The Impact of the Policies of the Hashemi, Khatami, and Ahmadinejad Governments on Economic Development in Iran

In contemporary times, the state continues to be regarded as one of the most influential actors in the economic sphere, capable of accelerating or decelerating the process of national development. Following the victory of the Islamic Revolution in Iran, economic policymaking has remained one of the central concerns of successive governments. Successive administrations have consistently sought to reform, restructure, and adapt Iran’s economic system to align it with the global economy. The present study aimed to examine the impact of governmental policies on Iran’s economic development during the period 1989–2013 (1368–1392 in the Iranian calendar). Specifically, it seeks to address the question of how state policies during this timeframe influenced the trajectory of Iran’s economic development. Utilizing a documentary research method, the study argues that the three administrations of Reconstruction, Reform, and Justice-Oriented governments each pursued economic reform agendas. However, despite their efforts, none succeeded in achieving sustainable economic stabilization. Over time, their policies contributed to shifts in Iran’s class structure and facilitated the growth of the urban poor. The Reconstruction Government promoted economic liberalization as the path toward reform and transformation; the Reform Government, emphasizing political development and détente, sought broader engagement with the international community; and the Justice-Oriented Government, which defined itself in opposition to the economic policies of its predecessors, endeavored to advance both justice and economic development.

Introduction

Today, government policies constitute a fundamental component of national economic development. As the most influential actor in the economy, the state can either accelerate or impede societal progress toward development. Following the victory of the Islamic Revolution and the onset of Hashemi Rafsanjani’s development-oriented government, Iran embarked on an accelerated path of reconstruction and development to repair the damages inflicted by the Iran–Iraq War. This developmental trajectory was continued during the administrations of the Reformist and Justice-oriented governments.
     The present study seeks to examine and critically assess the economic policies of successive Iranian governments. The central research question is: What has been the impact of government policies on the economic development of the Islamic Republic of Iran between 1989 and 2013?
     The Construction Government (1989–1997), adopting a liberal economic orientation, pursued structural adjustment and economic liberalization, which exacerbated socioeconomic stratification. The Reform Government (1997–2005), continuing the liberal trajectory of its predecessor, further widened the wealth gap between the affluent and the poor by liberalizing foreign exchange rates. The Justice-Oriented Government (2005–2013), which entered the political arena by critiquing the economic policies of the preceding administrations, initially managed to control inflation but ultimately failed to establish the intended social justice. This government’s economic pressures also deepened class divisions and altered the structure of social strata, similar to its predecessors.

Definitions and Theoretical Foundations

2.1 Economic Development
According to the Organisation for Economic Co-operation and Development (OECD), development is a process that fosters growth, progress, and positive transformations in physical, economic, environmental, social, and demographic dimensions without compromising environmental resources. Unlike mere growth, development incorporates both quantitative and qualitative improvements (Taghavi, 2023). Summarizing definitions of economic development, Naraqi (2015, pp. 120–122) states that:
"Economic development is a continuous process of improving the economic welfare of a society, resulting from transformation in its socio-political, economic, scientific, and cultural foundations, and achieving the goals of economic modernization.”
2.2 Developmental State Theory
A central axis in analyzing national economic development is examining the role of the state in growth and industrialization processes. Various theoretical perspectives have emerged, each emphasizing different levels and modes of state intervention. The Developmental State Theory, introduced by Chalmers Johnson (1982), argued that the state does not merely act as a regulator or facilitator but as a principal actor in determining industrial priorities, allocating capital, and supporting strategic industries.
2.3 Keynesian Theory
John Maynard Keynes, one of the most influential economists of the twentieth century, established Keynesian economics with his seminal work The General Theory of Employment, Interest, and Money (1936). Keynesian theory emerged as a response to the Great Depression of the 1930s, when capitalist economies faced severe recession, mass unemployment, and falling aggregate demand — conditions that classical economic theories failed to address (Skidelsky, 2009). Keynes challenged the classical assumption that markets naturally adjust to full employment in the long term, arguing that economies could remain in equilibrium with high unemployment because market forces alone cannot guarantee full employment.
2.4 Research Objective
This study critically examines the economic policies of the Construction, Reform, and Justice-oriented governments in Iran, focusing on major macroeconomic policy dimensions, including structural adjustment, privatization and economic liberalization, exchange rate policy, targeted subsidy policy, monetary and banking policy, and economic redistribution.

Research Methodology

This research adopts a qualitative, descriptive–analytical approach. Data were collected through library-based documentary research from credible academic sources to extract relevant policy indicators and theoretical frameworks.
3.1 Major Economic Policies of Hashemi Rafsanjani’s Government
The core of Rafsanjani’s policy agenda centered on “construction” and “adjustment” as key pillars. Supportive programs were designed to mitigate the burdens of economic restructuring on vulnerable groups. The strategic priorities included: sustainable growth and development, economic stabilization and adjustment, program-based economic policies, reduction of state size, economic liberalization, enhancing competition, promoting exports, unifying exchange rates, and attracting foreign investment and technology transfer (Center for the Documents of Ayatollah Hashemi Rafsanjani).
     Key policies discussed in this research include structural adjustment, privatization and economic liberalization, exchange rate policy, and banking reforms.
3.2 Major Economic Policies of the Reform Government
The economic program during the Reform era focused on structural reforms, fiscal and tax system reform, unification of exchange rates, enactment of foreign investment legislation (leading to $10.4 billion in foreign direct investment), establishment of private banks and insurance institutions, consolidation of tariffs, creation of an oil revenue stabilization fund, and development of the South Pars gas field (Motevaki, 2006, p. 346).
     This research examines structural adjustment, privatization and economic liberalization, exchange rate policy, and banking reforms during this period.
3.3 Major Economic Policies of the Justice-Oriented Government
In 2005, Mahmoud Ahmadinejad won the presidency with a promise to transform Iran’s economic approach, criticizing the theoretical foundations of preceding governments and accusing them of neglecting equitable regional development and economic justice (Parliamentary Commission on Budget and Planning, 2010).
     A major economic initiative was the “Targeted Subsidy Reform” program, passed by parliament in March 2010 and implemented in winter 2011, aiming to eliminate subsidies and reallocate resources more effectively (Sarzaim, 2016, pp. 288–289). This research reviews policies related to structural adjustment, privatization and economic liberalization, exchange rate policy, banking reforms, and targeted subsidies.

Conclusion

Iran’s economic system, like that of many nations, is directly influenced by political decisions and orientations. Liquidity levels and investment volumes are determined within the framework of policy orientations adopted by political institutions. Since the Islamic Revolution, the interplay between politics and economics has been intrinsic to Iran’s developmental trajectory. The Construction, Reform, and Justice-oriented governments, each with distinct political outlooks, sought to redefine the economic orientation of the state.
     Despite their differing approaches, these governments were unable to achieve sustainable improvements in living standards for the Iranian population. Structural adjustment policies, exchange rate unification, subsidy reforms, and other macroeconomic measures often exacerbated socioeconomic inequalities, reduced purchasing power, and deepened class divides. Ultimately, these policies facilitated transformations in Iran’s social structure, contributing to the emergence of a wealthy capitalist class, a new urban middle class, and an expanded urban poor stratum.
Ethical Considerations
Not applicable
Funding
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Conflict of interest
The authors declare no conflict of interest