Factsheet
Dec 14th 2006
From the Economist Intelligence Unit
Source: Country ViewsWire

Background: Iran became an Islamic Republic after a popular uprising overthrew the regime of the shah in 1979. The Shia clergy assumed control of the state and reversed the shah's pro-Western stance. As vali-e-faqih (the supreme Islamic jurisprudent), Ayatollah Ruhollah Khomeini became the supreme religious and political leader. From 1980 to 1988 the country was at war with Iraq. Hashemi Rafsanjani held the post for two terms from 1989 to 1997, during which time attempts to introduce economic reforms were frustrated by internal opposition. Mohammed Khatami, who was first elected president in 1997, tried to introduce social and political reforms, backed by a reformist Majlis (parliament). However, the conservative establishment blocked these efforts, and in 2004 hardline conservatives won control of parliament. In 2005 Mahmoud Ahmadinejad, a populist conservative, was elected to the presidency.

Political structure: Iran is an Islamic Republic as defined by its constitution. The president is elected every four years by popular vote, although all candidates must be vetted by the Guardian Council. Superimposed on this republican constitutional structure are several unique Islamic features: the vali-e-faqih exercises considerable power over the government, and the conservative Guardian Council approves all legislation to ensure that it complies with Islamic law.

Policy issues: Iran's five-year economic plans have emphasised a gradual move towards a market-orientated economy, but political and social concerns, and external debt problems, have hampered progress. Faster progress, however, was made under the third five-year plan (2000-04), which advocated a more ambitious programme of liberalisation, diversification and privatisation. The resolution of Iran's external debt problems eased the policymaking environment and facilitated the unification of the exchange rate in 2002. However, the conservative-dominated Majlis and the government of Mr Ahmadinejad are unsympathetic to reform.

Taxation: Iranian tax laws are complex and have been applied inconsistently. The government has lowered unified corporate tax rates and aims to simplify tax administration, but the process is slow, and foreign firms are likely to continue to face some uncertainty when assessing their tax liabilities.

Foreign trade: Oil earnings comprise over 80% of export revenue. High oil prices since 2000 have seen Iran record large trade surpluses, even though import spending has risen quickly, as strong foreign-exchange earnings and the easing of the debt-repayment schedule have allowed Bank Markazi (the central bank) to relax its import compression programme.
Major exports 2004 % of total Major imports