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Oil Windfall Sparks Rights Fight in Iran

From a distance, partisan politics in Iran may appear to turn on international challenges or internal discriminations only.  But a third contentious split that reaches the highest levels is about the size of the government financed largely by oil exports.  At its core, the dispute over whether public sector payroll, subsidies, and social programs deserve the lion’s share of the ballooning state budget is not new.  Yet the Islamic Republic’s record oil income since 2005 and the resulting corruption, inflation, and social disparities have lately given new ammunition to advocates of civil society and proponents of privatization and deregulation.

The push to promote market rule transcends the religious-secular divide.  It draws some of its strength from Iranians who back property rights expansion as a means of protecting civil freedoms from government intrusion.  Human rights activists have argued for decades that the authorities would be more accountable if they did not control the public’s massive oil assets.  Former political prisoner Akbar Ganji, has even demanded that Iran’s mineral wealth be de-nationalized in favor of an accountable private sector “elite.”

Support for President Mahmoud Ahmadinejad and his majority allies in the parliament is strongest among low and lower-middle income beneficiaries of government spending, who are generally blamed by others for keeping the country “backward.”  While his predecessor, Mohammad Khatami, gave priority to political liberalization, Ahmadinejad leans towards increased welfare and services.  But with attention turning this month to a new budget year, some of the president’s legislative backers and even cabinet-level appointees are speaking out against government largesse and price and interest rate controls.  For doing so, the skeptics are wooed by allies of Hashemi Rafsanjani, who championed much-resisted “market reforms” as president from 1989 to 1997.  Rafsanjani now heads the Expediency Council and, as such, is perhaps Iran’s second most powerful figure, after Supreme Leader Ali Khamenei.

Ahmadinejad’s frequent fast-track commitment of funds for grassroots priorities on his trademark tours of the provinces especially irritates proponents of “scientific management” of state funds.  Even with international sanctions battering the economy, they blame the lackluster performance of the once-thriving Tehran Stock Exchange on his populist policies.  Last summer, after the administration imposed 2% to 4% loan rate cuts on banks, 57 economists wrote together to the president openly and met with him to warn passionately that his refusal to “free the economy” jeopardized national competitiveness.  They urged that a much lager share of the country’s oil income be held out of circulation in currency reserve.  (Some of the economists have noted in their other published commentaries that their brand of “fiscal responsibility” is, in the United States, a legacy of former president Ronald Reagan — and the Republican Party.  I have not seen an analysis in Farsi of the expansionary New Deal policies of Franklin D. Roosevelt.)

Administration supporters retorted that many of the critics owed their professional careers to government-mandated affirmative action quotas and reminded them of redlining and other corrupt practices by Iran’s few private banks.  Ahmaninejad proceeded to abolish the Management and Planning Organization that for 60 years prepared the national budget and tracked spending.  The state Administrative Justice Authority is now studying the legality of the action.  Other lawsuits brought by politically connected defenders and detractors of private sector freedom are going forward, along with high-level public accusations and counter-accusations.

Dwindling Friends, Emboldened Adversaries

While outside Iran attention is focused on the mounting international trade sanctions, a near-doubling in two years of home prices in many areas has given opposition media and managerial and business circles a new opening to demand economic restructuring to put performance ahead of “ideology.” The neo-liberal economists feel vindicated and the administration is replacing the ministers of economic affairs and the interior.  Highlighting Iran’s growing solidarity with Venezuela, Cuba, and Nicaragua, some advocates of liberalization have even resorted to red-baiting to discredit Ahmadinejad’s economic agenda as “dead-end socialism.”  At a conference on globalization hosted this January by the Tehran Chamber of Commerce, even Nobel laureate and former chief economist of the World Bank, Joseph Stiglitz, reportedly did not impress many when he cautioned (via video link) against hasty privatization.

Some of the president’s usual supporters are having second thoughts as well.  The outgoing minister of economic affairs, Danesh Jafari, complained publicly last week that, as the lone free enterprise enthusiast in the cabinet, he was helpless under a president obsessed with scrapping all interest from banking.  A day later, the head of the Central Bank, Tahmasb Mazaheri, similarly contradicted the president in remarks to reporters, but denied that he was stepping down.  Other influential figures, including for the first time two ranking conservative clerics outside the government, have joined the fray lately as it becomes increasingly clear that the president’s economic policies are not endorsed by his superior, Ayatollah Khamenei.

With Iran’s new parliament set to begin work in May, analysts expect even legislative defections from Ahmadinejad as ambitious parliamentarians look ahead to the 2009 presidential poll.  Nevertheless, widespread drought-related crop failures make major cuts in public spending unfeasible this year.  Similarly, although dozens of state-owned companies are less than profitable, closing or selling them would exacerbate Iran’s double-digit unemployment rate.

So for now, the administration’s opponents have assembled considerable leverage against government oversight in the private sector.  Even as they resist regulation, industrialists — backed by government insider Rafsanjani — have made common cause with well-liked civil society advocates, like former president Khatami, to demand transparency in government.  (In a headline-grabbing case that has dragged on for years, Rafsanjani has resisted calls for transparency at the vast, semi-private Islamic Free University, which he controls.)

The social moderates and reformists find that public spending on services splits their constituency in favor of Ahmadinejad and other ruling social conservatives.  So with few exceptions, they often call for trickle-down economics favoring an “investment-friendly climate” aimed at shrinking the government.  As if to agree that social freedoms are unattainable without stronger property rights, Iran’s morality police warned this month that it will raid even corporate offices where improperly dressed women are thought to be present.

The Ideological Poles Harden

Both sides concur that Iran suffers from government waste and corruption and other economic ills (and they quietly agree that an independent labor movement must not exist in the country).  But they do not agree on much else in the economic sphere.  With his predecessors, Rafsanjani and Khatami, pointing the finger at him, Ahmadinejad claims that they left the mess to him and now stand in the way as he tries to purge wrongdoers from the public sector.

Rafsanjani ran for a third term as president in 2005 and lost to Ahmadinejad.  Since then, the Supreme Leader, Ayatollah Khamenei, has insisted, with limited success, that property rights laws be strengthened and non-strategic industries be sold to investors, in part to smooth the way for Iran’s membership in the World Trade Organization.  Referring often to Article 44 of Iran’s constitution, he has also given his blessing to the official Twenty Year Development Outlook plan, which envisions a thriving private sector by 2024.

Privatization promoters allege that Ahmadinejad and his parliamentary allies circumvent the Plan, for example by letting state-controlled pension funds buy companies that are offered to investors.  Some complain that overbearing regulatory agencies make the occasional genuine sale of state assets less than final even after the transfer seems official.  Others make a case that the administration’s initiative that makes stock shares available to millions of low income citizens at half-price does not qualify as privatization.

Many government officials agree.  The distinction between public and private enterprise has largely been restored since the Islamic authorities reversed the sporadic peasant, worker, and tenant takeovers of productive assets following the Revolution three decades ago.  Yet with dozens of confiscated industries, mansions, banks, and charities (and the former U.S. embassy) remaining in government possession, ownership rules can seem open to interpretation.

For example, a bitter fight has erupted in public and in court since a parliamentary commission stepped up a system-wide audit of the Islamic Free University (IFU) a year ago.  According to the commission, the investigation was prompted by numerous constituent complaints, and the university has for two decades fought skeptics.  With 50-plus campuses scattered around the country and more to come, the school is by far Iran’s largest independent educational institution.  The commission insists that IFU is obligated to open its books because it received start-up capital from the state treasury and was allowed in some places to locate on public land.  Rafsanjani, who co-founded IFU and heads its board of trustees, has openly ridiculed the demand for transparency as “outdated Marxism.”

Never one who is outdone, Ahmadinejad traveled last week to Iran’s center for religious orthodoxy, the city of Qom, to declare before a cheering rally that critics of his handling of the oil windfall were Western agents.  Everyone knew that he referred to Rafsanjani and company, who have for years advocated investment rights for global capital.  Building to the occasion, Ahmadinejad paid a first-ever official tribute in March to the late national hero Hussein Fatemi in a well-publicized meeting with the former foreign minister’s widow.  Fatemi was executed in a CIA-engineered coup in 1953 for helping take back control of Iran’s oil assets from Britain.  (Just last week, the year-long trial of a protégé of Rafsanjani on nuclear espionage charges ended with acquittal, despite thinly disguised attempts by Ahmadinejad to implicate him.)

In a few months, attention will begin to turn to next year’s presidential elections, in which Ahmadinejad is all but certain to run.  He is preparing to announce a comprehensive action plan to tame inflation without sacrificing job creation schemes.  It will not be easy when a global economic slowdown and rising food prices are likely to touch Iran.  Meanwhile, both camps agree that if current trends continue, next year’s poll may become a referendum on property and privacy rights versus big government.

Oil income, or the struggle to get a fair share of it, has played a central role in speeding and hindering the nation’s anti-colonial and anti-elitist movements for nearly a century.  Echoes of Iran’s mass uprising of the late 1970s that closely followed the last peak in oil prices and shook the world richly animate the national debate outlined above.  Independence, accountability, progress, and freedom are still the hot button issues.   The struggle over which faction gets to decide how the current windfall is allocated will be a historic anomaly if it does not produce lasting consequences.


Rostam Pourzal is a political analyst based in Washington.



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