Impact of Bureaucratic Inefficiency and Corruption on the Performance of Trade Liberalization Policies in Iran

Iran started a series of trade and exchange rate reforms in 1988. Before these reforms Iran's trade regime was heavily regulated and was dominated by state-owned trade agencies and government ministries. As expected, various types of inefficiencies and corruption were common at the time. The reforms, while reducing or eliminating some types of government intervention, created opportunities for new ones. As a result, while the frequency of some types of inefficiencies and corruption declined, incidents of other types increased. Attempts by government agencies to purchase hard currency from the newly established free exchange market contributed to the sharp devaluation of the Iranian Rial. In reaction to this crisis, opponents of pro-market reforms were able to stop the reform programs and reimpose old restrictions. Thus the uncoordinated importation and currency hoarding by government agencies and public enterprises indirectly contributed to the failure of reform programs.