Iran's President Mohammad Khatami held talks with Ebrahim Ja'fari, a Member of the Iraqi Governing Council, yesterday. During the talks, Khatami called for a free and progressive Iraq, expressing hope that security and complete stability would be established in the country under Iraqi rule. He added that the importance of security and stability in Iraq caused Iran to recognize the Iraqi Governing Council from the start. "If the U.S. had begun by handing over power to the Iraqi people, we would not be observing today all the massacres and calamities the Iraqi nation endures." He stressed that the Islamic Republic opposes the occupation but has no wish to interfere in Iraq's affairs, but stressed that the problems the U.S. faces in Iraq are related to forces that do not have a good relationship with either the Iraqi Shiites or Iran.

Khatami said that the Shiites believe in a moderate method to resolve Iraq's problems, but stress the necessity to free the Iraqi nation and transfer power to its people. He referred to the Shiite Islamic Al-Da'wah Party, the Supreme Assembly of the Islamic Revolution in Iraq (SAIRI) and the wise positions of Grand Ayatollah Sistani towards the U.S. in this regard. Rejecting any kind of violent action against the occupying forces in Iraq, the President stated that Iran considers any action provoking crisis or preventing security in Iraq detrimental to Iraq, Islam and the Shiites. He strongly condemned the recent brutal acts in Iraq, adding that the occupying forces should accept the opinions of Ayatollah Sistani and avoid further violence. The U.S. must hand over the fate of Iraq to its people. Any kind of interference in Iraq's affairs is an insult to the Iraqi nation. Khatami referred to corrupt and undemocratic governments and extremist movements established in the name of Islam as a recent concern of the Islamic world.

Ja'fari lauded Khatami's attempts in bringing nations closer together. Referring to the President's proposed "dialogue among civilizations", Ja'fari said that Khatami had an effective role in the correlation between the Islamic civilizations and other cultures.

Qasemi: Economic realities cannot be ignored. We are facing a sustained inflation, which is depressing people. If we cannot solve the population's livelihood problems, social crises will become progressively worse. Reconstructing the people's purchasing power is the government's biggest challenge. Our revolution sought to spread social justice and we must not forget this.

The post-revolution years can be divided into three eras: The first was roughly from the stabilization of the revolutionary Government in 1981 to the end of war [with Iraq] in 1988. During these eight years, the average annual inflation rate was about 18.5%; i.e. the consumer price index rose by about 220%. The reason was an all-out war. At some junctures, notably in 1986, the oil price fell below $5 per barrel and our oil revenues hit a nadir. During that year oil revenues totaled only $5.678 billion. Over the three years 1986-88, total revenues reached only $21 billion, while our defense expenditure was huge. In fact, had consumption not been controlled by rationing during this period the inflation rate would have been much higher.

When I took charge of the Central Bank of Iran, the late Dr. Nourbakhsh gave me a good advice. He said, "Due to budget deficits we are facing problems with the money supply... Furthermore, you must try to make the Central Bank independent again." Meetings with the managing directors of banks solved the money supply problems completely. We even managed to reduce the ratio of circulating banknotes and coins from 22% to 17%.

During the second period - from 1989 to 1996 - the average inflation rate was 24.7%, price index increases ranged from 14.52% to 85.26% and the purchasing power of money decreased by 83%. The general level of prices was 5.8 times higher in 1996 than in 1989.

During the third period, i.e. from 1997 to 2002 the price index increased from 85.26% to 205.98%, indicating that the rial costs of the household were 2.4 times higher as compared with identical consumption in 1997. However, the purchasing power of the national currency decreased by some 59% percent during this period. Salaries had almost doubled but expenses rose by 141% percent. This and the cumulative decline of purchasing power during previous years marginalized the people's purchasing power - a dangerous development.

Another index for comparing the said three periods is the gross domestic product (GDP). During 1980-1988, the GDP at fixed prices increased at an average annual rate of 0.9% from 27,000 billion rials to 28,796 billion rials. It should be noted that during this period we were facing war and economic sanctions, and had difficulty in supplying many needed commodities. Our ships were even confiscated in European ports and the credit documents we opened were not accepted by European banks. This exerted extreme pressure on the Islamic Republic, as it increased the risk of exporting goods to Iran. We solved this problem in subsequent years and make them accept our credit documents. Though the 0.9% growth rate during this period is very low, it can be justified by the prevailing conditions.

Per capita income is a good index for comparison too. In 1981, our per capita income at the fixed prices of 1990 was about 657,000 rials. By 1988 it had decreased to 555,000 rials. The main problem was that the population increased at the excessive rate of 3.5% per year. Whenever the Government tried to do something about this problem, it faced strong opposition. In the 1990s, the Government paid serious attention to family planning and one of its biggest achievements was reducing population growth rate to 1.7%. This could only be done by a brave personality like Hashemi Rafsanjani.

During 1989 to 1997, the average rate of economic growth was 5.9% - an acceptable figure. However, standard deviation for that period was high and we faced many fluctuations during these years. The average production per capita growth was 4.1% per annum.

There were several major reasons for the depreciation of the national currency during this period, despite many international achievements. First, investment programs, especially in the state sector, were accompanied by too much pressure. The Government might be better advised to leave such investments to the private sector. However, our private sector was still undeveloped at that time. Secondly, the volume of development projects in the country skyrocketed while our capacities were limited. The third point, which is most important, was the incompatibility between our economic system and our monetary and foreign exchange policies. We could have thwarted the untoward effects of the first two causes by adopting suitable monetary and foreign exchange policies. However, the weakening of the national currency and some other unsuitable policies accelerated the inflation and declining purchasing power.

When I took charge of the Central bank, the service sector accounted for more than 52% of the economy. We cut this figure to 44%, granting more facilities to the production sector. During the next period, this policy was discarded. In fact, the cost of foreign exchange for producers was raised and monetary policies were oriented towards granting facilities to the commercial and service sectors.

During 1998-2001, GDP grew at an average annual rate of 4.6% and the rate of population growth was lowered to 1.6%. (Now we must decide on an optimal population growth rate.) As a result of these two factors, per capita domestic production increased by 2.9%, despite the high rate of inflation.