Remembering Mehdi Samii (1918-2010), the Good Banker
Mehdi Samii, who died in Los Angeles, California, a week after his 92nd birthday on July 30, 2010, was Iran’s most prominent banker of the twentieth century. His career in Iran spanned the period between the second World War and the Islamic Revolution. He was an influential banker and a leading figure among a small group of dedicated Iranian technocrats who helped build the foundations of a modern economy in Iran, one that produced the miracle growth period of the decade before the oil boom of 1973.
He occupied the commanding heights of economic policy making in Iran, beginning with the Central Bank, which he helped establish in 1960 and later led during 1963-68 and again in 1970-71, and later at the helm of the Plan Organization (1968-70). Before that he had turned down two earlier ministerial appointments for agriculture and commerce. He helped establish the Industrial and Mining Development Bank of Iran with financial backing from major US banks, and acted as its co-director for several years. After leaving the Central Bank, he was appointed the director of the Agricultural Development Bank, where he stayed until 1979. Mehdi Samii was a rare breed of Iranian managers and policy makers who combined personal integrity with intelligence and professionalism. In his brief but eloquent biography of Samii, Abbas Milani describes him as “the chief architect of Iran’s rapid economic and industrial growth of the 1960’s” (Eminent Persians, p. 760).
Samii’s impeccable reputation as a banker of high professionalism and integrity brought international credibility for Iran’s development effort. In the 1960s, before the big inflow of oil money, when Iran needed to borrow from abroad to finance its “miracle growth”, Samii’s signature was considered collateral. The Shah recruited him for various tasks as well, from negotiating arms purchases from the United States to managing his coronation celebrations in 1967 to forming a new party in 1972–the latter he did not end up doing. His served the Shah loyally but not blindly; he even refused to kiss the monarch’s hand or kneel before him, as was required of all officials (Milani, Eminent Persians). After the oil boom, when the Shah felt less in need of competent and honest managers, Samii was marginalized. He was briefly arrested after the revolution but was set free, saved by his reputation as a man of high integrity.
Samii and the group of technocrats around him came under pressure when, in 1973, the Shah was hell bent on spending his way to the gates of the “Great Civilization.” He was displeased with the technocrats in charge of budgeting and planning who refused to quadruple the budget of the freshly prepared Fifth Five-Year Development Plan (1973-78), from $17 to $54 billions. Samii had left the Central Bank earlier and was increasingly marginalized. Soon followed a team of able economists and planners associated with him, such as Khodadad Farmanfarmaian and Reza Moghadam, who left the Plan and Budget Organization preferring to give up their promising careers in public service rather than carry out polices that they considered destructive. Milani quotes Moghadam as having warned at the time that revising and inflating the Plan would lead to “social and political explosion”, (Eminent Persians, p. 758). And the rest is history.
Thus, as fate would have it, several years before the revolution, and from the margin, Samii would watch as the golden period of economic growth to which he had devoted his career came crashing down at the gates of the Shah’s Great Civilzation. Added to his disappointment must have been how the events that followed –the revolution and the war — set back the professions in economics and finance that he had worked to promote. It is no exaggeration to say that Mehdi Samii, in close collaboration with Farmanfarmaian, are responsible for the presence of the few eminent Iranian economists on the global stage today. Among the beneficiaries of the scholarship program that they (at the helm of Iran’s Central Bank in 1960s) instituted you will find some of the most successful economists of their generation, Hashem Pesaran, Firouz Gahvari, and Essie Maasoumi, as you will many former “Bank Students” in high places in finance, accounting, banking, and insurance. For several years, the Central Bank scholarship program that sent top students abroad right after high school became the main vehicle for redirecting the best and the brightest of Iran away from engineering and toward new professions in finance and economics.
I had the pleasure of meeting Mehdi Samii in London in 1983, a few years after he had left Iran for good. I went to visit him him in part to meet the man who had played a role in my education (I was a Bank Student) and in part to interview him for a research project that at time I was engaged in, on the role of credit subsidy in the transfer of oil riches to the private sector in the 1970s. The question that interested me at the time (still does today) was the extent to which credit allocation depended on political connections that benefitted the sections of the bourgeoisie that was closer to the Pahlavi family and foreign capital and discriminated against those out of favor–for example, those with nationalists and religious leanings. My conjecture was that when interest rate on development loans turned negative in the 1970s, as inflation reached 50%, and borrowing became the fastest way to riches, especially for those with access to investment in real estate, lending behavior by the banks alienated the latter group. I was keen to understand why the upper middle class had helped overthrow a system that seemed to serve their interests. (The paper I wrote on this topic was eventually published in 1989; it is also available here).
When I asked his opinion on these issues, Samii seemed reluctant to admit that under the Shah credit allocation had been less than professional, perhaps even corrupt, but years later on indicated as much to Milani (see his description of Samii as fealess when the well-connected and nefarious industrialist, Hozhabr Yazdani, tried to bring pressure from his backers at SAVAK and the Pahlavi court to obtain a loan from Samii’s bank, Eminent Persians, p. 1114). Apparently, pressuring bankers to lend to powerful individuals was common practice in the 1970s.
It may come as a surprise to some that decades –and a revolution — later similar practices are again fueling political and social tensions in Iran. What should not come as a surprise is that political connections continue to be strong indicators of creditworthiness, and, as in the 1970s, high inflation prior to 2009 plunged the real interest rates into the negative territory (reaching as low as minus 10 percent in 2008). My conjecture is, as for the earlier period, that the opportunity to borrow cheap and invest in real estate brought strong pressures on banks to lend to well connected borrowers. When, in 2008, the real estate bubble burst there must have been many large borrowers who were unable to pay back their loans, loading the banks with bad loans. One may be tempted to conclude that, as the saying goes, plus ça change, plus c’est la même chose, but this time there is one important difference. Unlike in 1979, when the Pahlavi regime collapsed and the largest borrowers fled the country and were never called to account, this time the collapse has been limited to the real estate market and the borrowers are still around. Political tensions remain high as one hears demands for the government to name names. Perhaps the political pressures emanating from the most recent lending crisis will force a solution to the uneasy relation between the banking system and the private sector in Iran. In the meantime, credit remains tight, which makes it very hard for the economy to climb out of the big hole dug by the financial crisis. After the last crisis there was the revolution which meant that all bets were off. This time the question is whether there is the political will and the technical skills to deal with the underlying issues.
Although the economics profession inside Iran has greatly expanded in the last decade or two, for reasons that are not hard to understand their best and brightest continue to leave the country. Two programs with a similar purpose to the scholarship program set up by Farmanfamain and Samii have continued to attract top engineering students into economics, thanks to the efforts of a new group of visionaries, such as Alinaghi Mashayekhi, Mohammad Tabibian, and Massoud Nili. These program –at the Institute for Research and Planning in Development, attached to the Management and Budget Organization (both still existing with different names and identities), and the Faculty of Management and Economics at Sharif University– did not involve sending students abroad; the fact that many did end up abroad was not part of their plan. It is sad that most of their graduates leave Iran and do not return, but it is also encouraging to notice the high level of loyalty they display toward their mentors and the institutions that enabled them to choose a career path that seems to better fit their tastes and talents.
In 2006, a group of about 40 former Bank Students gathered in London to honor Mehdi Samii and Khodadad Farmanfarmaian. The connection between the founders of the scholarship program and its architects has remained strong. Farmanfarmain once told me that the scholarship program was one of the three accomplishments in his life that he was proud of, and the one that continues to bear fruit. Unfortunately, Mehdi Samii could not make it to the London gathering because of illness, but, expressing his pride, told me on the phone that he had wanted to send talented Iranians abroad to study the new disciplines critical for building a modern Iran because he himself had been the beneficiary of a similar program by Iran’s National Bank (Bank Melli) some 30 years earlier. Indeed, several students who were sent abroad in the 1930s returned later to become notable architects of Iran’s “miracle” growth period in the late 1960s. So long is the gestation period for the seeds of human capital to bear fruit.
Next month, the Conference on Iran’s Economy, to be held at the University of Chicago, October 15-16, will honor Mehdi Samii during a session on Iran’s economy during the 1960s. At a time when in Iran trust in public officials is at an all time low, visionaries are in short supply, and bankers worldwide are symbols of greed, it is important to remember Mehdi Samii, the Good Banker from Iran.