.h account for about 20% of the total, appear to be stagnating. (Table 13, Statist-ica rn1Lpnw r 99 - Ir e,ds^ r4v 4 is 4 Me4-..4 v,i+4^ cii yf 4Ynn^v.+c 1,na cmn~"p nV- ii 41ri~v.ari fi aA 4 T geograpULc -triut--r. - --po_ =s during recent years, but the U.S., West Germany and the U.K. continue to be by fa. the lrgestv vupl4ers nf +he os+ii , ' %rta+hna,' %^nOen+ fore more than 40% of total imports (Table 14, Statistical Appendix). Iran's ball4-nce of p.0a-JLntvS ShWV s us.aldct;h h0olr a6bu $50 million last year) which is covered by U.S. aid and the conversion of strLr.41V,g (I h=e CuLrLW=enCjyL Jin {LX Ich oi 'L -JvereLUe accruLes)., *'ig to VLt progressive liberalization of foreign transactions, discrepancies between ±LjEtt dUlU 0±1.L~.LQ4c.L UA.ifLUlLgt 1-LU tL-t J.LrLWJgLJ.L.dLU&L,. Immediate Financial Prospects 23. Expansionist tendencies in 1958/>9 may wel- be considerably greater than in each of the last two years. Bank credit to the private sector, which has been rising about Rls 3 billion a year, may increase by around Ris 4-6 billio,n, partly as the result of monetizing some Of the revaluation profit fund through industrial investment loans (which will probably be supplemented by additional credit for working capital) and partly in consequence of further expansion in domestic and foreign trade. Tne deficit in both the ordinary budget and the P.O. budget will probably be in the neighborhood of Rls 7 billion. The monetary effect of this deficit will be the same irrespective of whether it is covered by external borrowing or by internal borrowing from the Bank ivielli. The year 1958/59 will set new records vrith respect to both total public expenditures and the proportion of such expenditures financed out of oil revenues and foreign and internal borrowing. Under these circumstances the increase in money supply may well be larger than the 18% rise in 1957/58; and the increase will probably have a greater impact on prices since last year's bumper food crop is unlikely to be repeated. 24. How the balance of international payments will develop during the current year will depend largely on the extent to vwhich the P.O. deficit will actually be covered by external borrowing. Total foreign exchange income from the operations of the Oil Consortium are likely to be $60-070 million above last year's level; and, in addition, a $25 million bonus payment is to be received from the Pan-American Oil Company under a concession contract recently negotiated with the N.I.O.C. Froom this addd-tional oil income alone Iran could finance the same percentage increase, naiely 20%, in total foreign exchange payments as last year. In view of the greater expansionist tendencies now manifest the rise in imports may, of course, be larger than 20%; and external debt service, including partial repayment of an I.M.F. drawing, will be about $20 million higher. It seems likely, haoever, that aid from the U.S. Development Loan Fund, together with possible other external borrowing, vwll be more than enough to offset any deficit. - l. - II. Development Progress Spending on Development 25. Growing oil revenues, continued U.S. aid and foreign loans and credits have made possible t1w allocatiuni VI cunsiduerable reso-urce to development. The Plan Organization has increased its disbursements on development from an annual rate of $65.2 miliion during tne first 6 months of its operation in 1955/56 to 151.2 million in 1957/58. VJhile the P.O. has been the principal agency for carrying out and financing public development activities, other government agencies have also been engaged in development projects financed out of special revenues or credits. The N.I.O.C. spent about $20.7 million and $33.8 million in 1956 and 1957, respectively, on distribution facilities and exploration. These outlays were financed from its own share in oil revenues. A 10 million credit granted by the U.K. in March 1955 has enabled the Ministry of Customs and Monopolies, the Ministry of P.T.T., the MIinistry of Roads, the Agricultural Bank and the .;iortgage Bank to acquire equipment and supplies for some of their own investment projects. Similarly credits from the U.S. Export-Import Bank have penTitted the Ministry of Roads to acquire equipment for a program of road maintenance and improvement and the Iranian State Railways to buy a considerable number of diesels. The Teheran W1ater Board has been engaged in providing the capital area with a water purification and distribution system and is now about to initiate the construction of a new large reservoir vrith the help of suppliers' credits. The Teheran Ajunicipal Power Company is relying on similar means of financing for a substantial expansion program now under way. The Crown Estates has also been making a considerable number of investments, either directly or indirectly, in such ventures as cement plants, shipping and fishery enterprises, sugar factories and notels. Part of these also are financed by suppliers' credits. 26. A comprehensive estimate of development expenditures by all these agencies was not available but the total is undoubtedly high. As in other underdeveloped countries, however, the availability of resources is by no means the only critical determinant of development progress. Much depends on non-economic and non-financial factors such as the ability to enlist widespread popular support and enthusiasm for a truly national effort. the efficiency and devotion of the civil service and the capacity for effective planning and programming. Factors Iimiting Development 27. Development in Iran is generally regarded as a government resnonsibilitv. w.rithin the government. however- develonment activities appear to be inadequately coordinated. The inadequacies of government sr~iirnin;trAon are realized by many t neonleo and the government has madp some effort to improve the situation. Steps have been taken to improve inoh n1ne1C-ifinqMAnon annd tn atthat better nersonnPl.. - 2 - 28. In some government agencies, notably the P.O. and the N.I.O.C., the standard of personnel and oerformance arp ronsidPriblyv m3rnrior t, that in the rest of the government. Accounting and accountability are much better. Both organizations have high*r Ralarv snales and have made special efforts to attract properly qualified personnel. The P.O., for instance, has engagrd mqnv i nd-ivirlhil foreign export. and enn.C11 +in firms to assist in its work. A number of young Iranians sho have received their training and earlv expnerience abroad hnve recently been given opportunities for useful employment in the P.O. The P.O. has established txro qnPninI hivrrpii.1-c nqc iJ. in ir mprvin.r +.he quality orf its + formance and its effectiveness. The Technical Bureau, established in 1955, has ran+.tlir hben cnmple.men.ted by ann Econom-ic Bureau. The experts in +he Technical Bureau were recruited by the IBRD under the Bank-Plan Agreement of rlayr 90, 195~E~ 1buti. paid;rl for% 5r 4.se ..lian Q-n4 an.4J.A The MIJ* fo'r- the Economic Bureau were recruited by Harvard University and are being paid for out ofP a Ford Foundationn -rat. Ir. -additi-on, an A-4-ic P-;-l .V -- - - ~ ~ ~ 4 -- . * A .,St.%a - .LSJU* rA,, .e .LAL C%M.L- .LV~W11s at. ni.Vt.L-L%.4A.L 1 LA."AU, financed by an ICA grant, is studying the organizational and administra- +-;,, -e u of +- _D 1 . _t -hA -; ,;4- A_ 414.A_12'VG Ia viea _S *V *" LSCF cf Q EG.i 4SGX Il 1P 'AICIQ V°9.~ There 1 are of cors, stll d efcamreniesn imprwth ee nt. s. ~70 C.'.5 - VJ~ .L* .' IoUL tA 0. V SU.L0 JL . I ~ .JL IL Li-n L±IIjJ . U. I1 L U ., * only recently that steps have been taken to compile some record of future contractual co,ni,turents or of the implicationLs of existiU progrL-Us in terms of additional commitments that must be undertaken in the future. 11Te1re is a tendu-ncy tuo assuma-e U-vf cuOnitnients or to resort to ad hoc diversion of resources from one project or program to another without full realization of the future implications. The administration of the Plan appears to be overburdened, so that inadequate attention is given to the consequent execution of projects. The P.O. also seems over- burdened because it is charged with the task of operating a large number of government factories ranging from small ginneries and tea-processing plants to canning factories, sugar factories and textile mills. 30. The P.O has authorizations to spend money over a 7-year period (Sept. 1955-Sept. 1962), and these authorizations are allocated by 5 broad chapters (agriculture; communications; industry and mines; social developments and Khuzestan) and in varying degrees of detail over a considerable number of sub-chapters and individual projects. The projects and programs are not defined in particularly meaningful economic terms. The P.O. has not yet worked out overall goals in terms of total production, agricultural or industrial output; nor has the P.O. calculated the impact of the Plan on the volume and pattern of domestic production and foreign trade. This in turn makes it extra- ordinarily difficult to test the adequacy of the Plan's efforts to ex- pand the "service industries", such as transport (roads, railroads and ports) and electric power. 31. The inadequacies of planning have made it difficult to determine the relative priorities of various projects and programs. Under these conditions, decisions regarding adjustments wvithin the Seven-Year Plan or on the inclusion of new projects must often be under- taken wvithout a knowledge of all the relevant facts. ! Jhile there has been groving and welcome tendency to make studies and surveys before - 13 - embarking on new projects, there is a tendency to neglect the evaluation of the resulting studies for the purpose ofl establishing the priorities of the affected projects and determining how and to what extent they ight fit into an overall program. 32. The establishment of the Economic Bureau within the P.O. is a recognition of the need for more effective planning. The activities of this Bureau, together with those of the Technical Bureau, may result in the elaboration of a more meaningful program in which the component parts will be properly related and which will make some distinction in priorities. Sector Analysis 33. In the Annex to this report the 1ission has tried to review development progress and plans by sector. Owing to the difficulties outlined above and the limited time and personnel of the Mission, a definitive appraisal wras impossible. Much of the actual and proposed expenditure on development vrill seem worthwhile in terms of objectives and directions. Many useful development activities in the field of agriculture, industry, transport, health and education have been financed. Some parts of the program, including road building and rural electrifica- tion have lagged rather badly. In industrv the P.O. is undertaking some large projects such as a steel plant, the timing of which is open to question. 3XL. The review in the Annex concentrates nrimarilv on develonment activities and programs of the P.O., but, *rhere appropriate and possible, it comments also on develornment being carried on outside the Plan. The reader is referred to Table 17 of the Statistical Appendix for a break- rdnwn of the estimamted actual and projeted disbursementts of the P.O. These disbursements (other than non-development outlays including those on a&niniq.trtion) mnv hp. sqnmmnrizd in terms of millions of vrials and percentages as follows: Estiynnt.p Apt.iial Propcntpd (2.5 years up to (4.5 years to Total end 1957/8) Spt.. 21; 1962) Sector Amount Percent Amount Percent Amount Percent I. Agriculture & Irrigation 5,052 23.7 15,790 23.9 20,842 23.9 II. Transport+ & C. -i ations R8,n.60n 40.4 20n-30 31=0 29,9iQ 3 .3 III. Industry 3,257 15.3 7,680 11.6 10,937 12.5 ' C I Sorial 2 WAR i29 13.8 16 ,5ni 25.0 iQ9,9o 22 -1 V. Khuzestan 1,450 6.8 5,549 8.4 6,999 8.2 v^+^1~~~~) 1 Mna - ) t r on I on,,n r] 7 91U4 i n Total 21,306 100.0 65,950100.0 87,"256100 .0' Dollar equivalent (mil.) 281 871 1,153 .L shoIU.Ld Ub nolt,e d tjhat1%. ithe out'lO.ays for Rhu'Z. eStVany J..L.L',IL aL CI. regional development scheme, are principally devoted to irrigation, power and industry. - Vl, - III. Prospects and Creditworthiness 35. There is little dou_bt that the work of the Plan Organization is of critical importance to the future of !ran and that the total re- Sourcesno nrm birh;ng rleotr d tor . Hor_7-lrno_.L_n.t aare nt gn nttcs _Jrn in toel+;tson to the country's requirements. The P.O. is now faced, however, with a problem in fi~ n,. +r the v-ron '4 reole necessary forv'4b th. cotr.aion of its program. It has already been pointed out that the P.O. budget for 19E¶fr'9ff sho,,s a deficit of ~7 million without taidng "rlt acou, possible new loans. V:Jhether or not the P.O. will have to cope with a cc-4--.-i-- crisis A---- depen no-r-yo h resources accru ing 4t-o 4t be government and how they are allocated, but also on the ability of the go,vern.me.tInv as a Vvbhnole 1 tIo livLe4A 4 itea. rSThis poses, f t ofP a,11 the question of the future trend of oil revenues, and, secondly, the questio.- onOf It-.heir allocation. U±X RLeveniues andu the Allocation 36. F-£Vure oil re-veues will bue governed by ilkldUI. LosiueLdEra,LU1L, for, as already indicated, the contemplated expansion of oil production and transport facilities are likely to keep well abreast of tre lflarket. It is generally expected that oil exports will remain at about the present level for the baiance of the current fiscal year and that this will ensure an oil revenue of about $260 million at current posted prices. The Iranian government expects that, beginning in 1959/60, oil exports and oil revenues vill rise at an average annual rate of lC%. The informed opinion of oil experts canvassed by the Mission indicates, however, that this ex- pectation may well be over-optimistic. One expert acquainted w:rith the policies and sales territories of the marketing companies comprising the International Oil Consortium considered that 8% would be more realistic even after taking into account that 62% of Iranian oil is sold east of Suez where consumption is rising somewhat more rapidly than west of Suez. There are, however, experts who are slightly more optimistic. In Tables 18 and 19 of the Statistical Appendix oil revenues are projected on the basis of both an 8% and a 10% average annual growth. These certainly indicate the range of possibility, although the Mission believes the assumption of 8% more realistic. Another reason for accepting the more conservative assumption is the possibility of a reduction in prices. In view of the price reductions which have taken place elsewhere the possibi- lity of some decline also in Persian Gulf prices should not be entirely discounted even though the latter are under less pressure because they were not raised to the same extent in response to the Suez crisis. 37. Unless otherwise noted it will be assumed in the balance of this report that oil revenues will rise at an annual rate of 8%. Accord- ing to this assumption they would increase from $260 million in 1958/59 to $352 million in 1962/63. Under the new legislation recently enacted the Plan Organization is to get 60% of total revenues beginning in 1959/60. Taking into account the distribution in the current fiscal year, 1958/59. the P.O. would be assured. on this basis, total oil revenues amounting to $752 million for the remaining 4-1/2 years of the Plan. - 1 - 38. Under existing law, oil revenues accruing to the ordinary budget will drop sharply from $136.1 million in 1958/59 to S88.1 million in 1959/60; and although the budget portion will slovwly rise thereafter, it will remain belorw the 1958/59 level for the balancr of the Seven Ypar Plan period. (See Table 19, Statistical Appendix). The shortfall, as compared with 1958/q9 vrill be as follows- Million A BiIIion Ri21s l959/60 48.0O6 1960/61 39.2 2.97 96c)A,/A2 29.6 2w 1962/63 (6 mos.) 9.8 0,74 Total 126.6 9e59 Thus, beginning in 1959/60, the govermnent -wvill have to raise enough additio"n'l taxreve,nues not onlyr to cover +1t J-- e i budget expenditures but also to offset the above drop in oil revenues. The Ordinary Budget Problem 39. In the last three years budget expenditures have risen by Rls. 2.55, .LPL'. s- ,IL.L andU il.s _I.76 U.L.LorULI ±L1jJ i. eU Lt Ln L t U.Lhecen y.tLeL&. bJUUdget foresees an extraordinary increase of Rls 7.3 billion. It seems doubtful 4 1- . L _ _ - 1 - _ 4A- -: - - - - .1 . L -r . . _ -fI _ - _ __ i L __ UlILCI, Wlst; VV Vt: f l_ lX M1l tr::11,U UCI t§ U I 1sU cL1UL:COt-, sLnll e 1,16 |UtU" U V ItUb;: Uldilu Rls 3 billion a year. The government wrill be under constant pressure to ruuie exPenuit-ures fo-r a variet-y of reasons; for m-aiLntenance and opera- tion of development projects as they are completed; for social services; for internal and external security; and for more compensation for the ill-paid civil service and armed forces whose claims were only partly satisfied this year. 40. Non-oil revenues nave risen by Ris 0.59, Ris 3.29 and R'ls 2.23 billion in the last three years; and an increase of PRls 3.14 billion is anticipated in this year:s budget. Judging by past performance an annual addition of Rls 3 billion may be all that can be expected for the future. In that event the increase in non-oil revenues would just about match the probable rise in budget expenditures. 41. Wlith strict economy in budget expenditures and a determined national campaign to collect more taxes, the budget situation could be improved. A real effort to collect existing taxes as vrell as increases in taxes on income from real property and agriculture might bring in considerably more revenue. The government has recently obtained a V25 million bonus in connection with an oil concession to the Pan American Oil Company and it is possible that the government may obtain additional bonus payments in connection with future oil concessions. It might be argued that such bonus payments should be used to cover investment ex- penditures by N.I.O.C. instead of using them for budget purposes. The N.I.O.C. however, is unlikely to have an urgent need for additional in- vestment resources. All together therefore, the government should be able to manage within the terms of the new legislation allocating oil revenues. - 16 - The Prospective P.O. Deficit 42. If the P.O. actually receives $752 million in oil revenues during the remaining 4-1/2 years of the Plan, its resources will still fall substantially short of expected development expenditures. There are a variety of deductions from these revenues for such purposes as compensation payments to the British Petroleum Company, service on the IBRD loan, administration costs, etc. (See Table 1$, Statistical Appendix). After taking these deductions into account and adding about $13 million in ICA procurement authorizations turned over to the P.O. this year in compensation for the surrender of an eaual amount of oil revenue, the total amount available for meeting development or investment e4-enditures is onlv M6OO million. h3. Just what P.0, develonment expenditures are likelv to be during the remaining 4-1/2 years is difficult to forecast. According to the original Plan budget. they were to he ~'701 million, hut this amount does not take into account the shortfall in expenditures in the preceding vpars. The Budgnt Bureaui of thp P-O. madp a nrojnetion for the Th1ss; on indicating total expenditures of 4871 million. As against these two expenditure targets, the anticipated revenues shor a deficit of $101l million and -271 million respectively. The P.O. now expects a substan- tial deficit during the Seven-Year Plan period because oil revenues accruing to it would probably fall substantially short of the amounts oniginally anticipated and imn.vestment exernditurres are nowr exprcted to be somewhat higher than previously contemplated. 44. The deficit of about $270 million could be bridged by external borrowing and, if 4 anneesa-- ry, bh,j -iA 4- Tt In -- some internal borrowing from the Bank Melli might also be justified, (about $280 million of which $52C5 million are in the banking department) for offsetting the effect of such borrowi0ng by additional i.ports. Such borrowing would at least initially have no different monetary effect than foreign borrowing. However, the mere fact that initerral borrowinLg could take place for some time without unfavorable consequences might encourage the governmenlt to reso-t to bank financir g of the or-dinary budget and the P.O. budget long after it has ceased to be safe. The experiE ence of othel-r countries demlonstrates that COnsequeuIceso 01 95 type of financing are often long delayed; and when they do become mani- fest, the foreign exchange available for imports to dampen the generated inflation may then be insufficient. In this connection it should be pointed out that Iran;s need for foreign exchange will in any event rise in view of the multiplier effect of expansionist tendencies already set in motion. The volume of credit to the private sector is likely to rise at an accelerating tempo with the tendency to take advantage of invest- ment opportunities in a rising market. Resources of the Revaluation Fund (i92 million) will gradually be monetized as the result of credits from the industrial loan fand and expanding operations of the Agricultural Bank. Under these circumstances resort to the Bank ihielli to cover an overall deficit in the remaining years of the Plan would be highly in- advisable. - 17 - Extvernal Borr-It_n- '45. The ~ %osset of ri-n foreignG excang UmncvL8- iII.llu sh'ouldU o ffe r the basis, however, for additional external borrowing. Foreign exchange receipts from oil, exports and invisibles may be expected to rise from the equivalent of $365 million in 1957/58 to $5404570 million, say ' M550 .m.illion, In 1962/63. Not only is oil revenue expected to rise sharply, but local oil company investment defrayed by sales of foreign exchiange Uo tUe Bank sIel ± wili also increase substantiaily, iargely as the result of the investment program of the Consortium but also as the consequence of i-nrestments by other foreign oil companies. Export earnings will, however, probably show a continued dowmward trend owing to rising home consumption. Projected Foreign Exchange Receipts (in millions of U.S. dollar equivalent) 1957/58 1962/63 Income from oil Oil Revenue 209.4 350-360 Local Investment of Foreign Oil Companies 45.0 90-100 Exports 90.0 80-85 Invisibles 20.0 20-25 Total 364.4 54o-570 (say 550) 46. Iran already has a considerable government and government- guaranteed external debt. On the basis of tentative information available to the Bank, it amounted in September 1957 to the eqaivalent of about b406 million of which $110 million was still undisbursed. Service on the out- standing debt in 1957/58 amounted to $33.3 million or about 9% of foreign exchange earnings. Next year (1959/60), howvever, service payments, in- cluding a final payment of $16.9 million on an DTh drawing, are to rise to a peak of $82 million or 18-19% of prospective foreign exchange earnings that year; and they will continue high for a few more years. (See Table 21, Statistical Appendix). Heavy amortization payments over the next five years will reduce the principal amount of the debt now outstanding to a level of less than $120 million by 1963/64. By that time the service on this debt will amount to about $22 million or 4% of projected foreign ex- change earnings; and in another 5 years service will decline to h4.1 million. 47. Under these circumstances Iran could probably service a consider- able amount of new debt as old debt is retired and foreign exchange earnings rise. The "humo" in service-4oavments on the existing debt over the next 3 or 4 years will probably not occasion serious difficulties in view of Iran's substantial foreign exchange reserves. In contracting new debt, however, care will have to be taken not to add significantly to the debht. service during this neriod. Moreover- the amount of external borrowing for the Seven-Year Plan will have to take into account any new berrn for other. ..a.....nn,.a.taanagercian ans well. In4 a,.w of +1., rapidity AA IJzrU..w .inL .. fo VULLAJ SkUV .L1UI±W&%0 C6GU1% .G CLO WVJ.L.o .ALl V.LVW VJ.L UIIC; IC Jy±.A U.y with which foreign debt has mounted over recent years it is essential that Ulte governmen iL u maintai tih U.L contU rol over the UVI ULU CLIr 0.5 f-th1L tr- external indebtedness in order to ensure that the total does not exceed reasorM b±leV bO-L.L V Uh W 'he Need flor m-Pro-ved Prougr-ammina 40. Even '. it. sh'±oulu prove poLs'Ue tU cover thie eUlibre P.U. UdeLlcit by external borrowing, this should not obviate the need for better planning and programming to ac.hieve the most efficient pos-.bie use oI available resources. The total of the P.O.'s projected expenditures is not excessive in vlew ol the countryts requirements for development as long as all these funds can be spent with reasonable efficiency. However, limitations on resources as well as on the available technical, administrative and organiz- ational capacity make it highly inadvisable to exceed this total. 49. Any re-examination of the program within this total should obviously focus on establishing the most appropriate relationships between various sectors and on determining relative priorities. It should presumably give the highest priority to the rapid completion of projects and programs on which considerable sums have already been spent. It would be particularly usef'ul to determine what could be accomplished with the resources from oil revenues alone and what more could be achieved through successive increments in resources. This would give the Iranian government as a whole and the P.O. in particular a better conception of the real benefits of borrowing additional resources. The minimum total would include projects and programs of the highest priority and the successive additions would include those of progressively lower priority. Such a division of the entire Plan would make it possible to make sounder decisions on the postponement of the lower priority projects and programs if it is necessary to make room for new and more urgent projects or to compensate for any temporary shortage of resources that may develop. 50. In theory it would be necessary to consider also whether additional borrowing which would make possible higher expenditures would not unduly promote inflation. As already indicated, rising expenditures of non-tax revenues in Iran undoubtedly do create inflationary pressures even if ample foreign exchange is available to bring in imports. However, the ability to meet all the demand for imports at least puts a limit on price increases of the most important staple goods such as textiles and cereals. There will unquestionably be increases in the prices of livestock products, fruits, vegetables, rents and wages; and this will raise the cost of government operations, including the cost of the Seven-Year Plan. It is difficult to contend, however, that essential development expenditures in a country such as Iran should be kept down because of the danger of limited price increases; and this is particularly true in the case of Iran where a substantial and growing foreign exchange income should enable the govern- ment to keep price increases more restricted than in other countries with a less favorable foreign exchange situation. .' t.% - .7 - ANNEX Develonment Progress and Plans bv Sectors Agriculture 1. Apart from the modest activities of the two existing aaricultural credit institutions, development activities in the field of agriculture have been almost entirelv financed bv the P.O. which has disbursed funds for irrigation, agricultural training institutions, extension service and community develop-ient. pest and disease control; seed improvement, fertilizers, agricultural mechanization, silos, etc. (a) Improvements in Husband_ 2. There is as yet little evidence of any significant improvement in agricultural methods and animal husbandryv The Ministry of Agriculture has set up an extension service and the Ministry of Interior a community development or village imnrovemetnt staff to hoth of which the P.O. has contributed funds. The field staff of the extension service now totals 2VK a numbh.r miffie4int. tn rbt-vpr Rhov+it. of 11 T-rrijnn villar ,es: snd the community development program extends, but only theoretically and itnaequately,v to ahomit ovnne.-thirA of Trnnts villnoapq Tn general these agencies have as yet had little impact, partly because they.are still in their infancy, partly because they do not have Tffir'ient icll-trcined and dedicated personnel. Their efforts are also handicapped by the lack of a goodnl a ,i,l +.i&l r or.novv4 capable not necearily of hasc research, but of laying down and carrying out proper field trials of new methods, new saadsA, etc. 3 ~ ~~~~ tTym.Je --eom , Wt..4 .Da. tion.. ^- disri>ti ofAb betr ed has not made much progress. Some success has been achieved in the selec- tion. zr.d disturi4bution. ofL 'better s4traivus- of cotton .an sugar beet , bu it V.LSJSS~flU U.LL~IAJ.AJL~J.L IJUU~J. ULOJ4L %J.L %IUUWJA. ~44 .~SA5~J _ - , - should be noted that average cotton yields are only half those in the United States an.d sugar beet -4edAs about one-third of those 4n Western Europe. Some funds have been made available for the purchase and sub- sidized distribu... .IW Uon. of fetiizr but 4 Uin the zbsr.c of pr m- -- - experimentation and field trials the program has inevitably been rather hap;zard- -r. was4e ';- --'d it is o -' reenl - that- 4 meas,ares have beer. &O.LJJ.JFLAG J.L-% CU AQ.LLU 5UV.L LA.Ly O.LUU .LU LO UL.L.LJ.L ~I-UkIi U_LJ UCL.U U1LCLVO .LO V _~ taken to initiate systematic field trials on fertilizer responses. Only a f.ew UiLjU- Uu vLI U J. z U4.2 5j e.L .L .L -au aL fewthoUILsan tor.s of O fertZPilizer are sLU UoLte.U. , c _ _______ 1AA L _ P.1 a1 ._ > 4 A 1__ AA ~~ WUIIICI- pr U g-sO been aVlle-1 i U D velG 1XUU U O v u U %A.L control: in combatting locusts and the senn pest in cereals; in mass vaccinuation of ututl aainst azthL-rx uuu rinderrpest, and in the or-trLiza- tion of better veterinary services. The P.O. has provided essential funds for the wcmpletion of an excellent institution producing vaecinles and serums and in the expansion of veterinary work in the field. Improvement of livestock through selective breeding and better grazing and feeding has, however, made virtually no progress. - 20 - (b) Silos 5. Capacity for the cleaning and storage of grain has long been an urgent requirement in Iran. Before the last war, silos were erected at Shiraz, Meshed, Kermanshah and Ahwaz, the first three with a capacity of 16,000 tons each and the latter with a capacity of 32,000 tons. No pro- vision, however, was made for equipping these silos so that they have remained idle. The P.O. is ornly just now processing contracts for equip- ment which are supposed to ensure the completion of the silos by 1961/62. Unless appropriate ar:-angements can be worked out for the use of the completed silos by the private trade, there is some danger that their capacity will be inadaquately utilized solely for the storage of govern- ment-held grain. (c) Mechanization 6. Mechanization has tade significant strides in recent years and has probably contributed both to an expansion of the area under cultiva- tion and to improved and more timely preparation of the soil. Over the last three or four years the number of tractors in Iran has grown from a rather insignificant number to around 4,000. Both the P.C. and the Agricultural Credit Bank originally purchased a considerable number of tractors and other machinery for re-sale on deferred payment; and the P.O. established a number of agricultural repair stations. This government operation of a large-scale agricultural machinery business proved inefficient and wasteful; and the P.O. has now wisely embarked on a better program of financing the sale of machinery through regular dealers who are accredited on the basis of their willingness to abide by certain pricing regulations and to establish repair facilities when the number of their machines operat- ing in designated regions has reached a predetermined number. It is still somewhat anomalous, however, to have the P.O. engage in an activity which should really be the responsibility of an agricultural credit institution. Meanwhile the Agricultural Bank continues to deal in agricultural machinery. (d) Agricultural Credit 7. As in most underdeveloped countries, agriculture is seriously handicapped by inadequate credit. There are two agricultural credit institutions - a small one, the Bank Omran, catering only to the needs of peasants who are the beneficiaries of the distribution of land from the Crown Estates. and a larger one, the Agricultural Bank. operating through- out Iran. The former had made credits available up to March 1958 of only about Rls 50 million. The latter has not had adequate resources and is not well-managed. At the end of 1956/57 it had loans outstanding of only Rls 1,282 million ($17.6 million): and it had been able over the last 3 years to extend on the average only Rls 315 million ($4.15 million) of new loans a vear. In recent years it has managed to collect only a little over 60` of the loan repayments which fall due. Both the scope and the method of its operations have been deficient. The Bank does not have sufficient trained staff or transport facilities to supervise the use of its credits. Moreover, the vast maiority of the cultivators do not own their land and cannot put up the security to obtain access to the Bank's credits. - 21 - In theory cooperatives can be organized for the purpose of obtaining credit, but the progress in this field has been almost negligible. Under these conditions, most farmers must rely for whatever credit is available on land- owners and merchants who generally provide it only on onerous terms. 8. The P.O. has put some additional resources at the disposal of the Agricultural Bank, primarily for the construction of ganats, underground canals which tap the water-bearing strata in higher lying areas for the irrigation of lower lying areas. The Bank's financial resources are also to be greatly strengthened by the allocation, over the next 5 years, of Rls 3.5 billion ($46.2 million) from the profits realized in 1957 from the revaluation of the gold and foreign exchange assets in the issue department of the Bank Melli. What the Bank needs above all else, however, is a better organization and staff. Moreover, there is little prospect under existing land tenure conditions that agricultural credit can be effectively channeled to the actual cultivators of the soil who need the credits most urgently. (e) Irrigation 9. Considerably more than half of the funds spent by the P.O. on agriculture has been devoted to the study and execution of various irrigation prolects. Irrieation is undoubtedly an urgent requirement in Iran, for over most of the country rainfall is either inadequate or excess- ivelv irregular; even where, as in most of the Caspian area, the annual rainfall may appear sufficient, the distribution is such that it must be sunnlemented by irrigation. Probably about 2 million hectares are in some way irrigated, perhaps a little over one-half by ganats and the rest by rather primitive diversions from streams and by numnina. Until fairly recently irrigation schemes were left almost wholly to private initiative. Since irrigation projects Apnd only nn "etural drainage, salinity has become a growing problem in some areas. 10. The carrying out of irrigation projects in Iran encounters many 4 ffic-4 'ties. Sinc + co - Jr 4i es.xt%remelyTg , mmi-o iv and hp9 fe.w laroe U, L. %. £ LUJ. U.Lb in - JA th 'e Af _ .y J isb~~f% .~ *--.--.---- rivers, a considerable number of projects are required to realize a sub- star.tial exansion in the irrigated area. The cost o'f Rtoraoe aams; diver- sion structures and canals tends to be excessive in relation to the water made tailhable the more so because most irrigation schemeS e'ontrihute only an increase in output in areas which either are already partially irrigated or are -nder dr-y-faming. ven, for the better i igatonp4 the net benefits in terms of additions to national income tend to be only 15% or at most 20% of the investment cost. r-.orov e ner ly a irrigatIon. projects are to serve land already wholly or largely under cultivation; and experience has sho-wn that in t-…ese cases it tls d'f ' - get 1-4 n - to agree to .L.U,LULU%AL WV .,W L~  -_ - the construction of irrigation canals and the resulting supply of water on terms which make the beineficiaries pay ar, equitable share of the cost. T.he diversion of water from natural streams is regarded as a natural right, and the landowners are often disinclined to pay for water made available by government irrigation projects. There are actually cases where water has become available but has not been used because the lEaCk of prior agreemer.t with the landowners has held up distribution. - 22 - 11. .tte-tdbreisfo riair pro4ects ben ^rie out or planned have not yet been calculated. Some of the P.O.'s funds are being used to complete -rU-ts which were st.arted b0effore +he ceve.n Year Plan, primarily by the independent Irrigation Bcngah or Department of '~*~ ~ .tJ. 4 'J.I. +B.h .L' uL.s of , and. wh LAc in. 4 parU have s.u .fffered from faulty planning and protracted delays in execut:on. Among these h ve I_A beer the~ vistan ij.rrigation system ir, Eastern lrarn, the,1 r-.m project near Isfahan, the Moghan plain irrigation scheme in northwestern Ir..ad tLhje ..cLL jJo JecJzuu iLn southern, Iran. Ojf ulthese V±LrJt;utD uLt Moghan scheme, involving diversion of water from the Arras River for the i 4gati'or. of 2,00 h ectrsisoeothbs;-ts ail .L± j. ~OUAU L LJJ -..j,'j'.¼ 1 ULIU~ V , -LO Vi.l. U .L u1ivLicou 4.U Lo Pal. IJ.La.ILJL completed, with about 5,000 hectares already under irrigation. One of 4-1. , u_ I-_ L1 I; __ s. 1_ ._^____._____ Ulle WUor-Iu is U15e -uri1jeh proJect w'U±L_ wt1Vs vu irrigat- a r _ ge.Lry sa..UL1 area and was initiated by the Irrigation Bongah, with the construction work entrusted to the N.I.O.C. uwing to a shortage of funds the P.O. has recently suspended work on an attempt to salvage something of this project. 12. The oeia Rnua project in nortnern Iran is the only major irrigation scheme being carried out by the P.O. itself. French con- tractors are engaged in tne con3truction oI a large dam on the Sefid Rud designed to store 1.6 billion m of water and costing about Rls 3.6 billion ($48.2 million) of which around Rls 0.9 billion had been spent by the end of 1957. The project is to provide additional water for about 90,000 hectares of land in the Caspian plain which is already under cultivation and to irrigate approximately 50,000 to 90,000 hectares of new land depending on whether or not some of the stored water will be used for the generation of power. While the project may well prove to be economically Justified, it should be noted that it was begun before any comprehensive survey of the total costs and benefits was completed. In fact, a survey tb determine the extent of the irrigable area and the layout, design and cost of the irrigation network and the diversion barrage is just now being carried out and will take another 3 years to complete. 13. A number of important projects have been studied for the P.O. by foreign consultants, although no steps have been taken to carry them out. An American firm of consultants has studied the Zarrineh Rud scheme in the province of Azerbaijan and the Doroudzan project in the province of Fars. The first, estimated to cost Rls 1 billion ($13.2 million), involves the construction of a storage dam at Yamine Abad to irrigate some 59.000 hectares of land most of which is already under cultivation and inadequately irrigated. The second, costing perhaps Rls 1.8 billion, calls for the building of a storage dam on the Kor River and would irrigate 32,800 hectares of land now devoted largely to dry-farming. Another Droiect on the Zavanderud not far from Isfahan has been studied by a French firm of consultants, but a final report has not been delivered. 14. Meanwhile the P.O. has increasingly turned its attention to a program for development of the southwestern province of Khuzestan which features, above all, a major multipurpose project on the Diz River, a tributary of' the Karln whitch 18 TTIntq largest river- The planning of - 23 - this proiiect AA well as other8 in KhUze tan ha bePn imedPrtakpn hv the American firm, Development and Resources Corporation, which has set up for thi-s purpose the Khuzestan Dev3lorment ServIce as pnrt of the P.0. The Gotvand project, an irrigation scheme on the Karun River, on which A hd beer. initiated byarother .-e -n f of ^onsult- ing engineers, also falls under its general jurisdict-on. 15. The construction cost of the Diz dam, including two initial power -,nits of 65,000 Kg14 each and associated +rasm4-4i.- lin.es, has been initially estimated at Rls 4,370 million ($58.3 million) to which -..l .>.. s.. ..^'... ...v e .J._ %,U L+e d UL+he.L. co. o .LSC i U .LL WorkLs, WLi.LLh iL lll being determined, as well as interest duri.g construction. Wlhile the f;LLLVP vd UC.9t 4-^es or.L 4th UdIm anLLu poWer - fai..LJ.Ubes are being prepared, a Netherlands firm is carrying out a study of the itrrigallon an' agricultrl -1 ct of- Athe prJ o ope ion b 4. L %.5.LLL ~iU ~JL .LLUI.UJ.dL MDUU IUI .-J!t 0..bie.01 eUmpIUP.LtJU.L L)y mid-1958. 16. The Diz storage dam is expected to provide irrigation water for a net area of 012L4V0UUV IIeares. vi this area, O8,uuv uebCua-e5 are already irrigated, but the water supply coming at present from the aarkheh River is only sufficient to irrigate about 15% of this area in the summer. The remainder of the Uind is devoted to dry-farming, primarily with tractors. Some major problems may well De encounterea in carrying out the irrigation scheme. The existing system of land tenure under which most of the land is owned by large landowners, with a few holding more than 10,000 hectares each, will pose problems, particularly in ensuring that an adequate share of the benefits accrue to the actual cultivators of the soil. The question inevitably arises whether irrigation projects of this type should not be utilized as an opportunity to establish a better tenure system rooted in a peasant proprietorship which might give peasants a greater stake in the social and economic structure. The Netherlands firm is expected to make some recommendations on possible ways and means of dealing with this land- tenure problem as well as the general agricultural management of the irrigated area. 17. Sugar cane is expected to be one of the crops suitable to this irrigated area; and on the basis of cane experiments carried out over recent years the Khuzestan Development Service is already making plans for the cultivation of this crop and the establishment of a cane crushing plant. Pending the completion of the irrigation system, the cane will be irrigated by pumps. A tract of 10,000 hectares has already been acquired, and it is planned to put in ultimately 8,000 hectares of cane in two successive stages of 4,000 hectares each. The required investment, including the sugar mill which would be completed in 1961, has been tentatively estimated at $22 million. Experiments are said to have indicated yields of as much as 70 tons of cane per hectare each year, with a recoverable sugar content of 11-12%. These rather high yields are reported to justify an expectation that raw sugar could be produced at a cost of R1s 8 to 9 (US 10.6 to 11.9$) per kilogram. - 24 - Industrv (a) Private Enterorise 18. There has been some acceleration of industrial development over recent years. In the private sector there has been a growing awareness of the investment opportunities created by the growing purchasing power of the population. A fillip was given to private investment by the establishment in 1957 of an industrial loan fund out of the profits from the revaluation of the gold and foreign assets in the currency cover of the BMI. By April 1. 1958 the Ministry of Industries and the High Economic Council had approved applications for loans from this fund of about Rls 1.7 billionz of which the Bank Melli. which was designated to investigate the creditworthiness of the annlicants. had apnroved Rls 05 billion- The Bank Melli; however. is expected ultimately to approve all but perhaps 10% of all the recommend- ed annlications The total investment entailed in all these aon¾.natin will apparently be in the neighborhood of Rls 4.8 billion ($63 million). Mnct nf thp npw invAnvtment. is Aning into tevt4les incldiAng cottnn clnth and yarn, woolen yarn, knitwear and jute; building materials such as rement- hrinkq nod tiles, pinpe 4i'reyn qA n+soel t%atn0 vsnils Pete= and a variety of consumer goods including matches, vegetable oil, enamel- ware, refined sugar, etc. The scop fa on fhe eindstrial InAn fund have considerably exceeded those of the Industrial Credit Bank of the P.0. whi4h frm it+s inceptio 4, ir mid-1956 to Febviinry , 105r anpprveA loans totaling Rls 655 million of which Rls 356 million had been disbursed byr t.he 'hni+qr date. la A r.f%V%+, VNI I4 V~" Ws"I%k1 a1Ti flmfl~ tI 1 1 lha +11a VW~~evt4 a4 fwl ^'P a vA rIlip +.A 1. A e.t..n4--- brobl - w e tp visio of adeq.fte working capital to industry. Industrial ventures in Iran, as in many other MA.derdevelop-eA o .tris zre n wenea. y +alp 4 nzA nd are chronically short of working funds. Existing commercial banks are accust0meed t0o U-M-LirLAr.g thbeir" f3 -ancitng p, 2-wriUly to mrhnsar.d .s e been reluctant to lend to industrialists. Even sound industrial enter- pr.ises often hve- to obtanL. TAuchA Vot 1,LIUl- WVrkrLg Capital vro-um thbe buazaar money market and at rates of 18 to 24%. (b) Expansion and Rehabilitation of P.O. Industries 20. The P.O. has meanwhile been struggling with the many problems __ _2 _ t___ wL ___ - - - __ _t L _ n_ I _ _ __ _X% _L _n__ arLS-|irow wsMUi 0FurVUU.L0Li 0± t J.U ^rgU InUt:r u1 gOvUr-L±U1UI.U P-finUs' fzor which it iU responsible. Some resources have been devoted to the re- habilitation and, above ai, to the expansion of these plants. Trhe capacity of 3 sugar beet mills has been extended, and that of two others is being ex-panded. There have been some additions to the equipment oIf two canning factories at Shahi and Bandar Abbas, and to the vegetable oil plant at varamine. a virtually new jute miii is being added to an already existing plant at Shahi, which, considering the expansion also taking place in the private sector, is likely to create considerable excess capacity. The P.O.'s Chitsazi textile factory in Teheran has to some extent been modernized and expanded. Equipment for two new textile mills which was originally obtained from Italy in exchange for oil under the Mossadegh regime and remained unutilized for several years is now being installed, partly as a new mill supplementing the existing oil cotton textile plant at Sahis, partly as an addition to tne Chitsazi factory. The two existing P.O. cement mills (in one of which the P.O. has only a minority interest) are being supplemented by two new mills the construction of which is well advanced - one at Manjil in northern Iran, with a daily capacity of 300 tons; the other at Doroud in central Iran, with a daily capacity of 600 tons. 21. On the whole little progress has yet been made in rehabilitat- ing the rather old and poorly maintained equipment of many of the P.O. factories or to improve the management which in most instances is deficient. The consulting firm of Geo. Frye Associates, whose services have been made available to the P.O. by the U.S. Government, has been instrumental in making some improvement in organization and methods, including accounting practices. The technical management of the Shahi and Beshahr textile plants has been entrusted to the German firm of Winkler which is slowly effecting some improvement; and the technical management of the Chitsazi mill has recently been turned over to an American firm, United Merchants and Manufacturing. The marketing of textiles, however, is still in the hands of a company which appears to be rather badly managed. (c) Transfer of. P0.-Industries to Private Cwnership 22. The realization has eraduallv gained eround that the operation of all these plants should not be a government responsibility. The P.O. recently appointed a commissioner to look into the disposal of these factories. Very tentative plans envisage that the smaller plants, in- cludine tea factories. notton Pins. small mines, etc., might be sold to private interests at auction, with a floor price set by the appraised value of the nlant. The larger plants- innliiAnvg sugar- cement and textile mills, would be sold, however, only after they have been re- habilItated nnd assured of eontining good mannagemernt in such a way that sufficimt confidence would be established to attract many small investors. While thls oth ctne4Au i. in t.haoe rcomenrArhle, ItI i,c+Anhl whet.h the P.O. can in fact create these conditions. (d) New P.O. IA,ds+r4al Pro4ects 2_ Mnnnvh4lo +.ha P-0 4ae?^4n fe.rowA I.T4+.h n.hov anhiMAi plans to establish new industries which it believes Iran should have. Among these are (1) a steel plant at Azna r central IrTnnto produce 110,000 tons of crude steel and 87,000 tons of rolled steel, (2) a n4trogenoius fertilizer p t at Aw.Ta,7 4r. Khuz,est-n, wTi4+h a capaeity of E> k-~-~- c ~ ~ C A4.~4-w h ~a. ca a i . of 100,000 tons, and (3) a polyvinyl chloride plant at Ahwaz, with a -in,pr o-duction of 9/ m4io pvds p-er year Trk. lf++_ +,f., plnf a-re to be based on natural gas for which the Khuzestan Development Service has pannead a ppelir.4e 4rn, the A-.h Tari o41i4elA to Q-. All th+lee plants are to obtain their power from the projected Diz dam. 24. The estimated cost of these new enterprises has been put, respect -I -_+dely,41 zt do% milir, *5 -2 millior. nd-4 m ill ion. Technical .1 ~ . VV .Lj, 0. W fi C L".L.L.LJ.tLA, 9CS~.W r.J ULJ_L.L.1L U .iLU 'W4F. hn.LL.JJL. -lJ.'. studies on all these plants have been made by foreign consultants. There are tentative planLs for- adding, at a later date, a caustic soda factory which would supply chlorine to the PVC plant. Provision for a start on - 26 - the steel and PVC plants was made in the P.O.'s budget for 1958/59, but construction of the fertilizer plant appears to have been temporarily deferred. The P.O. hopes to avoid the evils of government operation and management by entering into management contracts with aualified foreien firms. It is planned, for example, to get August Thyssen, a German firm, to manage the steel plant. 25. The steel mill has been desip ned by Krunn-Dpnag who are expected to be the principal suppliers and were also requested to investigate the economic iistifi rstinn nf this usntnrn- Cnal for the mill is expected to come from mines in the Elbourz Mountains, will be taken U10 kilometers by road to Karadi where it w-ill he coked ana thence railed 460 kilometers to Azna, the location of the steel mill which is 420 kilometers south of Teheran nn the tran-TranInan rnil-way. The irnn ore, which is reported to have an average Fe content of 46%, is to come from Shams Ahad. abohnt 100 ki1ometers frnm Azna. Sinco the inks is not of sufficient hardness for use in ordinary blast furnaces, the pig iron will be produced in electrie blast fuirnaen Tt is elaimed that the production cost of rolled steel, exclusive of a return on capital, will be Rls 7,000 ($92sfl) ner tnt, which, if confirmed, would mnke 4it nmnlv competitive with imported steel. 26. Almost invariably projected cost calculations tend to be over-optimistic nnd fail in partIAculanr to take adequate account of the local conditions which limit the efficiency of operations and the full utiliz ntionv of' c'anpaeity 1AWNi a private manag4tg agents may overcom.e some of the difficulties inherent in government operation and ownership, they1 oeldvom ;7 all +tha ,anannwr pw,f-- -4,,r4 n,A -d 4r. n vA-,+4, +t ensure really good management. The P.O. hoped to persuade Krupp-Demag to make an eqa-ty n4vec+ment i the steel m1l1 as a token on con4dAa.ncea but the firm has evidently agreed to invest about $5-6 million (the equrlnralen.t of 20' Oe the c09t of 4ae.a znd -P ma4.er4-1 --A Jul4. 1.e t~.~sLV4.IflV J. -LV LL USI 4C t.UOI uLf Uaf.L.La.L. a±LIL tLL4U.LF=LVnh lit. "U oiy_a only under the condition that this participation will be purchased by the A. . aft'uer It years. LThe iUawke f or ± e±-tu'iZetr pobeB a se-ious pr-o- blem in connection with the establishment of a fertilizer plant and tJLLIJA..LI S' be ILl.AL.J C IA.iL1A UO.L e01 8 romeding with tlhe pruoposed p±a±tu. Mineral Resources-De-,relorient ')7 1r2 - 11 . --- - _ - -a -- ---~ 9-- 1. - 1 -..- i_- - i- -1 - k-I- 27. Mineral Gevvelopmeni. nab quite 1aulurally concentrauea on tine expansion of production and exports of oil. The oil consortium has consistently spent la-ge sums on development. Its current investment program is focussed on (1) the expansion of output at Agha Jari, the I _, 2 _ _' .- _3 _, _ _ _, .- ]~ - _ , _ _ ,- - - . I1 - .- . - I . - prLincipal producing fleld, together with the construction of a new pipeline to the oil port of Bandar Maehur, and, above all, (2) the UCVe±OpmCent OI bhie Gach Saran field which, though one of the largest oil reservoirs in the Middle East, has hitherto been kept largely in reserve. In the latter fielad,production, gas-separating and sulphur- extraction facilities are being expanded and pipelines will be laid to nnarg island where berthing faciiities for tankers up to Ouu,0uu d.w.t. will be established. By early 1960 it is expected that the oil consor- tiumts export capacity, which is now about 850,000 bbls. per day, will - 27 - be raised to 1,100,000 bbls. which can in turn be significantly increased bv the establishment of pipeline oumning stations. Under these circum- stances physical capacity for production and export is likely to remain well abreast of developing market demand. 28. Mnst sf the N.I.O.C.ts investment has been devoted to facilities for the distribution of petroleum products within Iran. It has finished a produnt pipeline frnm Ahvaz to TAheran which is now being siinnlemented by links with Resht in northern Iran and Isfahan in central Iran. It is continuino oil -pxnlnrqtion in the Quim hasin where the earlier (di1rsoverv of a major gusher arolused great hopes. More recent exploratory work has to RAmA extent defMatd these expectntione; anrd even if nil in eonsMe-rable quantities is found, the geographic locat in of the field would seem to prec-1iiue its AP.vPvnn-nt. fo-r ev r,-r+. 1rnl s -t'ollr 11ru ivtments in transport facilities are undertaken. 29. While certain areas have been reserved for exclusive explora- tion. an.d develop-mnt by N.I .O ., other areas renaIn open- for foreign concessions either with or without the participation of N.I.O.C. The Italia. cnr.cern A..I T P i.o s ben gr +td -all offshore ^noo4 and a concession in the foothills of the Zagros Mountains in partnership with N.I.0.0. Bore + i rl Co. (Indiana) has been given an offshore concession on similar terms, supplemented however by a"bor.us paymer.t of 5X millior. 30.a,ran o mhe developm4rt ofP mnerals other than oil has In l v ~ V ~J. , . A L. LM. ~ 1JXLJ, U .L 9Y. J -6 14JAJ . U 1 .LIAL U~4 neglected. As already indicated, there is some production of coal, manganese, iron ore, lead, zinc arnd chromite. There are rather widespread mineral occurrences throughout Iran, but there has been little systematic exploration. Arupp-DeIMng have iLLv etigated certain coal a,d iron ore deposits for the projected steel mill; in 1954 a Swiss geologist on the _ _2^ ETIT 'r n _I __ ~ _ _ _ S_ 4 1_ _ __ __^___n__ t_ _ staff of N. .0.t. unuertook a survey of coal and chromite deposits in the Kerman area for the Plan Organization; and more recently a team of German experts has been working in the nerman area, under the auspices of the Ministry of Industries and Mines, on coal, iron ore and chromite deposits. There are apparently substantial coal and iron ore deposits to the east and north of Kerman, and some promising chromite deposits between Kerman __3 w_ n n_ ^ __1 _l - MI_ __ . , - *---__ _^ _ - l1s - __1 A____2 i _ --I, anU uth Gul Coast. Tle pOSSilDlitby Of exploiting tne coal UdpUt3 U Willl depend partly on whether present tests determine them to be of coking grade. There seem to be rather definite prospects of developing considerable ex- ports of chromite. The principal obstacle, however, is lack of transport facilities. It is still undetermined whether the mineral potentialities of the Kerman area would warrant the rather large investment which would be necessary for roads and the development of a port at Bandar ADDas at the entrance to the Persian Gulf. Another difficulty is posed by the terms of existing Iranian mining legislation which are not very attractive to potential foreign investors. Transport and-Commmicato ns 31. The fact that about a third of the P.O.'s budget has been set aside for transport and communications is a recognition of the importance of this field to the development of the country. The geographic extent of the country (1,200 km. from the Persian Gulf to the Caspian Sea and - 28 - aroundi 2,00 w m. frem LIW to SE) ana its division into many areas Dy mountain ranges and deserts make a good communications network both essential and expensive. 32. riuch has been accomplished in recent years in expanaing ana improving the operations of the Iranian State Railways which extends from the two Gulf ports of Khorramshahr and Bandar S9napour to Teheran and thence northwest to Tabriz and east to Meshed. The last 497 kilo- meter stretch of the line to Meshed, which had long remained unfinished, was completed and opened to traffic in May 1957; and the remainder of the line to Tabriz was finished and opened to trafric in March 1958. A dieselization program financed by a loan from the U.S. Export-Import Bank is well under way. A considerable amount of rolling stock has been delivered and is on order. As the result of this program and some technical assistance by the U.S. the operating efficiency of the railway has apparently improved considerably. The railway has a substantial operating surplus; its operational ratio in 1955 and 1956 was 0.76 and 0.77 respectively. 33. Much of the railway's expansion and rehabilitation program has been financed by the P.O. which by the end of 1957/58 had apparently disbursed about Rls 2,955 million out of a total allotment of Rls 5,553 million provided for this purpose in the entire Seven Year Plan. The Bank Mission was unable to find out, however, what effect the railway program as a whole has had or will have on the system's carrying capacity and how the latter might compare with the development of transport require- ments in the future. 34. One of the drawbacks of the railway system is that it does not serve Isfahan, one of the principal industrial centers of the country. A branch line from Qum to Kashan in the direction of Isfahan does exist, and about 75% of the substructure and stations on a projected extension to Yezd bas long ago been completed. No decision has yet been taken, however, on how Isfahan might be linked with this line or directly with Qum. 35. The major emphasis in the P.O. program for transport has been on roads. The Seven Year Plan provides nearly Rls 16 billion for the construction of 6,000 kilometers of roads. Of this program 2,612 kilometers. over half of which consist of provincial roads, are to be built by the Ministry of Roads, and the balance by the P.O. under the supervision of foreign consultants. As yet little progress has been achieved. The Ministry of Roads claims to have finished 1,398 kilo- meters of its share of the program for which it apDarently had received Rls 1,418 million by the middle of 1957/58. Very little actual construc- tion has been completed under that part of the program which is the direct responsibility of the P.O. By the end of 1957/58 total contracts awarded or on the Doint of being awarded onlv covered about 500 kilometers. The program has been held up by the time consumed in planning, by protracted difficulties with one of the nrincinal firms of foreign consultants which led to the eventual dismissal of that firm, and by delays in reaching dersisi-nns- However; the rate at which construction eontracts will be let is expected to rise sharply in the future as much of the preparatory work has been completed. - 29 - 36. The P.O. has also assumed responsibility for the rehabilitation and expansion of the ports, another vital link in Iran's transport system. Work is proceeding on the three principal ports: Pahlevi on the Caspian Sea, which handles about 125,000 tons of traffic with the Soviet Union; and the two Persian Gulf ports, Khorramshahr, the chief commercial port which handles about 700.00 tons of import and export cargo, and Bandar Shapour which handles about 470,000 tons and functions primarily as a port for government imports. All these ports have suffered from poor maintenance and equipment. Piloting, navigational and anchorage facil- ities are generally inadequate; there is little or no cargo handling equipment; stevedoring services, performed by labor contractors, are ineffic1znt; internal transport in the ports is poorly organized: and the clearance of goods through customs is cumbersome and time-consuming. Above all. resDonsibilitv for port administration is divided up between three agencies - the ports administration of the Minisbry of Roads, the Customs and the Railways - all of which display very little inclination to cooperate harmoniously. The Customs Administration, whose respons- ibility in most countries is confined to the storage and clearance of dutiable goods, actually has the primary responsibility for all cargo handling. The lbailwav Administration however, has the resnnnsibilitv for internal rail services in the ports, and the Ports Administration is confined to the mnaintnemnre of bhrthsj nhnnrepl and nilntae0. All are handicapped by lack of well-trained staff. Vessels at Khorramshahr have to wait at anchor 1 to 4 weeks before obitaning a berth, and evieln after berthing 5 to 10 days are required to discharge 1,000 tons of cargo. 37. Some of the principal deficiencies in physical facilities are now being remedied by programs under way. Ir n horramshahr ten exrisi-n jetty has been repaired and is being extended and furnished with new transit sheds. E,4csting customs stores hni-e been-. 1al+ve ar.d provided with better access. A somewhat similar program it being carried olut, at B&andar S hapour alA-h--I- A-val srm. +thee4 i9 q napped by the restricted space available and the cost of developing an entirely -ew port citty . at C%rU.LS.LdAerdbS 'Le A.Ld Usance froL.L 1WU wl..JL U Jp us.elf . At P zIj.Lev work is still in the ititial stages, although contracts have been let for the reppai~r of fl6oating 8qUij-Lent,1 -> larel usles -n d-r--I - -Ir. S 1.1.. .1.J.*.J U.LL.~ ~Lj4.J4JL~1Sy 1±1AVW LC.L 60_4 . LA~.L .0 OL.±L%A %A. LLZ" .LL1S. L view of the completion of the Iranian railway to Tabriz where it links up with a railway line to the U.. T C R., +he iu+414+vy of aper.dir. ch money on Pahlevi may be questioned. The equivalent of $32.2 million including t'l U.7 i411ion 4n far-.-4 exchange, h een allocate +to the_e three po,rt programs which are being carried out under supervision of the Danish firm Ko^ev- nw.A --P +h4e! +-+-In 4:b4 d,.ln _414A 4_*Xr 7c *aL I. V WV V UU L A & SW VU L %J''LW GL.LJ. L , L AV oLLLUJ A6 4.L) * I - million in foreign exchange, had been spent by the beginning of 1958/59. 38. The NeUherlAnds f4- -f Nedeco 1- bee. e gaged to plans for development of both the ports at Bushehr and Bandar Abbas which V ~.J UU~ UVUI)OLL.LUW ~U.J .U.LuIvL UVWIJWL±lu %ULLLL Jut% u . J.U .Lo are situLated consiudera-bl;n fur-tber dw teG'Cost Te Cost of developing Bushehr is estimated at $6.6 million and Bandar Abbas $18.6 _J1 1 T . 2 - J -1 .L. - 1 A.11LL I_2_1J¶ 1. mi''±±rU. <.u p-r u'ete ueve±upweruv ofi these por-t iu±guu be desirable. Biishehr is the natural port for the province of Fars (population 1,320,000) and its capital, Shiraz, :/ and could also serve IsIanan whose foreign trade now goes in a round-about way via Teheran. Bandar Abbas is the only port for Kerman province (population 1,217,o0), which appears to nave !/ Shiraz could also be served by Bandar Shapour but the distance to this port is probably about 120 kilometers longer than that to Bushehr. - 30 - considerable economic potentialities, and might also serve as a tranship- ment center for ports farther up the Gulf. The total volume of goods cleared by Customs through each of these two ports in 1956/57 amounted only to a little over 50,000 tons. Considerable sums should not be spent on these ports without first determining the traffic potential of the hinterland and without at the same time allocating substantial funds for the improvement of the wretched roads serving both these ports for which no provision has yet been made. 39. There is an urgent need for the appraisal of port requirements in the light of the overall development of the economy. Any port develop- ment undertaken in the light of such an apDraisal would, however, be inadequate unless at the same time drastic steps were taken to remedy the present bad system of port administration. Some experts have recommended that responsibility for all aspects of port administration must be vested in a single ageney with autonomous status. Legislation for this purpose was drafted a few years ago and is still pending in Parliament where, hnwever; it has been so watered down as to promise little improvement. Moreover, there is no single agency which can take over complete respons- ibilitv without an adequate nrourAim of persomnel trainino and the partici- pation, at least for some time, of expert foreign port administrators. 40. A considerable sum - Rls 1,731 million or $22.9 million - has been hi2r0eted in the Seven Year Plan for the comn1etion and hui1ding of new airports, but less than one-fifth of this was actually spent in the first two and a half years of the Plan, Almost half the total is allocated to the Mehrabad airport at Teheran on which work has been proceeding very slowly. Tn Shiraz it uas decided to buyild a new airnort at the time when the new terminal buildings at the old airport had been fl 1 v17%.c+. offlTViT1 c..m J.1 . +F-o the 4mpro^e ofent +teleco-,rn.-nications and riostal serv ces the P.O. has allocated Rls 1,584 million ($20.9 million) of which about P.18 A00 -41 40n V-A beer. sp-nt b.Y the en. Aof4 10457/90 As a"" business= . -0 1Jt l 1A..LA. .& us. J u U LDJ U110~ A~ L'S ..t t. -_~ -_L WU .1.LL1.-_ men and visitors to Iran will testify, these services require urgent improvement. The M4ssionur was a-1.1able to deter-Ine, however, to Lyhnt. extent the present program is likely to meet the most serious deficiencies. Electric Power 42. The electric power program of the P.O. has not made wuch p.-ogress, It4 consIsts on the one '.-nd Of a vmrnicipal electrifi4Lc a tior. program and on the other hand of the installation of a number of hydro- eleetric p'nts- azt Multli-Varpose LA rdrcrtutirEerfcto in Iran is only in its infancy. According to a survey made by Sanderson & Porter ,orthe P.O. ard publishieu earlj-y in 1957' rh totuv al cA " ilty o %.XUSU. oLlero uhs 'LL I lI a.lL JUL1U a.J .51 87.) e1~UU.-La1.0LJ. Uj ~L. all power plants, including those of industrial enterprises, amounted to on.Ly 221,53 . 1 an,U the peajkS1 luaU reacedlteu only 14.r,00P JL" Uof WhLich x1ldustry accounted for 74,975 KW. The International Oil Consortium plant at Abadan andU blie power p.ian.tBs in Teheran boge'her- accuanueteu for 6r5P ox' tUhe availabUl capacity. Most industrial enterprises of any size have their own power plhants. Except for some steam capacity at Teheran, the public utility - 31 - plants serving municipalities consist of small diesel units which are generally badly operated and poorly maintained. Some are municipally owned. others are in private ownership. In Teheran there are no less than 27 private companies supplying electricity in addition to the municinal company. and in Tabriz 7 nrivate comnanies serve in many cases the same sections of the city. Distribution networks are generally very noor; resulting in losses ramoing as hioh as SOIL Since numhlie utility systems for the most part serve only lighting needs, the load factor is extremely low. L3. The P.O_ has budgeted around Rls 2 hillion (926.i million) for a municipal electrification program outside Teheran, but by the end of 1957/58 only a little over one-tenth of t.hTl si3m had bhen snent. The planning and supervision of this program is in the hands of three regional foreign cnnsullt±ng firms And the financing is to he shard onn a fifty-fifty basis by the P.O. and the municipalities. By February 1958, however, only 11 ^lt. of A tntel of pp)2 nrv-r0ot.csQ &nhrl A11 nf 4-hon ;nernir,no uvpTr -ms31 diesel units, were actually in the contract stage. Many reasons have been responsnible for" this poo- record: %r-%Jt oA- the +1% AlL t r the financing; problems posed by the existence of private power companies; delays in gettig decisions fr-v the P.O.; n a' 4'- to -fol'' through in negotiations with the municipalities; and difficulties encountered in obtaInI- 4 ds Izo AII c^ntra+ct. * M-,nn..,,41e haWevern +a Ten A,n A v *n , U w..vd ,vWs v 1 v,s 9.A-ci*w.L . . _- Municipal Power Company, for which the P.O. has assumed no responsibility, h'aS ubeer. proceedig wit - -Ubs4-4tial -^Fasior prgamfrsr it h J4~~ L LS jJJ ~.&J LLS W.L UJ. OLU O.L P u ucuLuOLcJ 1uA&G611.iL VJ.UL F.L VrI .LCL A*. .L11CL1A.,%A -..L U'-A help of suppliers' credits. 44. The difficulties encountered in carrying out the municipal electfi Jato.LU progr-am were a' least partly responsble for -a new prop-sal worked out with the help of the P4;fs Technical Bureau, to organize the existing private and municipal power companies into 7 regional companies which would be capped by a central power company to be known as the Iranian Electricity Company and to be capitalized by tne P.O. This group of companies would blanket the whole country except for Khuzestan for which a special Khuzestan Energy Authority nas been estaD.isned under the auspices of Khuzestan Development Services. The plan provided that the regional companies would be ownea by the iocai power companies and municipalities as well as other potential investors and by the central company to the extent capital for development needed to be supplied by the ±auter. The Iranian Electricity Company was to be managed by a syndicate of experienced European power @nmp8nies wniCh would be responsible not only for planning and carrying out power projects in the regions, but also for supplying managerial and technical staff for the operation oI the regional companies and the training of their local staffs. The Iranian Electricity Company was also to set power rates for each region within ceilings to be establish- ed by the government. 45. The feasibility and acceptability of this rather elaborate proposal and other approaches to the problem are now under consideration. In general it appears clear that any plan would need to ensure (1) adequate planning on a continuing basis to meet developing power needs, (2) greater standardization of equipment and safety requirements, (3) efficient opera- tion and proper maintenance nf power facilities, (4) improved prospects in integrating the operations of private, municipal and industrial power plants, - 32 - and (5) gradual interconnection of the power systems of various localities as and when the situation requires. Mviany difficulties in working out a practical scheme to achieve these objectives must be expected. 46. The hydroelectric program of the P.O. is still largely in its genesis. Plans are definitely going forward to install 110,000 KVI at the Karadj Dam which is now under construction. This plant, which will cost Rls 1,558 million ($20.6 million), is to supplement the povwer supply of Teheran. Tentative plans call for the installation of 64,000 ET1 at the Sefid Rud dam, but a final decision has apparently not yet been taken. By far the most ambitious hydroelectric project is that calling for the installation of an initial capacity of 130,000 KJ at the projected Diz dam in Khuzestan. This hydro plant is to be interconnected with the Abadan parer plant of the Oil Consortium which will have some spare capacity. By 1962, when it is hoped that the Diz project wvill be completed, the maximum power demand of the region to be served by this plant is expected to be 161,500 KS. Of this total 65,000 Kl; will be for the projected steel mill near Azna,. and 9.700 KW and 000 KW fonr t.ha nronop.AP fr+tA147.pr snA PVC plants at Ahwaz. Social Services Oi7. Tn the social sector the P.O. has finanned a considerable number of development activities of the Ministry of Education and the Mi nistry of lWealth and a wride range of municipal imnrovement proiects. The Mission found it difficult to assess tlhe progress in these fields, rpa-rt.ci_mArl in the apnarent ahsenrce of oveprll goals q and nrornrams. Tn the field of education the P.O. has assisted the Ministry in completing e01 orrr 5n(fl m , eleten+tvr' and .cvonmdrr sichls and in finAnnina nari- cultural and technical schools. In health its most important contribution has probnhly been not in completing a number of hospitals and other health institutions for which sufficient staff is in any event not available but in bringing about a wholesome shift of en-phasis in the _ectio of ventive medicine which, among others, has included effective campaigns for +he cn tro-1 of --Ir .l a and -..-llpox. A---- the- -sLiA-lV Y.r.rJs th P has financed are street paving, 'where considerable progress has been made, lrn+e s-upp -A ly,r ,nd ettsrfl , snnlaughterhuse, atc. Ry f art the con- struction of the Karadj reservoir and the purchase of water pipes the P.O. hasL a-lsoU given considerCabile assiostan-ce to t.LIZe Tehera .19later Board in ;ts continuing efforts to provide the Teheran area with a reliable supply of pure wa ter. RegiorLa W-p"Loach tuo DJ"%evelopmsen1t 4u. Iilme andu space pree.r'tL calr .,tCL iLVU discuss1on1 of aL.L Uthe multitudinous projects included in the P.O. program. One aspect of its work, however, should still be menLltioned; and tfhat is the Iic;J-easLng tendency to approach development on a regional basis. This tendency found its first expression in the development1 surve-y adJ plan for lKhuzesvan. More recently it resulted in commissioning an Italian firm to do a rapid preliminary survey of Baluchistan in south-eastern Iran. Surveys foIr bhe province of Kerman are also being considered. A regional approach is not unreasonable in view of the fact that geographic barriers divide Iran into a number of natural regions which may be well-suited to integrated develop- - 33 - ment. The comments already made in this report on the development of the ports of Bushehr and Bandar Abbas illustrate, for instance, the need to examine transport problems on a regional basis. Nevertheless, there is a serious danger that the current enthusiasm for regional development in the P.O. will tend to distort the priority rating of projects from a national standpoint or lead to many new commitments in excess of the organizational, technical and financial resources avail- able to cope with them. - 34 - STATISTICAL APPENDIX Table 1 IRtAN - BASIC E8CO!K)IC DATA 1957/513 Year PIling March 20: ______________ 1.956/55 1955/56 1956/57 Revised 1957/R51is -n 195719558195855 Ye__x____i___Mar __20__15_54/55_1955_/56 1956_57 Es timatLe I III IV ____Budget_ EOFIYLTIONI (Rough estimate in millions) n.a. n.a. 19 ----- NATION-AL tRICOME (Rough estimate in midLlitons of' US$ - at 1957/58 prices) n.a. n.a. n.. 2,10(1 - - - - AGORICULh¶JEAL PEODUCTION (1,000 metric tons)3,D 350 VIFe-at, ~~~~~~2,750 3,10X ,0 ,54 Rice 550 660 50& 580 - - - - Gotten 230 250 230 230 - - - - Sugar, beets n.a. 521 n.a. n. a. - - - - CRUDE OIL PRODUCTION (million metric toi,s) 3.5 15.8 26.2 38.2 7.5 9.6h. 10.8 105 WHC'LESALE PRICES (1-953 100; end of period) Over-:all avetrage 120 121 126 - 123 122 118 - Home goods 122 ii8 131 - 132 132' 132 - COST OF LIVING (1953 =100; end of period) 122 126 160 - 138 160i 140 - TOWflEfl8N1 DEPOSITS (billion rials; end of period) %/ 12.5 13.8 17.2 - 18.3 19.3 19.8 - MONREY SUPPLYX (billion rials; end of period) 21 23.4 26.6 29.1 - 29.3 30.9 32.0 (34.0) - 'M =~NU BUDGEIT (billions of rialsy 7lca-sb Transactions in billions of rial1s) at. Ordinary Revenues 10.0 11.6 13.9 16.1 - - - - 19.2 P * Oil Revenues - 0l.7 2.8 5. 6 - - - - 8.6 c. Expendltures 12.3 13.8 18.9 21.7 - - - - 29.0 di. Deficit bef'ore aid -2.3 -3.5 -1.2 0 - - - - -1.4 es. UJ.S. aid 12.3 /3.6 /1.5 /0.3 - - - - f'. Deficit after aid - /C. I /0.3 /0..3 - - - - -. PLA&N OMOGANIZATION' (million a. Disbursements n.a. 33.9 3/ 106.9 16i.5 67.8 91.7 182.3 5 b.. Oil Revenues n.a. 22.6 3/ 73.2 100.3 50.8 69.5 93.6 c. Deficit before other receipts n.a. -11.3 -30.7 -61.2 -1-7.0 -62.2 -88.7 6l. Otheir receipts n.a. - 27.5 65.0 2,5.8 39.2 13.2 e. Balance after other receipts n.a. -11.3 -6.2 /3.13 ,88 -3.0 75 f'. Total cash balances (million $ end of Period) 18.7 7'.6 3.2 7.O 8.o 12.0 8.9 9.0 g. Rial. debt to Banks (billion rials; end of period) 1.1 1.1 1.1 - 1.1 1. 1 1.1 1.1 TO0IYL PLANi ORGAIIIZA7ION AND BUDGET EXPENDITURE Thf1lion vials)- n.a. n.a. 26.9 36.0 61.2 TUTAL CASE BALANCE OP TREASURY (b-illion rials; end of period) 1.6 3.7 3.8 - 6.2 5. c 6.o RIAS. DEBT OF TREASURY (billion riale; end of p3eriod) 11.3 11.6 12.0 - 11.9 1.? 11. 8 CASH D-EPIC 'TURlERPLUS J/) OF BUDGET AND P.O. (Tbi'llion rials) a. P.O. - Deficit after foreign borrowing n.a. -0. 9 -0.6 - /0.7 -0. 2 b. Budget Deficit after aid /c0.1 / 0.3 - /0. 4/6 c. Estixated Change in cash balances disbursed by P.O. to Treasury but not pet expended- /1.9 -0.8 - /1.0 /0. 8 d6. Total effects n.m. /1.1 -0.9 - /0.9 /1. /0.7 TIFNE DEPOSITS OP PRIVATE SECJIOR (b-illion vials; end of period) 0.9 c0.8 1.3 - 1.6 1. 7 1.813 BANK CREDIT TO GOVERNMENT CORPO.ATIONS AND MUNICIPALITIMEST(E)CcludgnP.O )~ - - b-illio-n riale; end of period) 6.6 6. 6 7.7 - 7.0 7.?7 8.0- BANK CREDIT M0 PRaVATE SFIT0R (billion rvials; end of period) 161 7.6 9,.2 10.1 - 11.5 12.1 1.3.1 MIfSCEIANT)DUS FaAL ASSETS OF BANKS (b-illion rialst end of pei?E6d) 1.8 2.8 3.9 - 0.. .5 6.0- FORPIOGN ASSEiTS a. Gold.TTtlJion 8) 138 338 138 - 138 138 138- b. Foreign exchange (minlion 8 73 72 81 - 116I 91. 119 c. Total (million 8) 211 ",10 219 - 252 229 269 - d.. Net of non-monetized accounts of Treasur:y and ('.0. (1) Mifl2ion $ 198 191 199 - 262 218 236 - (2) BIallion rials 15.0 16.5 15.1 - 11.6 16.6 1-7.9 - 1/ Includes allI demand deposits other than those of the Treasurzy and F.0, at Bank Melii oand el-ose of Benks with Bank Melli. 5/ Includes demand deposits as specified in footnote 1 shove pl,:s currmrcy ou:tside. banks. 3/6 mcoths ending March 20, 1956, only. 1/Includes inter-bank credits, Other taes those to end from Panik Medli. S/ Revised. ouc:Various Iranian government agencies.- 5- Table 2 AGRICULTURAL PRODUCTION (ESTIMATE) 1331 1332 1333 1334 133#5 1334/ (1952-5) (1953-54) (1954-55) (1955-56) (1956-57) (1957-58) T-A-- of Volume of Production 100 101 103 106 113 123 (a) Wheat 100 102 100 113 109 127 (b) Barley- 100 98 9is 105 109 11 (c) Rice 100 108 110 88 109 116 (a) Cotton iO0 127 153 167 153 153 (e) Livestock and dairy produc-ts 100 i00 102 106 117 125 Value of Production at 1955-56 prices (p million) 820 830 850 875 925 1,010 1/ Years of exceptionally iavoraDle weather conditions. Source: TB OiN/Iran Program Office - 37- Table 3 INDUSTRIAL PRODUCTION Years ending March 20: TT-ni t.IC) 195/,/5 19r,,5 1W;AA/7 IQ57/5g Tea 00 metric tons 6.0 7=0 7-_ 7=8 Sugar " 61.7 76.8 85.2 86.5 Cement 65.0 131.9 321.5 322.0 Cotton cloth million metres 64.5 55.3 61.9 63.0 oolers-1-- -+I, co 1 3. i.t Jute cloth " 5.4 6.1 5.2 6.0 "J.LJ.f - ~L LJ VII *j 'la Cigarettes million Nos. 6.7 6.1 6.6 6.7 ?.ff- 4. - - - I I f/n ) f A' t') o,( 1r7 4!" lr A Soap 000 metric tons 58.0 58.7 53.7 ,4.7 Rubuer shoes Rl-Lulli l±ri u. OD v . 3 v Glass minllion squiare metres - 0.3 0.5 0.6 Soft drinks million bfttles n.a. 96.3 120.0 130.5 Source: Ministry of Industries and Mines, Teheran - 33 - Table 4 NU1BER AND OWNERSHIP OF FACTORIES IN MAJOR ITDUSTRIES End of Year ending March 20: 1947/48 1954/55 1957/58 T70iindusv-tr . Private Goerent Pi e Governmnt Private Government Lea UV- 6 48 6 8 Sugar _ 9 - 10 - 12 Uement - 1 2 Cotton 12 4 16 4 23 4 woolen 6 - 11 1 un Jute 1 ]. 1 1 1 1 Silk - - 1 - 1 Cigarettes - 1 - 1 - 1 Yatches 14 - 20 - 24 - Soap 6 - 15 1 21 1 Rubber shoes 3 - 11 - 10 - Glass 4 - 13 - 16 - Oource: ivanlstry oI inaustrrles alU i,nes, 1eneran - 39 - Table 5 MAIN E(PORT S nF T1rNTq Years ending ,l-rch 20: 1955-/56 1956,/57 197 /lg 1st half Salt 35.7 211.4 0.6 Etoe 2 . 7 0 . 2 0 . 1~~~~~~~C.. Chalk 6.1 5.8 2.7 Red Oxide 9.0 5.5 3.5 Iron 14.0 6 5 3.6 Lead 24w1 23s 3 14.7 Zinc 19.4 20.0 1/ n.a. Chromite 32.8e 45.1 19.3 Manganese 9.3 2.7 9.1 1/ Includes some lead. Source; 4linistry of Ind-usries anid *Irnes, Teheran 40 - Tabie 6 EXPENDITITRE OF NON-TAX REVENUES IN IRAN (in millions of US$ equivalents) Years ordinia r 20:l 195J,V.5 l5'/56 195Q/57 1Qr7/ UTo T l venire '1O5 79. / U.0.2 2097.4 _ , _ , , , _, _ , _ ~~ ~ ~~ ~~~ ~~~ ~~~ ~~~ ~~~ ~~~ ~~~ ~~~ ~~~ ~~~ ~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~- +~z- rTT, >; 5.0. 67.4 39.2 2. Exinbank Joans - 14.0 5.0 10.0 Suppliers' Credits - 3.7 11.0 20.0 IBRD Loan - - 10.0 65.0 IIvF Drawings - - 16.5 - T )tal 90 4 211.6 262.4 375,1 939.5 Of which sDent directlyv abroad- Imports under US aid includirn payments under Technical Assistance Program 35.4 19.4 28.0 25.7 Imports under Eximbank Loans - 14.0 5.0 10.0 Foreign Exchanze exoenditure of the Ministry of Finance 3.1 26.0 65.4 10.0 Forei-n Ecchange exp-enditurne of NTOC 2.1 6.1 18.0 12.0 t it " of P.O. 11.4 30.3 29.9 60.0 Total 52.0 95.8 146.3 117.7 411.8 Of which spent initially in Iran: 37.6 115.8 116.1 257.4 527.7 _ / appro-trn +lyr Table 7 CHAMTOE IN IRAN MCNEy SUPPLY (billion rials) Yeairs endin,,._March 20: ~1955156 1956/157 19656/57 595758 L95?7/58 1957/58 Years ___tSing Ma:rch 20: 1 Lst half 2rnd half 1st half 3rd_quarter 4LL_Raarter -- - ~~-esti2mateY Money Supply (end of period) 24.6 26.2 29.1 30.9 32.0 34.0 Change in Money Supply: (a) billion rials /1.2 $1.6 /2.,7 $1.8 f:.l $2.0 (b) percent / 5% f 7% f 1]% f 6% / h% f 6% (Net effect of :Budget and P.O. operations) (-1.1) (--.5) ($2.-h) (-2.]L) (-O.7) (Bank credit to goverrment corporations and municipalities) - 0 ) (f0.7). ¸L ) ( ) ¸/9*3) Totapl 9veermenL operations 7l -.0.8 /2'.8 -2.1 -0.45 (Bank credit to private sector) ($e6) ($0.7), ($0.2) ($2.0) ($1.0) (Change in lanspecif:ied credits).!J (/1.0) 1.0) (ICO,) (/ ) (60.5) Total credit to private sector $2.6 $1.7 $O.3 $2.6 $D.5 $0.8 Time deposits of private sector $O.1 -0.2 -0.,3 -o.4 -0.1 -0.1 Net foreign transactions -c°5 $O.7 -0. $l.!; $:L.3 $1.8 Errors and omaissionnns /0.1 $0.2 C) /0.2 -042 L Largely to private sector Source: Balk Melli of Iran - h2 - Table 8 BANK NELLI INDEX OF TIE COST OF LIVING IN SEVEN MAJOR CITIES IN IRAN December 1955 100 Weieht . . % June '56 Dec. '56 June 157 Dec. '57 r oodstUUf. si Chickens 0.3 102.4 107.9 141.0 122.6 Dairy prouucAS 0.3 '9o. ii2.0 4,16U 1U84. Eggs 0.8 75.3 121.3 88.2 129.7 Flour 0.3 120.7 i16.6 I2..9 111.7 Cheese 2.0 86.0 107.9 89.6 117.0 Onions 3.0 155.4 1L4.9 145.4 92.2 Pepper 1.0 80.4 73.0 82.0 62.9 Turneric 1.0 90.1 80.2 67.0 58.6 Cigarettes 2.0 133.3 133.3 133.3 133.3 Tea 2.5 102.4 96.5 90.0 96.8 Rice 3 3 104.5 114.4 115.4 110.5 Ghee 4.0 101.5 112.2 114.8 118.9 Mutton 7.0 100.7 97.3 111,0 101.9 Sugar 8.0 103.1 101.5 99.6 102.9 Bread 18.5 124.4 115.9 121.0 115.0 All Foodstuffs 54.0 109.0 108.9 112.8 108.5 Textiles Carnvas sl^o.Ues 1L.0 v 10.9 9 0 11J.JLV 10.2 Leather shoes 3.5 108.3 115.7 121.0 124.5 rbJ ns !Sso ckls 1. v 10U4. o L.U 3 1224, .6 11 J- . 9 Yen's shirts 2.0 112.5 111.8 106.6 106.4 Artificial silk cloth 3.0 110.0 110.0 103.9 100.6 Boys suits 2.0 93.5 86.0 87.9 111.4 Cotton piece goods 2.0 102.3 98.4 97.5 110.5 Men's suits 3.0 95.2 91.1 97.2 98.9 All Textiles 18.0 103.9 104.1 106.1 109.7 Fuel and Light Mtches,eg 0.4 100.0 95.3 95.3 95.3 Kerosene 2.3 103.1 98.8 97.7 100.4 r:~~~~~~~~~~~< %J -LL- 7 i-L n1 rn n J-r--L Charcoal 4.7 112.1 123.2 123.6 138.6 All Fuel and Light 10.0 109.5 114.3 113.9 123.7 Sundries 6.0 101.1 106.5 108.5 114.0 Rent 12.0 110.9 116.4 120.2 127.0 OUUal UCost 01 tLaviLVlg 100.0U 1Uf.91 LUY.4 12 112.8 Source: Bank Mblli, Iran - 43- Table 9 rnTTrr'f -'mq,m .-r,v n-'irNT TmTn' (million rials) Years ending March 20: 1954/55 1955/56 1956/57 _1957I58 1958/59 Ministry of War 2,785 4,500 5,871 6,036 8,217 Gendarmerie 728 728 997 1,191 1,941 Police 737 841 1,052 1,125 1,275 Ministry of Posts and Telegrpphs 390 390 526 726 756 Ministry of Education 1,878 2,111 3,,84 3,895 4.,1?8 Ministry of Agriculture 248 309 400 4S1 668 Road Maintenance 410 425 580 750 950 Ministry of Health 450 519 580 774 97;4 Ministry of Finance 570 581 676 716 798 Tobacco Mbnopoly 1,309 840 1,118 1,019 1,369 Other expenditure 2,710 3,582 4,481 5,233 7,955 Total budgeted expenditure 12,215 14,826 19,865 21,946 29,030 Actual expenditure 12,287 14,838 17,944 21,700 Source: Mir.s M-4 f+ F ?if-nc Teheran - 44 - Table 10 ORDINARY BUDGET REVENUES (million rials) 1957/58 1958/59 Revised Budget Years ending March 20: 1954/55 1955/56 1956/57 estimates estimates Income Tax from Agriculture n.a. 78 172 150 200 Tax on rental value of properties and real estate transfe-s n,a. 37 40 50 100 Other Income Taxes n, a. 800 _ -_270 ___ l.g5C 2,360 Total Income Tax n.a. 915 1,182 1,550 2,660 Inheritance Tax n.aq 30 37 50 75 Total Direct Taxes 750 945 1,219 1,600 2o735 Customs 4,231 4,316 5,337 6,000 6,600 Tobacco Monopoly 2,297 2,477 2,923 3,200 3,500 Opium Monopoly 10 79 117 60 - P.O. Sugar Factories - - - - 600 Alcohol Tax ( 378 ( 500 ( 1,422 1AA66 ( 2OOnn Petroleum Products ( 1,550 ( 1,600 Revenues earmarked ( ( J. ¼JI P rLU.[SI LIN I, lap SoreFcia poe42 1,9 1 I,271 1,190 ( 3,240 All r.&I,er(_ 1,910 ( °5 Total 9,981 10,573 t%,!b) l,lUU 1',Z44 Source: 1'hnistry of' Finance, TehAran Table n BALANCF OF PAYMF.NrS - excluding barter trade -w ith the USSR - (in millions of US $ equivalents) 195455 1955/56 1956/57 1957/58 Fstimates (based on 2.0 months actuals) Fxnorts other than oil 98.5i 82.1 88.5 90.0 Private invisible receipts 11.9 11.0 16.2 20.0 Total receipts on private account 110.4 93.1 104.7 110.0 Private imports of consumer goods and private capital goods except those under US aid 138.2 206.7 222.9 260.0 Private Invisibles 5.9 7.9 15.0 35.0 Total expenditure on private account 144.1 214.6 207.9 295.0 Deficit of the private sector -33.7 -121.5 -103.2 -185.0 Purc'case of rials by Consortium 11.9 146. 7 14 Oil Revenue: (BPC) (-) (_) ( 2.4) ( 11.6) (P.O.) ( (22.6) (73.2) (100.3) (Budget) (28.C) (57.2) (34.2) ( 74.0) 'NIOC ( )3 ( ) (^,4) 2 23.5 Sub total 28.5/ 79.8 140.2 209.4 Total Income frcm oil 40.4 126.5 l).7 254.4 Compensation pa;ment to B.P.C. - - 2.4 11.6 Foreign exchange expenditure of P.O. ll.4 30.3 29.9 60.0 Foreign exnhange expenditure of government 3.1 26.0 65.4 10.0 Foreien exchange expenditure of N.I.O.C. 2.1 6.1 18.0 12.0 Total imports of oil income recipients 16.6 62.4 115.7 93.6 Surplus of oil account f23.8 f64.1 ,65.0 f160.8 US aid including Eximbank but excluding military hardware 50.0 81.4 44.2 f35.7 of which spent abroad: -35.4 -33.4 -33.0 -35.7 Suppliers credits and mi9cellaneous - 3.7 11.0 20.0 IBRD loan - - 10.0 65.0 IMF drawings - 16.5 - Payment of share in IFC - - - 04 - S-ub total j-/l 4 z6 51.7 50.8 85.0 Foreign aid & loans net L14.6 $51.7 $50.8 f85.0 (Ttpaymp-nts) (196.1)lN.) (566 443 Calculated change in foreign exch.reserves f4.7 -5.7 $-2.I1 J$6.8 Errors and omissions f2.3 _f4.7 _ 3.0 Actual chan=p in foreign exch. reserves $7.0 -1.0 1 9J1, 1| Approximate SOURCE: Bank Melli, Teheran - 45 - Table 12' IMPORTS CIF (Including RovermnentL imports ancl imnorts under US aid and USSR baLrter trade) V'alues: Million of US $ equivalents Quantities: 000 metric tons Years ending March 20: 1952/53 1953/54 1954/55 1955/56 1956/57 1957/58 :Lst HaJf $ tons $ tons $ tons $ tons $ tons $ tons Sugar 29.3 117.4 36,.5 2114.2 35.8 212.6 29.5 221.6 28.2 256.4 11.9 111.0 Cotton goods l 26.4 8.2 23,,4 11.5 21.7 11.2 13.3 8.,7 16.2 7.5 7.'7 3.6S Tires & tubes 11.3 6.3 9,.7 6.3 10.2 6.9 1,2.5 6.6 8.3 6.2 6.1 3.5 Machinery 9.9 6.6 10,8 10.1 15.6, 13.8 20.9 15,.2 25.0 17.6 32.1 10.2 Chemicals,& drugs 8.3 6.9 6,.2 9.7 8.5 8.4 9.7 12.6 8.7 12.6 5.7 6.1 Iron & steel 7.6 21.8 12,.2 58.8 15.5' 86.2 23.5 124..O 23.6 113.2 17.0 79.'1 Tea 4.6 2.6 4.4 3.3 9.5' 4.6 2:2.0 10,1 12.5 7.3 8.1 4.9 Edible oil & fats 4.3 6.8 2,.8 7.3 3.3 13.5 33.4 124 8.1 1.2.2 3.8 6 .5 . Paper products 4.0 9.7 4,2 18.8 3.8 16.1 44.1 17.2 7.14 28.0 2.4 10.6 0' Automotive equipment & I spare parts 2.9 2.7 5,.0 3.8 28.8 23.6 25.9 20.5 36.3 23.9 20.3 9.6i Dyes 2.2 3.2 2.1 3.14 2.7 4.4 3.8 5..9 3.0 5.4 2.0 3.l5 Gl0assware 0.8 2.1 1.2 6.1I 1.6 7.7 2.0 6&5 2.14 8.8 1.3 7-:1 Others / 143.5 - 48.o - 75.0 - 109.5 -124.B - 70.3 - Tota'l 157.3 166.5 232.0 285.1 304.'5 188.7 Bank Melli Paynent Statistics (a) Private imports 138.2 206.7 222.9> 138.3 (b) Imports under US aid and Eximbank 'loanis 26.7 27.2 27.14 10.0 / (c) USSR barter trade 19.0 24.9 18.1. 5.0 Z/ (d.) Sub total 183.95 258.3 268.4 153.3 (e) Diifference (largely Govt. imports) 48.1 26.3 36.] 35.4 / Imports of cotton goods listed appeiar very incompletbe; there is indication that most of these gocds, owing to classification difficiLties, have been included under "Other Imports". / Approximate. SOURCE: Ministry of Commerce, Teheran. Table 13 EXPORTS FOB (except oil)! Mil:Lions of US $ equivalents 000 metric tons FiLrst Ye-ars enddLng March 20: 153/L54 1954L5 1955/25 195,6/57 1957/58 6 monlths tons T tons T$ t,ons T--tons $ tons ' RWtw Cottonl 36.2 21.9 45.2 35.1 36.3 22.3 38.5 22.3 11.1 6,,0 Carpets 5.3 14.5 4.6 15.1 5.0 16.7 14.6 17.1 3.0 94., Fruits 70.6 11.7 93.2 17.7 89.9 15.6 91.7 18.1 28.7 4.,8 Wool 10.2 5.8 LO.2 7.2 9.0 91.5 9.5 8.9 3.9 3.2 Hides & Skins 6.3 5.2 6.4 5.4 6.6 4.3 7.6 3.9 4.0 2,,3 Rice 49.o) 6.4 iS1.2 8.1 28.4 3.7 3.1 0.4 C0.2 0.,0 Gums 3.3 2.7 2.9 2.2 2.6 2.9 15.3 4.0 1.1 1.2 Anima:L Casings 0.4 1.6 0.5 2.2 0.6 2.4 0.6 2.7 C.3 1,,0 Spice n.a. n.a. 9.5 1L.8 '1.0 0.3 0.0 0.,0 Other _ 23.9 27.2 26.0 28.1 12,,5_ _ Total 93.7 120.2 105.2 105.8 40.4 Bank MeLLi Payments Statistics: (T 7Excluding trade with US'SR ( 98.5) ( 82.1) ( 88.5) ( 40.,°1) (b) USSR (26.C _ _ ( 13.9 ( 17.7) ( 8.0.V) (c) 'rotal (124.5) ( 96.0) (106.2) ( 48,.02/1 P/ Approximate SOURCE: Ministry of Cormaerce, Teheran Table :14 125U57 IRANIAN DIPORTS AND EKPORTS BY COUNTFIES I D p O r t s Exports other than oil 1938 1948 19953 1954 1955 HMrch 21/56 - March 20/5'7 March 21/56 - March 20/57 % % % % 9t l% (million U$) % (million USS) Us 8,,5 ,29.7 17.8 23. 9 19.7 16.4 50.-1 11.4 12.1 West Germany 25,9 0.8 21.2 15.4 17.6 16.2 49.4 14.7 15.6 UK 8.1 27.4 10.5 9.3 '.7 10.2 31.1 7.3 7.7 Jaran 3.3 0.5 11.7 10.( 1.2 6.7 20.'5 17.2 18.2 USSR 36.4 3.4 - 9.9 1'1.1 5.9 18.1 16.1 17.7 Indlia 7.6 8.9 2.5 5.2 6.4 4.2 12.8 3.5 3.7 Taiwan 0.2 0.2 - 4.1L 2.3 4.1 12.5 - .0 France 1.7 3.1 3.7 3.2 2.8 2.7 8.2 13.4 14.2 Italy 0.2 6.8 4.5 3.0 2.9 2.0 6.2 6.0 6.3 Netherlands 0.7 0.8 2.6 3.( 2.3 1.8 5.'j 3.9 4.1 Kuwait - 0C.1 0.4 1.4 1.7 5.1L 3.6 3.8 Others 7.4 18.5 25.5 12.7 15.6 28.0 85.'1 2.3 2.4 TotLl 100.0 100.0 100.0 ]LOO.0 10D0.0 100.0 '304. 6 100.0 105,8 SOURCES; Ministry of Commerce, Teheran, and "Di3rection of International Trade", UN Staltistical Papers, Form T, Vol. VIII, No.7. - 48 - - 49 - Table 15 US AID TO IRAN (RECEIPTS) ($ million) Years ending March 20: 19514/55 1955/56 l956/57 1957/58 - Technical assistance 9.2 7.2 5.6 11.0 ICA - procurements 18.3 6.5 16.9 8.0 PL 480 7.9 5.7 5.7 6.7 Cash 14.6 48.0 11.0 - Total ICA Aid 50.0 67.4 39.2 25.7 Eximbank (Disbursements from $53 million credi-t irLe) - 14.0 5.0 10.0 rp 4~-I Trc -.; -3 en7~ I. J f 7 l/ EEtimates, based on 9 months actuals SOURCE: USOM Mission Teheran Tabie i6 IRAN - BARTF:H TRADEE a iETH USSR (million $ equivalent) 1957/58 Lear-s endirLg 20: 1955/56 ____ Mission Es D ,,ti e Exports from iran 13.9 17.7 I).O Imports into Iran 24.9 18.0 10.0 -11 .0 -0.3 ,5.0 SOURCE: Bank Melli, Iran. TABLE 17 ELAN ORGANIATION SBUk5 S FO STYET (hevised 7-Year Program as of March 1958) (Millions of kials) - - - - - '-~~~~~~~~~~~~~~' - - - _ ~~~~~~~~~~Palye 1L 1LL62 1957/L8 1958/5 _20L __1960_61626.L2_ Total 30 months Years ending March 20 18 months Estimrate Budget Approved Approved and Approved Arproved and Approved and Original proposed proposed proposed plan Chapter I - Agriculture and Irrigation 2,252 2,800 2,828 (2,241) 4,745 (3,040) 8,217 20,842 19,435 n II - Transport and Communications 4,209 4,400 5,679 ( 901) 6,546 ( 792) 8,205 29,039 30,136 * III - Industry 1,757 1,500 1,396 ( 281) 3,001 ( 2) 3,283 10,937 11, 388 IV - Social Sector 1,638 1,300 1,974 ( 445) 4,712 ( 345) 9,815 19,439 19,310 V - Khuzestan Developoient Service /1 - 1.450 *728 (1._ 1.199 (2,622) 6,999 200 Total 9,856 11,450 13,605 (5,067) 20,203 (6,8D1) 32,142 87.256 80,969 Pillions of $i 130.2 151.2 180.0 ( 66.9) 266.7 ( 90.0) 424.3 1,165.0 1,06f3.9 - -~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. /1 DKclucling second phase of sugar project. /2 Tentative projections made by the Budget Commission of P. 0, in February 1958. TABLE 7a - (Continaed) PIAN ORGAN'IZATION - DISBURSE6ENTL) FOR INVESTIsEDNT (,.evised 7.-'ear Program as of 14arch 1958) (Millions of Rials) F'age 2 _ ____ _ ._ _ _a__e 2 1955/56/51 Ls~158 1l958/59 ___ 1)59/60 1!&62/6L:3- Total 30 months Years ending March 20 18 imonths Estimate Budget Approved Arproved and Approved Approved and Approved and Original proposed proposed proposed plan CHA.PTER .I Slabchapter 1 - Irrilgation and Damn ,Iurveys 67.3 120.0 392.5 ( 50.9) 115.0 ( 270.5) :325-5 L,021.2 756 ;2 _ AgricuLtural and Irrigation Training 52.4 76.0 69.0 - 43.0 - 23.0 263.4 316 3 _ Farming and Crop Improvement 90.8 45.0 26.5 - 113.0 - 223.2 498.5 695 'U ,4 _ Animal Husbandry 40.1 31.0 82.5 - 131.,3 - '571.0 855,,9 1,152 , 5 _ Plant and rest Control .00.4 70.0 207.5 - 318.3 - 892.5 1,588,,7 1,119 U, 6s; - Forestry 28.6 30.0 150.0 - 215.0 - 498.0 921,6 1,]L68 Ii '7 - Deve'lopment of Villages and Ba;rren Land 55.2 80.0 162.8 - 81.0 - 223.0 602.0 647 '> 8 - Agricultural Lxtension 64.8 35-°0 500 - 64.o - ,219.0 432,.8 406 n 9 - Agriecultural Liachinery 38.4 230.0 181.0 - 183.0 - 125.0 757.4 703 10) - i- eteorolo2r 6.o 9.0 22.0 - 22.0 - 42.0 101.6 L09 11 - hura]L EconorT and Agriculture Engineering _ _ _ 15.9 _9 30.0 - - 28.0 - 77.0 150.9 ___L181 - 52 - - 53- TABLE 1 - (Continued) PlaN ORGANIZATION .- DIBURS&E-&NTS FOR INVESkTENT (Revised 7-Year Program as of Miarch 1958) (Aillions of Rials) Page 3 1955/56/5 1957/5 19589 - 1959/6- __ 196i(162/6'L _ _ Total 30 months Years ending iarch 20 18 months Estinate Budget Approved Approved and Approved Approved and Approved and Originral proposed proposed proposed plar CHAPTEt I - (5nit…. ) Subchapter 12 - Silos 0.4 2.0D 113.5 - 120.0 _ 235.9 435 13 - Agricu]tural Industry 74.9 50.0 46. 100.0 _ 200.0 471.2 298 14 - Irrigation and Dan Construction /1 1,193.9 1,800.0 1,320.0 (2,190.0) 2,210.0 (2.770.0) 4,OHO.8 1.0,604.7 8,5'2 15 - Loans f'or QaLnats and Deep Wells 248.3 100.0 _ _ 250.0 _ 50.0 84C'3 1,068 tI' 16a - Unclassified 174.1 92.0 - - - - 2t6.1 - 16b - Fertilizer Plant - - 4.5 - 750-0 467-7 1,222.3 1,830 Total 2,252 2,800 2,828 (2,241) 4,745 (',040) 8,217 20,842 19,435 /I. Except Khuzestan. CEAPTER II Subchapter 1 - Roads 1,555.0 1,400.0 3,060.0 ( 28.2) 4,3615.0 ( 36.4) 5,156.7 15,536.7 15,903 n 2 - Railroads 1,772.4 1,570.0 1,268.:3 ( 96.4) 342.7 - 600.0 5,5513.4 6,741 3 - 'irports 257.-9 350.0 329.:3 ( 374.5) 390.7 ( 207,5) 402.9 1,730.8 1,648 4 - Ports 375.4 600.0 689.6 (: 177.0) 9&8.5 ( 20.0) 1,022.3 3,669.8 3,708 5 - Telecommunications 202.4 400.0 191.9 I( 55.0) 29'5.0 - 49?5.0 1,584.3 1,60ci n 6 - Cartography 45. 6 80.0 140.0 I 170.4) 170.4 ( 528.1) 528.1 964.1 536 Total 4,209 40400 5,679 (: 901 ) 6,546 ( 792) 8,205 29,039 30,136 TARLE 1?c - (Continued) PI AN ORGANIZtTION - DISBURSEhvENTS FOR INVESTU4E;E (Revised 7-Year Program as of rarch 19,58) (i:illions of Rials) _ ___________________ Fage 4 1955156/A_ 1957/58, 1958/59 12Q2L60 1960/6L/62/635 Total Years einding iAareln 20 ~~~~~~~~~~~~~~~~30 months Years eruding r.arc1r 20 18 months Estimate Budget Approved Approved and Approved Approved and Approved and Original pproposed propose proposed plan cHAPTER III Subchapter 1 - Completion of Government owned Plants and iiines 41.1 80.0 118.2 ( 1.3) 1.3 ( 2.5) 2.5 243.1 - u 2 - TextiLie Industry 665.3 200.0 399.6 ( 222.0) 360.0 93.0 1,717.9 1,807 3 - Sugar Induastry 297.0 200.0 82.9 - - - 579.9 2,040 4 - Cement Industry 342.5 676.0 405.3 ( 56.2) 291.2 323.8 2,,038.8 2,312 5 - Miines 45.6 8.0 25.0 - 41.0 60.0 179.6 302 O6 - Copper - - - - 12.0 :17.6 29.6 ) 3,]24 * ''7 - Steel 42.6 31.0 200.0 - 2,000.0 .. 2,355-0 4,628. ) '' * 8 - Refractory haterials - - 10.0 - 9.0 - - 19.0 40 9 - Fisheries 10.0 10.0 26.0 - 27.0 - - 73.0 99 10 - Laboratories - - 1.1 - 21.1 22.8 45.0 45 11] - Vocational Centers 5.3 10.0 7.0 - 7.0 - 23.0 52.3 75 12 - Industrial Towns 3.6 15.0 21.8 - 15.0 45.0 100.4 120 13 - Industrial Wredits 184.9 250.0 - - - - 434.9 954 n 14 - Unclassified Ill 119.1 20.0 98.9 ( 1.0) 217.0 340.0 795.0 472 Total 1,757 1,500 1,396 (281 ) 3,001 (';2 ) 283 10,937 11,388 LnclUdes capital, contribution to construction, mortgage and Export B2nks. _ -1 TABLE 1'7d - (Continued) PLAN 0RoXNIZATI0N - DILBURSEM ENTS FCR A TESTIMPiNT (Revised 7-Year Frogram as of *iarch 1958) (;IiUlions of RiaLs) …- ______~~~~___- …____ Fa-e 'L 1$6555bf/L 2125L8 21952 - 19'/60 __ _10/61/62I63 _ TotaL __ Years ending L:arch 20 30 months 18 ioiiths sti.nate Budget Aipproved Approvred and Approvbd Approved and A. proved and Crigina:l proposed proposed proposed plan CiAITER IV Subchapter 1 - liealtlh 464.7 290.0 462.6 1,128.6 _ 3,385.9 5,731.8 6,226 2 - JEducation 535,9 300.0 326.8 - 438.1 - 950.0 2,550.8 2,787 3 - Municipal ]Power 111.7 100.0 448.2 ( 1T.3) 693.2 ( 14.3) 666.3 2,019.4 2,073 4 - Generial Powfer Program - - 3.6 1,032.0 - 2,399.6 3.435.2 2,385 5 - ]!micipal lrojects 388.6 555.0 668.0 ( 176.5) 1,19(.0 ( 251.00) 1,998.0 4,799.6 5,2c9 6 - Statistics and Census 116.0 25.0 64.8 ( 6:L.6) 113.6 - 70.0 389.4 408 7 - Cooperatives andl Rural Funds 21.0 20.0 - ( 30.3) 7(.3 ( 66.7) 162.2 273.5 407 8 - Uid to Worlcers' Crganizations - 10.0 - 5.0) 45.8 ( 13.0) 183.3 239.1 225 Total 1,638 1,300 1,974 ( 445 ) 4,712 ( 345 , 9,815 19,439 19,810 GLUTER V Di Dam - 315.0 490.8 ( 930.0) 930.0 (2.,500.0), 2,500.0 4,235.8 - Dther Khuz?stan Projects - 1_135.0 1,237.2 ( 269.0) 269.0 ( 322.0) 122.0 2,763.2 200 Total - 1,450 :1,728 (1,199.0) 1,199.0 (2,622.0) 2,622.0 6,999.0 200 Sources lairn Organization, Teheran Table 16 BUDGrFT O PLAN ORGANIZATION (Million US $ equivalent) Hypothesis A: aLssuming a 109 growth rate in totaL oil rpvenle after 1958/59; no decline in Dosted prices 1955/56 Years endingMarch 20 6 months 1956/57 1957,/58 1958/59 1959/60 1960/61 1961/152 1962/63 Total Actuals Actuals Rev. Fst. Rev.Budget Est. ES t. Fst. Est. 7 years Total oil revenue 48.0 140.2 209.4 260.0 286.0 31]5.0 3146.0 190.0 1,794.6 location of Oil Revenue (according t new lgislation): NIOC I 25.4 30.4 23.5 24.3 24.3 24.3 214.3 12.2 Budget 1, ) 36.6 75.6 136.1 90.:L 101.7 11h4.:L 63.8 Plan Organization V 22.6 73.2 110.3 9>9.6 171.6 189.0 207.6 11:4.0 987.9 Other revenue of' Plan Organizaticn MlAP 17.5 - - .-2.32/ -5so/ -10.2/ .0.0 IBRD - 10.0 65.o2/ - 3.7 -23.6 -23.6 -23.5 -J1.8 -11_.3 BPC - - -10.0 -.6 0 -6.o --6.0 -6.0 --3.0 -37.0 ICA - - _3 -23 - - - - 13.2 Grants to PO industries - -3.0 - *.8.0V _ _ _ _ -11.0 Adrrinistration and miscellaneous -1.3 -3.0 -8/. ) --6.O -6.10 --6.0 -6. O -3.0 -39.3 expend:itures Total non-oil revenue -1.3 21.5 47.0 -13.5 -35.65 -37.9 -_40.f -2 8.0 -85.4 Available for investment before nrew loans 21.3 94.7 157.3 839.1 136.0 / 11.l_ 167.0 86.0 / 902.5 = = __ .__ _= _ __ _ _ _ _ _ ______=_____. _ _ __,== Investment expenditure a) ActuaL 32.6 98.9 151.2 / / b) Present plan 164.65/ 266.'7 1,153.7 c) Original plan (37.8) (145.0) (184.7) (201.1) (202.9) / (158.14) (102.9) (36.2) ! (1,068.9) Total deficit -11.3 -4.2 ,6.1 -15.5 -130.'7 -35.6 -251.2 l| Including BPC compensation ExdLuding int-rest which is assuxned to be included in administrative expenses 3/ ICA procurement authorizatiogs. i/ Paysnent of Rls 600 milliorL tax arrears for PO sugar company. The official budget assumes that Rls 400 million of this amount wvill be paid by the company itself. However, it appears likely that the aggregazte sugar profit left after the Rls 400 million tax payment n-iL1 fall short by about an equal amount of the total net loss of the rer[aining PO companies. The shortfall of about RLs 400 Million will then have to be covered frnm oil income of the Plan Organization. ' The investment program hasi recently heen cianged to the extent that -$155.4 million of expenditures budgeted for 1958/59 have hee!n postponed. The above datet take this change into account. Source: PLan Organization Teheran and Mission estimates. 56 - Table 19 BU DGET OF PLAN ORGANIZATION T3illiOn US i3 equivaen1i7 Hypothesis B: Assuming an 8% growth rate in total oil revenue after 1958/59; no decline in posted prices. 19'5/56 ]L962/63 Years ending larch 20 6nonths 1956/57 1957/58 1]958/59 19591/6 196fl/61 1961/62 i months Total -Ac tual Actu Tal Rev. Est. El;v.Bulget Eat. Est. Est. E.grs Total oil revenue 48.o 140.2 209.h 260.0 28L.O 303.0 327.0 176.0 1,744.6 Allocation of Oil Revenues (a'ccordLng to ne-wl7e7gis-laLtiton): NIOC 1 ) 25.4 3o.4 23.5 24.3 24.3 24.3 24.3 12.1 Budget- ) 36.6 75.6 136.1 88.1 96.9 106.5 58.3 P Organization 22.6 73.2 LO.3 99.6 168.6 18L.8 196.2 105.6 957.9 Other revenues of PLnn Orgarization 739e tal1=e -o-n-ypothe-i-3- -1.3 21.5 47.0 -10.5 -35.6 -37.9 -40.6 -28.0 -85.4 Available for investaent b,efore new loans 21.3 94.7 157.3 89.'1 133.0 / 143.9 155.6 77.6 / 872.5 377.1 Investment expndi re a) Actuial 32.6 98.9 151.2 / / b) Present plan 164.6J/ 266.7 1,153.7 c) Original plan (37.8) (145.0) (184.7) (201.1) (202.9) LLIl8.4) (1102.9) (36.2)/ (1,068.9) Total defiLcit -11.3 -4.2 ;46.1 -75.5 -133.7 -62.6 -281.2 1/ Including BPC ccmpensation. 2/ See footnote ';, Table 18. SOURCE: Plan Organization Teheran ar! MiBsion estimates. - 57 - Tabl 9 2') RFVFIlJES AND FXl'FNDITIJR7S OF PLAN ORGANIZATION AS PJRDJCT;FD NOW AND AT THF TfWVF OF THF IBRD LOAN (million $ equivalent) Years ending March 20: 19s5V 1956/57 1957/58 1958/59 1959/60 1960,/61 1961/62' 1962/63 Total Change since b mnth -- 6- months drate aTfIRD loan A. REVENUES i. Pnrjected at time of IEIRD Loan 26 86 113 150 176 189 201 113 1,054 1/ 2. Projected now- according to new legisla tion: (a) assumingy 10% growth 2/ in oil 1revenue 22.6 73.2 100.3 ]06.8-- 165.6 183.( 201.6 111.0 164.1 -90 (b) assuming 8% growth in oil revenue 22.6 73.2 10-0.3 lo 6.8 ' 162.6 175.18 190.2 102.6 934.l -120 B. EXPENDITURES 3. Investnent expendituit program at time of loan 27.0 110.0 135.0 174.0 175.0 / ___ 71, 001 4. Prespnt expDenditurp nroeram 4/ (invpstment) 3/ (32.6) (98.9) (151.2) (164.6r (266.7) (1439.7) 1,L53.7 (othrr) ( 1.3) ( 6.0) ( 8.0) t 17.8) ( 8.5) ( 20.1) 61.7 Total 33.9 104.9 159.2 182.1, 275.2 / 459.8 / 1,215.4 ) f214 1/B'efore deduction of adninistrative costs and debt service oth"r than compensation paymrents to B.P.C. |/ Including $13.2 million IC/L procurement authorizations obtained in lieu of oil revenue. 3J Tentative projections made by the Budget Commission of P.O. in February 1958. R/ Revised. SOURCE: Plan Organization, Teheran and Mission estimates Table 21 IRAN - ETERNAL DEBT AS OF SEPTM,RR.R 20, 1957 (million A. Tnonl debt outstanding -an undr .LL Lr.vte stt suppliers Total 0i credit debt J.,L O Jl4LLMU WMj still outstanding 51.63 219.76 271.39 24.36 295.75 Undisbursed _25.72 84.75 110.47 - 110.47 Total 77.35 3-0.57 3q1.86 24.36) 4n.2 -"'~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~X4 B. Service Schedule<1 Years endina March 20: / 3 1958/59 44. 5 0.1 44. J/ iQss,/60 63.cy2f 2.2 A5^; 1960/61 59.8 5.6 6-.4 1QAl6t{2 53A 6g ci59. 1962/'63 30.5 3.3 33.8 1OAI/A; 1' ni n 1964/65 12.0 2.1 19.1 1oA,f ';6 1.2 1.7 1497 1966/67 5.6 5.6 -tf'.J 6f 4.0 4.0 1968/69 4.1 4.1 mn -17n I , * I --.jl c-' 4.4. 4.2.. 1970/71 4.1 4.1 1 /rfl I , I I .L/ 1Jf *IZ- 4.4 4*1 1972/73 4.1 4.1 NOTE: Based on preliminary information received from Ministry of Finance and Bank Melli, Teheran. l/ Excluding (a) IMF drawings, (b) the $24 million unallocated balance of $53 million Eximbank credit line of 1953, and (c) the $180,000 Eximbank credit line to Iran Techno Corporation of January 1957. which, as of February 28, 1958, was completely undisbursed and considered to be usable only for purpose of short-term (under one vyear) acconmdation. 2/ Excluding service on $23.5 million US surplus nronertv credits. which has not yet been agreed upon; also excluding future interest payments on IMF drawings. I/ Schedlled renrment nf TN? drawngri anr99n tA V millinn snm Al16,A7 mnillnn to the totals for 1958/59 and 1959/60 respectively. - 59 -