Iran's Struggle for Economic Independence: Reform and Counter-Reform in the Post-Revolutionary Era (Routledge Political Economy of the Middle East and North Africa)

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Iran’s Struggle for Economic Independence

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It is often assumed that Iran must necessarily submit to the forces of globalization and liberalize its economy, but the country’s ruling elites have continued throughout the post-revolutionary era to resist these pressures for neo-liberal economic reform, seeking to survive in the battlefield of today’s globalizing economy while remaining loyal to their own rules of engagement. This book analyzes the dynamics of economic reform in the Islamic Republic of Iran as they have played out in this post-revolutionary struggle for economic independence from 1979 up to the present day. It shows how, although some groups within the Iranian elite are in favor of opening up the economy to the inflow of foreign capital—believing that lasting independence requires economic growth powered in part by investment from abroad—others argue that such economic liberalization might endanger Iran’s national interests and put the survival of the post-revolutionary regime at risk. By examining the political causes of the ongoing tug of war that has taken place between these two sides of reform and counter-reform, this book provides a new approach to understanding the complex process of economic policy-making in the Islamic Republic of Iran, which will be relevant to future examinations of the political economy of the Middle East. Evaleila Pesaran is College Lecturer in Politics at Murray Edwards College (founded as New Hall) and Pembroke College, University of Cambridge, UK.

The Routledge Political Economy of the Middle East and North Africa Series Series editor: Hassan Hakimian London Middle East Institute, School of Oriental and African Studies, University of London. Editorial Board: David Cobham, Professor of Economics at Heriot-Watt University, UK. Nu’man Kanafani, Associate Professor of Economics at the University of Copenhagen, Denmark. Massoud Karshenas, Professor of Economics at the School of Oriental and African Studies (SOAS), University of London, UK. Jeffrey B. Nugent, Professor of Economics at the University of Southern California, Los Angeles, USA. Jennifer Olmsted, Associate Professor of Economics at Drew University, New Jersey, USA. Karen Pfeifer, Professor of Economics at Smith College, Northampton, Massachusetts, USA. Wassim Shahin, Professor of Economics and Dean of Business School at the Lebanese American University (LAU), Byblos, Lebanon. Sübidey Togan, Professor of Economics and Director of the Centre for International Economics at Bilkent University, Ankara, Turkey. Jackline Wahba, Reader in Economics at the University of Southampton, UK. Tarik Yousef, Dean of the Dubai School of Government, UAE. 1. Trade Policy and Economic Integration in the Middle East and North Africa Economic boundaries in flux Edited by Hassan Hakimian and Jeffrey B. Nugent 2. State Formation in Palestine Viability and governance during a social transformation Edited by Mushtaq Husain Khan 3. Palestinian Labour Migration to Israel Land, labour and migration Leila H. Farsakh 4. Islam and the Everyday World Public policy dilemmas Edited by Sohrab Behdad and Farhad Nomani 5. Monetary Policy and Central Banking in the Middle East and North Africa Edited by David Cobham and Ghassan Dibeh

6. Economic Performance in the Middle East and North Africa Institutions, corruption and reform Edited by Serdar Sayan 7. Economic Liberalization and Turkey Sübidey Togan 8. The Political Economy of Aid in Palestine Relief from conflict or development delayed? Sahar Taghdisi-Rad 9. Money in the Middle East and North Africa Monetary policy frameworks and strategies Edited by David Cobham and Ghassan Dibeh 10. Iran’s Struggle for Economic Independence Reform and counter-reform in the post-revolutionary era Evaleila Pesaran

Iran’s Struggle for Economic Independence Reform and counter-reform in the post-revolutionary era Evaleila Pesaran

This edition published 2011 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business

This edition published in the Taylor & Francis e-Library, 2011. To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk. © 2011 Evaleila Pesaran The right of Evaleila Pesaran to be identified as author of this work has been asserted by her in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Pesaran, Evaleila. Iran’s struggle for economic independence: reform and counterreform in the post-revolutionary era / Evaleila Pesaran.—1st ed. p. cm.—(The Routledge political economy of the Middle East and North Africa series) Includes bibliographical references and index. 1. Iran—Economic conditions—1979–1997. 2. Iran—Economic conditions—1997. 3. Iran—Economic policy. 4. Investments, Foreign—Iran. I. Title. HC475.P437 2011 330.955—dc22 2010043835

ISBN 0-203-81835-0 Master e-book ISBN

ISBN13: 978–0–415–59025–9 (hbk) ISBN13: 978–0–203–81835–0 (ebk)

For my parents

Contents

List of illustrations Acknowledgments List of abbreviations Note on transliteration

viii ix x xi

Introduction

1

1

Reform and counter-reform: the theoretical framework

7

2

Tracing the desire for economic independence

21

3

Consolidating the post-revolutionary economic system

39

4

Redefining revolutionary goals

63

5

Moving toward reform

97

6

Resurrecting the Revolution

128

7

Negotiating the path of counter-reform

161

Conclusion Glossary Notes Bibliography Index

189 196 198 205 218

Illustrations

Figures 7.1 7.2

Inflows of FDI to Iran, 1979–2009 Oil exports and prices, 1979–2009

183 184

Tables 3.1 3.2 4.1 4.2 5.1 5.2 6.1 6.2 7.1 7.2 7.3

Inflows of foreign direct investment to Iran, 1979–1988 GDP and imports, 1979–1988, in billions of rials at constant prices Oil exports and prices, 1988–1991 Foreign debt, 1989–1993, in billions of US dollars at constant prices Oil exports and prices, 1996–1998 Inflows of foreign direct investment to Iran, 1989–1999 Foreign investment permits issued by OIETAI, 2001–2004 Inflows of FDI to Iran, Jordan and the UAE, 2000–2004, in millions of US dollars and as percentage of GDP Oil exports and prices, 2001–2009 Inflows of FDI to Iran, Jordan, and the UAE, 2005–2009, in millions of US dollars and as percentage of GDP GDP and GDP growth rate, 2005–2009, in billions of rials at constant prices

58 59 81 86 112 113 132 135 171 183 184

Acknowledgments

This book began many years ago when I began to write my doctoral thesis at the School of Oriental and African Studies (SOAS) at the University of London, and the journey I have traveled since then has been both exciting and challenging. I am hugely grateful to all of those who have helped me along the way. First and foremost, my thanks go to Charles Tripp, Massoud Karshenas, and Ali Ansari for their helpful guidance and support. I am enormously grateful to Hassan Hakimian for initiating this project, to Peter Sowden for giving me the opportunity to have it published, and to the anonymous reviewers at Routledge who provided many useful ideas on the manuscript. I am also grateful to Murray Edwards College and Emmanuel College at the University of Cambridge for allowing me the time, space, and resources with which to complete this book. My two research trips to Tehran were memorable as well as informative, and I express my heartfelt appreciation to everyone who took the time to help me find all the information I needed. I am particularly indebted to Mohammad Tabibian, Mohammad Sadeq Janan-Sefat, Narges Barahoi, and Masoud Derakhshan, all of whom worked tirelessly to make my time in Tehran as productive and efficient as possible. Furthermore, it is important to remember that, without the enthusiastic participation of various interviewees, this book could never have been written. I would like them all to know how much I appreciate their willingness to share with me their experiences, opinions, and knowledge of the Iranian post-revolutionary economy. Some sections of Chapters 3 and 4 are based on my 2008 article “Towards an anti-Western stance: the economic discourse of Iran’s 1979 revolution,” in Iranian Studies, 41, 5: 693–718. I am grateful to the editor of that journal, Homa Katouzian, for allowing me to draw on this earlier work, and I thank him also for his support and guidance. Last but not least, I am thankful to Kamiar Mohaddes, for everything. Evaleila Pesaran Cambridge, September 2010

Abbreviations

AIOC APOC BIT BOT FDI FIPPA FTZ ICCIM IEI ILSA IMF IRGC IRP JRM

Anglo-Iranian Oil Company Anglo-Persian Oil Company Bilateral Investment Treaty Build-Operate-Transfer foreign direct investment Foreign Investment Promotion and Protection Act Free Trade-Industrial Zone Iran’s Chamber of Commerce, Industries, and Mines Iran Electronics Industries Iran–Libya Sanctions Act International Monetary Fund Islamic Revolutionary Guard Corps Islamic Republican Party Jame‘eh-ye Rawhaniyat-e Mobarez, or Society of Combatant Clergy; a conservative mercantile group LAPFI Law for the Attraction and Protection of Foreign Investment MEED Middle East Economic Digest MPO Management and Planning Organization MRM Majma‘-e Rawhaniyun-e Mobarez, or Association of Combatant Clerics; a statist group OIETAI Organization for Investment, Economic, and Technical Assistance of Iran OPEC Organization of the Petroleum Exporting Countries PBO Planning and Budget Organization SCNS Supreme Council for National Security SMEE Sazman-e Mojahedin-e Enqelab-e Eslami, or Organization of the Mojahedin of the Islamic Revolution; a statist group TAV Tepe-Akfen-Vie WTO World Trade Organization

Note on transliteration

The transliteration system used in this book renders Persian words according to the system of the International Journal of Middle East Studies, but modifies it to render short vowels as they are pronounced in Persian (with “e” instead of “i,” and “o” instead of “u”). For simplicity, no diacritical marks are used except for ayn (‘). Common words and names, such as bazaar and Khomeini, follow their established English spellings. Unless otherwise stated, all translations are by the author.

Introduction

In the Islamic Republic of Iran, the forces of economic globalization tend to be perceived as more of a threat than an opportunity. When the revolutionaries brought down the old order of the Pahlavi monarchy in February 1979, hopes ran high that unwanted foreign interference in the Iranian economy would be brought to an end at last, and the much-vaunted goal of economic independence has continued to resonate along the corridors of power in Tehran ever since. However, after more than three decades, no consensus has been reached among the country’s ruling elites on the question of precisely what this economic independence should look like, and by what means it should be attained. Consequently, there has been a struggle over the legacy of this important revolutionary ambition throughout Iran’s post-revolutionary era. Contrary to the expectations of many that the Islamic Republic would pursue economic liberalization and normalize relations with the outside world soon after the end of the Revolution, this contestation over the ideal of economic independence has survived well beyond both the consolidation of the Islamic Republic and the death of its charismatic founder, Ayatollah Ruhollah Khomeini. For those who assumed that the post-revolutionary state would inevitably retreat from the apparent excesses of the revolutionary movement and move over time toward a state of “normalcy,” Iran’s persistent struggle for economic independence is somewhat perplexing. In particular, considering the importance of petrochemicals to the national economy, it can seem that the Islamic Republic’s opposition to the dictates of economic globalization represents an outright denial of its intrinsic interconnectedness to the global economic system. Through the export of crude oil and the import of refined gasoline, as well as the importation of a wide range of consumer goods (albeit often under high tariff duties), the Iranian post-revolutionary state has indeed shown itself willing to accept many aspects of economic engagement with the outside world, while at the same time remaining sensitive about other issues such as the liberalization of foreign capital inflows. However, these apparently incongruous dimensions of Iran’s approach to the global economy can be easily understood when attention is paid to the complex nature of the post-revolutionary experience. Instead of searching in

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vain for signs of post-revolutionary “normalization,” it is important to appreciate the extent to which factional contestation among the winners of the Revolution is itself a common consequence of revolution. As the multifarious inheritors of the revolutionary movement engage in a lengthy process of debate over the future of the new order, the policies of the postrevolutionary regime are pulled in a number of different directions, and those who await a smooth, linear progression toward some particular notion of “normalcy” are certain to be disappointed. Given that the ambitions of any revolution are multidimensional, often expressed in ambiguous slogans that are intended to appeal to as wide an audience as possible, it should be expected that intense debates over the question of how to interpret these ambitions will be carried out over the long term. In the case of Iran, the struggle to define the post-revolutionary order has been ongoing since 1979, and one notable consequence of this struggle has been the frequent vacillation of economic approach between reform and counter-reform. This book analyzes the complex process of negotiation over economic policy that has taken place throughout the post-revolutionary era between different factions of the Islamic Republic’s ruling elite, each one seeking to shape Iran’s relationship with the forces of economic globalization in its own vision. While there is general agreement among all factions that foreign companies should not be allowed to exploit the Iranian economy in an unfair manner, the level of consensus is significantly reduced when it comes to the question of what specific measures should be taken to ensure the realization of this goal. To explain why the Iranian post-revolutionary state has remained loyal to the general ideal of economic independence even as particular policies aimed at facilitating the inflow of foreign capital have been introduced, this book focuses on the constitutional framework that was established in Iran after the overthrow of the Pahlavi monarchy. It is considered necessary to base this study of reform and counter-reform in the post-revolutionary era on the state’s underlying structures because the parameters of the Islamic Republic’s struggle over economic policy have been unavoidably shaped by the political context in which they have taken place. Given that opposition to the Pahlavi regime went hand in hand with a bold critique of Iran’s apparently dependent relationship with Western capitalism, the identity of the post-revolutionary regime has been very much shaped by a powerful narrative of anti-Westernism, and this identity was formalized in the Islamic Republic’s new constitution. However, although it served to confirm the shared goals of Iran’s ruling elites in the immediate postrevolutionary period, the 1979 constitution also allowed considerable space for factional contestation over the question of how best to translate these founding goals into actual policies on a day-to-day basis. To a large extent, this space for factional contestation has been forged by the distinctive mixture of appointed and elected institutions that can be found in the Iranian postrevolutionary state. In particular, while the ruling elites of the Islamic

Introduction

3

Republic’s appointed bodies have tended to retain a strong attachment to the revolutionary legacy of anti-imperialism and anti-globalization, there are some in the state’s elected institutions who have developed new identities and beliefs that are more accepting of the forces of economic globalization. Appointed and elected bodies have not always been positioned against each other, of course, but this book will show just how the competing views of various institutions have shaped the debate over the goal of economic independence in the years since 1979. In order to examine how Iran’s ruling elites have gone about negotiating the perceived threats and opportunities of the forces of economic globalization in the post-revolutionary era, particular attention is paid to the lively debates that have taken place since 1979 over the issue of foreign investment in the Islamic Republic’s elected institutions (namely the parliament and the government), as well as in its appointed institutions (including the Guardian Council, the Expediency Council, and the Leadership), and in the Iranian press. Overall, the book shows how these debates have been broadly shaped on one side by those who think that independence will only be realized through an economic growth that is powered in part by investment from abroad, and on the other by those who believe that any encouragement of such investment will only lead to exploitation and a betrayal of Iranian interests, with a mixed group of moderates sitting in the middle. As the influence exerted by each of these groups has risen and fallen over the course of the post-revolutionary era, the extent to which foreign capital has been allowed to expand within Iranian borders has varied in an often unpredictable manner. However, by referring to the unique constitutional framework of the Islamic Republic of Iran, such unpredictability can be better understood and explained. Since debates over Iran’s struggle for economic independence have not previously been examined in great depth, this book relies predominantly on primary materials acquired on field trips to Iran during 2005 and 2007. Newspapers, magazines, parliamentary debates, government reports, and interviews with members of the Iranian political elite are referred to in order to flesh out the book’s narrative, with at least two independent and reliable sources employed for each fact in order to ensure the accuracy of the account. While interviewees’ comments were no doubt one-sided and biased, they nevertheless provide a valuable insight into the particular viewpoints being expressed from each corner of the debate, and interviews with ruling elites from all factions have helped to add colour and life to the chronological account that is presented in the chapters that follow. In advance of this narrative of factional contestation, however, Chapters 1 and 2 set the scene with an overview of the theoretical framework and the historical background that underlie the discussions of the rest of the book. Chapter 1 expands on the two key points that are essential to understanding the interplay between reform and counter-reform in Iranian economic policymaking after 1979. First, it stresses the importance of rethinking the notion

4

Iran’s struggle for economic independence

of the post-revolutionary “Thermidor,” according to which revolutions are said to move along a cyclical trajectory from moderate rule through to radicalism and then back to “normalcy” in the same manner as the reign of terror following the French Revolution of 1789 was replaced with more moderate rule in the month of Thermidor (July) 1794. It argues instead for a fuller appreciation of the enduring impact of the revolutionary experience, as in practice there is considerable institutional struggle and debate over the identity of the post-revolutionary order that continues long after the end of the revolution itself. Second, it develops the argument that this post-revolutionary struggle should be analyzed with specific reference to the political context in which it has taken place. Consideration of both internal institutional structures and external relations with the outside world is required to better understand the dynamics of Iran’s struggle for economic independence. With a view to explaining where the revolutionary desire for economic independence came from in the first place, Chapter 2 presents the story of Iran’s encounter with the global economy from the perspective of Iran’s antiShah revolutionaries, who critiqued the economic and political penetration of foreign forces that had been taking place in Iran ever since the Qajar period. The 1872 protest against the concession that Naser al-Din Shah gave to Baron Julius de Reuter is just one example that gained their attention. Others include the tobacco protests of 1891 and the opposition to the 1901 D’Arcy Concession, as well as the more general expression of nationalist sentiments aroused during the constitutional revolution of 1906–1911 and of course the 1951 nationalization of the Iranian oil industry. Reference to these events reinforced the revolutionaries’ desire to bring about a break with the past and realize economic independence with the establishment of the new regime. Linking back to the previous chapter’s theoretical framework, Chapter 2 also provides a comprehensive overview of the different factional viewpoints that emerged in the immediate post-revolutionary period, each one interpreting the revolutionary ideals in a different way, thereby making possible the policy fluctuation that was to come in subsequent years. Chapter 3 describes how the anti-Western stance of the revolutionary movement was articulated and put into practice by the leaders of the new regime, focusing on their debates over those parts of the 1979 constitution that deal with the implementation of a new economic system, and the introduction of specific articles aimed at protecting Iranian resources from foreign exploitation. It discusses how the different factions of the new regime sought to defend the goal of economic independence during the period of war with Iraq, highlighting the difficulties that were faced in trying to reconcile the ideals of the Revolution with the specific interpretations favored by each side participating in the debate. Overall, the chapter emphasizes the point that it was the ambiguity of the Revolution’s call for independence that encouraged the subsequent expression of competing views on the best way forward.

Introduction

5

Following the end of the Iran–Iraq War in 1988, such disagreements between rival elite factions became even more pronounced. The question of how postwar reconstruction of the Iranian economy might be achieved alongside a continued protection of national interests was hotly debated during the presidency of Akbar Hashemi-Rafsanjani. Focusing in particular on the debates surrounding the use of foreign capital during the Islamic Republic’s first and second five-year plans, Chapter 4 shows how competing groups sought to redefine the goals of the Revolution in the context of emerging domestic and international trends. The chapter illustrates and reinforces the first chapter’s argument that the revolutionary legacy is continually reinterpreted in unexpected ways alongside the emergence of new realities. Indeed, while there were high expectations that both economic liberalization and an amelioration of relations with the West would take place after 1989, the Iranian political economy followed an unpredictable course throughout the HashemiRafsanjani years. In Chapter 5, further attention is drawn to the unexpected ways in which new interpretations of Iran’s revolutionary legacies have influenced economic policy decisions over the course of time. Focusing on the presidency of Mohammad Khatami, the chapter shows how certain factions that had been largely sidelined or challenged during the Hashemi-Rafsanjani period suddenly found themselves in a position where they were able to articulate a revised approach to the global economy. The chapter begins with an analysis of the emergence of the reform movement and its relation to the fresh approach to foreign affairs that was adopted by President Khatami. It highlights the increasing complexity of Iranian factions and their economic outlooks, and explores the subsequent changes in foreign policy. The chapter then discusses Khatami’s attempt to find a new economic approach that would balance the pursuit of social justice and the advancement of economic growth, exploring in particular the attempts that were made during the Khatami period to revise and update the country’s law for the protection and attraction of foreign investment. Of course, competing perspectives on economic independence have persisted throughout the post-revolutionary period in Iran, and the period of reform was soon followed by a swing back in the opposite direction. Chapter 6 examines the arguments that were put forward in response to the Khatami administration’s attempts at reform, largely by a group of counter-reformists who went on to support Mahmoud Ahmadinejad in the 2005 presidential elections. Following a review of this group’s critique of globalization, the chapter discusses in detail the counter-reformists’ effort to block undesirable foreign investments from entry into Iran. Chapter 7 brings the story of Iran’s struggle for economic independence up to date with a discussion of the challenges that Ahmadinejad continued to face as president in spite of his intention to bring about a “new Islamic revolution” that would be capable of achieving economic independence at

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last. The chapter draws attention to the fact that, with a variety of rival factions opposing Ahmadinejad’s plans for the Iranian economy, the realization of national development without excessive dependence on global capitalist forces remained a vague goal, full of contention. It thus shows just how complicated Iran’s struggle for economic independence has been since 1979, never moving smoothly along a single path for very long. Furthermore, the chapter’s examination of counter-reformist reactions to the sanctions being imposed on Iran by Western powers at this time highlights how Iranian economic policies have been shaped by perceptions of external threats just as much as they have been informed by domestic aspirations for influence and power.

1

Reform and counter-reform The theoretical framework

International financial bodies such as the World Bank and the International Monetary Fund (IMF) have long held that state institutions should adapt to the powerful forces of globalization. If the role of the state is reduced in favor of the market, it is suggested that global finance will be able to move freely across borders and thereby impressive rates of economic growth will be achieved for all. The World Bank (2009b: 50) maintains that increased integration with the global capitalist economy will lead to faster growth as well as job creation, and it encourages the Middle East and North Africa region in particular to “continue to pay attention to the unfinished structural reform agenda to ensure sustained progress in a more competitive world” (World Bank 2009a: xiv). However, many states—including but not limited to the Islamic Republic of Iran—have resisted this push toward economic reform. Specifically, in those parts of the world where the current phase of economic globalization evokes memories of the economic domination that so often went hand in hand with European imperialism, ruling elites can find it difficult to embrace wholeheartedly the Anglo-American rules of the game that are preached by the World Bank and the IMF. Where it is felt that previous experiences of contact with foreign economic forces led to outcomes that were largely detrimental to the national interest, states tend to be keen to prevent history from repeating itself. The ambition of liberation from the shackles of Western imperialism has proven to be both powerful and enduring, and even today the policies of post-colonial states continue in many ways to be informed by perceptions of the past (Tripp 2001: 215). A cautious position vis-à-vis the forces of economic globalization, however, is not sustained on the basis of past grievances alone. In practice, current concerns also play an important role in the resistance of many authoritarian and semi-authoritarian states to neo-liberal economic reforms. Considering the argument made by some that global finance has already been strengthened to the point that states have lost their economic power,1 it is not surprising to discover the existence of political elites who are intent on holding on to their control over the domestic economy for as long as they can, hoping to avoid any associated loss of political power. Although it has been shown that economic elites have often been able to retain their political influence even

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Iran’s struggle for economic independence

as they have embraced policies of economic liberalization (for example, Heydemann 2004), it does not follow that illiberal political regimes have come to view economic globalization as an entirely benign force. On the contrary, given that the Western capitalist model brings with it a level of political liberalization that would undermine many political systems, Western-led globalization is often handled with great care. Nevertheless, while the shadows of the past as well as the concerns of the present cause many non-Western countries to challenge the terms of engagement set down by the World Bank and the IMF, the particular manner in which any given state will interact with the forces of globalization is necessarily unique. Each state will forge its own position, not by virtue of some exclusive logic with which it is endowed as a unified and autonomous actor,2 however, but rather as a result of a series of complex and ever-shifting negotiations, which take place within and between various ruling elites as well as among the social constituencies in which they are embedded.3 As such, although numerous states perceive their legitimacy to be tied up with a critique of Western capitalism for the reasons outlined above, the types of policies formulated on the basis of this critique will vary depending on how these elites and non-elites engage with each other and with the economic realities that they believe the country to be facing. The pros and cons of economic liberalization will thus be considered and weighed up in accordance with the specific context of both time and place. In the case of the Islamic Republic of Iran, the context for these debates over economic policy has been broadly shaped by the revolutionary movement that brought the regime into existence. This chapter will show how the unique constitutional framework forged out of the revolutionary power struggle has determined the nature and direction of subsequent negotiations over the ideal of economic independence in Iran. In so doing, it will demonstrate why the economic arguments made by some of the country’s technocratic, business, and political elites in favor of increased efforts to attract foreign capital must necessarily be reconciled with the counter-arguments made by others who control the distribution of oil wealth within the country, and who support the need to defend the Revolution and protect the Islamic Republic’s national identity, especially in the face of continued sanctions from the West. As such, it highlights the key point that repeated encouragement from the World Bank and the IMF is simply not enough to eradicate the desire for economic independence in post-revolutionary Iran. Before moving on to a detailed discussion of the complex dynamics of Iranian economic reform, however, the chapter will begin by stressing the importance of the revolutionary experience to this enduring resistance of perceived threats, arguing against the view that “normalization” processes render revolutionary ideals irrelevant.

Rethinking the post-revolutionary thermidor The passions and ideals of a revolutionary movement often seem to die down once its immediate goals have been achieved, allowing remnants of what had

Reform and counter-reform 9 been so vociferously opposed by the revolutionaries to gradually resurface and become tolerated once more. Echoing the Thermidorian reaction that brought an end to the reign of terror in post-revolutionary France, many of the world’s great revolutions appear to have witnessed an eventual replacement of radicalism with conservatism, and perhaps even a return to the “normalcy” of the pre-revolutionary period. Given that the word “revolution” had originally emerged as a description of the orderly rotation of the stars in the sky, and was subsequently used to refer to the circular nature of history, according to which all events would inevitably return to their initial starting point,4 it is perhaps fitting that such outcomes should be seen to transpire. Lending support to these types of assumptions about the non-revolutionary outcomes of revolutions, the historian Crane Brinton (1965) argued that much that had been “revolutionary” in the early stages of the French, American, and Russian Revolutions became diluted once the revolutionaries won their victory. In particular, Brinton presented revolution as a kind of fever that gradually works itself up into crisis and delirium, but eventually calms down until finally equilibrium is restored. For him, an important phase in the “anatomy of revolution” was that of the post-revolutionary Thermidor, as he argued that it is only by passing through such a phase that the new regime will be able to moderate and consolidate itself, and thus cope with the exigencies of rule. In the Iranian case, this would mean that revolutionary slogans calling for the protection of the Iranian economy from the threats of imperialism-cum-globalization should die down alongside a realization that integration into the global economy is actually vital for the achievement of economic growth and development. However, while Brinton described the process of “recovery” (ibid: 17) from the fever of revolution as one whereby the patient regains many of his previous characteristics, causing post-revolutionary economic policies to swiftly return to their pre-revolutionary mode, it is important to recognize the lasting impressions that are nevertheless left with the patient by his experience of revolution. Having gone through the various stages of a revolutionary fever, he will continue to be drawn by many of the ideas that had occurred to him during the heady days of his delirium, and he will thus retain a number of his newly developed qualities. Similarly, any new regime will be bound to hold on to the ideals of the revolutionary movement that brought it into existence. This retention of the post-revolutionary state’s “ideological baggage” does not occur because of an absence of normalization and regime consolidation, but rather as part of this ongoing process.5 Indeed, an attachment to the promises of the Revolution can and should be interpreted as a highly rational act, one that might help the ruling elites of the new state to consolidate their group identity, defend their own legitimacy, and ward off potential rivals. Nevertheless, in relation to the Iranian case, many analysts have appeared to support Brinton’s argument, pointing to the apparent development of Iran’s post-revolutionary Thermidor after the death of Ayatollah Khomeini. For example, Anoushiravan Ehteshami (1995) spoke of the emergence of a

10 Iran’s struggle for economic independence “Second Republic” in post-Khomeini Iran, under which domestic, foreign, and economic policies all became increasingly “realist.” Similarly, Ervand Abrahamian stated explicitly that, in 1989, “the duumvirate of Khamenei and Rafsanjani initiated a Thermidor” (Abrahamian 2008: 183). Meanwhile, other Western-based analysts of the Iranian political situation during the 1990s maintained that “Iran’s revolutionary idealism has matured and been routinized” (Green 1993: 58), and that “the revolutionary path was a failure: the Iranian revolution got bogged down in internal struggles and the economic crisis” (Roy 1994: 25) to the extent that its policies could “no longer be considered ideological” (ibid: 184). Even before Khomeini’s death, Hooshang Amirahmadi had anticipated the emergence of this Thermidor, predicting a further increase in what he perceived as “the gradual shift of the Islamic state from its initial ideological commitments to more pragmatic policies” (Amirahmadi 1988: 2). By looking so intently for a post-revolutionary Thermidor, such observers of the Islamic Republic run the risk of blinding themselves to the complex developments that inevitably take place in the post-revolutionary state. They seem to take the view that history must follow a purely linear path, whereby “irrational” ideals are increasingly abandoned in favor of “rational” needs, and as such they are forced to view events only within this framework. Specifically, in those cases where an apparently “rational” need appears to be neglected by the state, the followers of the paradigm of the anatomy of revolution are insufficiently equipped to explain the reasons for why this might have been the case: it becomes incomprehensible that the Islamic Republic should resist economic liberalization, for example. However, the unexpected consequences of revolution can be understood by recognizing the existence of different interpretations of rationality, which in the Iranian context, as elsewhere, can cause a broad spectrum of approaches to be pursued as part of the power struggle over the definition of the new political order, causing policies to continually wax and wane throughout the post-revolutionary period as they did in post-Mao China (Zhang 1996). Rather than expect all developments to take place as a linear process, it can be more helpful to recognise the fluctuating, often messy nature of history. In short, it is necessary to rethink the post-revolutionary Thermidor, and in its place appreciate the possibility that the process of post-revolutionary consolidation might, for entirely rational reasons, incorporate revolutionary ideals as well as post-revolutionary necessities. Given the strength and the extent of the revolutionary movement’s overhang in Iran, the developments of the Islamic Republic have been shaped by a range of necessities that are themselves closely entwined with its ideational legacy. It is the broad range of possible combinations between the two that leads to policy fluctuations, making any linear development along Thermidorian lines almost impossible. It can be seen, for example, that policies of economic and political centralization are followed by contrasting policies of economic liberalization and political decentralization, only to be modified over time toward a middle path

Reform and counter-reform 11 of compromise and concession, and then replaced again with centralization and/or decentralization. Although Fred Halliday confidently asserted at the start of the new millennium that “certainly, more than two decades after the Revolution, the old slogans no longer work” (Halliday 2002: 157), in fact the “old slogans” of the Revolution do continue to have resonance, and they shape new policies just as much as do the apparently practical considerations of the day. Indeed, the two influences are largely inseparable from each other: slogans can support practical needs, while practical needs can reinforce slogans. Since the Iranian Revolution was informed by certain goals, the ruling elites of the postrevolutionary state continue to defend their own interpretation of these goals in order to hold on to legitimacy both now and in the future. However, given the range of political factions in contemporary Iran,6 each one providing its own interpretation of the ambiguous agenda that shaped the revolutionary movement, there are many opportunities for slogans to be re-directed such that ideals and needs are continually re-worked in innovative combinations over time (see Brumberg 2001). Furthermore, rather than think of Iran’s factions as if some were driven solely by a deep passion for the slogans of the Revolution, and others increasingly motivated by “reason” and “rationality” (as argued in Menashri 2001: 50), it is more helpful to acknowledge the ambiguity and messiness inherent in the practice of factional politics. In particular, while one faction may adhere to a particular view of the economy that puts it at odds with another faction when it comes to deciding economic policy, the two may share the same views on social and cultural issues. In this situation, these factions can be both rivals and partners at the same time. More importantly, each of the two factions will concurrently reflect different aspects of the Revolution’s ambiguous ideals as well as different institutional interests. It is largely because of this complex nature of the competition between rival groups of the Islamic Republic that there has been continual policy fluctuation throughout the post-revolutionary period, thereby making the anticipated linear development toward Thermidor so elusive.

The dynamics of economic reform In order to understand the shifts between reform and counter-reform that have taken place in the post-revolutionary Iranian economy, it is necessary to explore the constitutional framework and broader socio-economic context in which the various factions of the Iranian political elite have engaged in continued debate over the Revolution’s legacy since 1979. This is because the extent to which any of these factions can succeed in molding the Islamic Republic’s approach to the global economy in line with their own preferences is undoubtedly affected by their position within that political order. All of the Iranian elites who have the potential to influence policy are integrated into

12 Iran’s struggle for economic independence the broad network encompassed by the Islamic Republic, and they are all committed to the revolutionary goal of economic independence. However, they will each interpret this revolutionary goal in a different way in accordance with their own material and ideational interests. The impact of the particular strategies proposed by each faction for achieving their own vision of economic independence will vary depending on where in this network they are situated, the rise and fall of rival coalitions contributing to the inevitable fluctuation of economic policies within the Islamic Republic. Iran as a rentier state At first glance, it may seem unlikely that competing factional groups should be able to exert a significant influence on economic policy in Iran. As a state that secures the majority of its income directly from the export of hydrocarbons and not from domestic tax collection, it can be argued that the Islamic Republic is well positioned to enjoy total autonomy and control over society. In accordance with the rentier state theory, which suggests that access to a nonproductive source of income places resource-rich states in a position where they do not need to rely on fiscal extraction from their populations but can instead simply provide these populations with jobs, services, and other favors,7 some might expect the oil-rich Iranian state to be capable of determining economic policies as an independent entity. Furthermore, given its reliance on the international petroleum market for revenue generation, it may appear that this supposedly autonomous state must be obliged to conform to the rules of global capitalism. In the belief that Iran’s need for economic growth and development will be best served if the Iranian state simply liberalizes its economy and opens up to increased levels of foreign investment, some assume that the dictates of the forces of economic globalization will inevitably shape the economic policy of this country that is already so interconnected with the global economic system. However, as with the other successful revolutions of the twentieth century, which all took place in countries that had previously been in a dependent relationship with Western capitalism (Dunn 1989), the Iranian postrevolutionary state has remained committed to the ideal of changing this unfavorable relationship, and a complete abandonment of the goal of economic independence in favor of any capitalist economic rationale has been largely unthinkable. As such, just as there has been no return to “normalcy” following the Revolution, neither has the “logic” of Western capitalism been able to influence the economic policies of the Islamic Republic from above in any considerable way. In addition, even though it is often anticipated that the state will become the chief engine of social change in a post-revolutionary setting, it is important to recognize that the post-revolutionary state is necessarily tied to the broad spectrum of social groups that contributed to its establishment in the first place. Consequently, the autonomy of the post-revolutionary state has been considerably limited.

Reform and counter-reform 13 While the economic policies conceived and carried out by the Islamic Republic will necessarily have an impact on Iranian society, this society also impacts upon the state’s negotiation of future economic policies. It does so not as an independent, private interest group in the manner that is portrayed by rational choice theorists,8 but instead as what can be seen as one element of the broad network encompassed by the post-revolutionary state. In short, groups from across the apparent divide between state and society negotiate with each other to arrive at decisions relating to Iran’s position vis-à-vis the global economy, struggling for a chance to shape the future of a political order that they all helped to create. These competing and overlapping groups have interpreted both the legacy of their historical experiences and the exigencies created by their current position in the world economy in contrasting ways. Consequently, various economic policies have been proposed at different points in the post-revolutionary era. Continual policy fluctuation occurs because, alongside the rise and fall of the influence exerted by rival factions, members of each side gradually find themselves altering their own positions, becoming influenced by opposing views even as they influence their rivals themselves. In light of this, it can appear that a more open position toward the forces of economic globalization might emerge over time. Indeed, Jason Brownlee (2007) has suggested that the existence of open elite conflicts in post-revolutionary Iran might even have the potential to create the space for significant political change, including democratization. However, in practice, any tendency toward economic liberalization is limited because the complexity of the process of negotiation makes it unlikely that the neo-liberal approach favored by institutions such as the World Bank and the IMF would ever be accepted without at the very least finding itself altered in translation.9 Furthermore, it should not be forgotten that all those who are able to influence Iranian economic policy decisions themselves come from the particular social groups that are highly invested in the preservation of the broader system of the Islamic Republic; variation between them simply stems from the fact that they are each embedded in different parts of it (Henry and Springborg 2001: 216). This embeddedness of so many social constituencies within the extensive networks of the Iranian regime further supports the argument that the Islamic Republic is not, in practice, the autonomous entity with full control over the economic policy-making process that some would imagine it to be.10 However, just because the distributive nature of the Iranian rentier state tends to mean that “popular support remains contingent on continued flow of rent” (Gheissari and Nasr 2006: 63), it does not follow, as Gheissari and Nasr suggest, that the state is “generally politically weak” (ibid: 62). On the contrary, with so many people holding stakes in the system and thus depending upon its survival, the system becomes greatly strengthened in many ways. Firmly embedded into different sections of the state’s patronage networks, some of the groups debating economic policy may make proposals that are considered to be

14

Iran’s struggle for economic independence

controversial, but none of them will seek to do away altogether with the networks from which they themselves benefit. Although arguments have been made that Iran’s dependence on hydrocarbons added to the vulnerability of the Pahlavi monarchy and contributed to the success of Iran’s 1979 Revolution,11 the Islamic Republic of Iran has retained its ability to co-opt pivotal groups by means of patronage throughout the post-revolutionary period, both when the price of oil has been high and when it has been low (Keshavarzian 2005: 68). So far, the system of rule in Iran has proven to be highly resilient to both external and internal pressures, perhaps because the interconnectedness with the state of so many social groups has ensured that no single individual or institution can be targeted in expressions of public discontent. In a similar manner, the post-revolutionary logic according to which economic independence is viewed as desirable, and as a result of which the forces of economic globalization tend to be approached with caution, has also proven to be highly resilient throughout the post-revolutionary era, because a number of groups supporting this logic can be found in all key institutions, throughout the wide-reaching networks of the state. Iran as a semi-authoritarian state The foregoing discussion has stressed the point that, in the Islamic Republic of Iran, no single actor is able to determine policy alone. Instead, a number of institutions make up the contemporary Iranian political system, and policy outcomes are shaped by the varied and shifting interactions that take place between them. The manner in which these institutions interact with each other is guided to a great extent by the “semi-authoritarian” (Ottaway 2003) nature of the constitutional framework in which they operate, but as this framework is both complex and multidimensional, there are many opportunities for the Iranian regime to produce unexpected policy decisions. Specifically, the paradoxical combination within the post-revolutionary constitution of both “religious and secular principles, democratic and anti-democratic tendencies, as well as populist and elitist predilections” (Boroujerdi 2001: 14) has given way to considerable jostling for power and influence among rival groups and institutions, each of which represents one or some of these principles, tendencies, and predilections, and the result of this jostling is the frequently changing policy landscape that has been observed since 1979. As a post-revolutionary state, the Islamic Republic did not destroy and replace all of the institutions that had existed in the pre-revolutionary period, but instead it introduced a range of new entities to sit alongside the pre-existing bodies of government. Specifically, a constitution with three branches of government remained, a parliament elected by universal suffrage was maintained, and the position of the Shah was replaced with an elected president. Alongside these more familiar features of a republic, however, a number of religious and revolutionary bodies were also established with a view to

Reform and counter-reform 15 protecting the independence and Islamic identity of the post-revolutionary state, in line with the vision of the Islamic Republic’s charismatic founder, Ayatollah Ruhollah Khomeini. While it initially seemed that Khomeini’s founding vision of an Islamized society guided from above by a single, ideologically-cohesive mass party might have been realized under the leadership of the Islamic Republican Party (IRP), in the event, in the words of Houchang Chehabi, “Iran’s totalitarianism was stillborn” (Chehabi 2001: 54). Due to the inherent heterogeneity of the group dominating the postrevolutionary system, totalitarianism has not been a possibility. Instead, a hybrid regime has been established in which democratic traits are generally outweighed by authoritarian tendencies. Many of these elements of the Islamic Republic’s current structure find their roots in the revolutionary process itself, when a number of disparate groups participated in the movement to overthrow the Pahlavi monarchy. Given the diversity of opinion that was present even within the relatively small circle of elites surrounding Khomeini, not to mention the range of views found in the broader coalition of social forces that helped to make the Revolution a reality, the constitution was written in such a way that factional rivalry over its interpretation was inevitable.12 Furthermore, with its establishment of a system of dual sovereignty, reflected in the combination of both elected and appointed institutions, the constitution has provided the perfect framework in which such factional rivalry can be played out without causing excessive damage to the overarching system and survival of the regime.13 As in a democracy, the Iranian constitution ensures competitive elections for the parliament and the presidency, and much of the post-revolutionary factional competition has openly taken place in these republican institutions. However, while Iran’s factional competition appears to be democratic, the possibilities for such institutions to introduce wide-reaching reform are severely restricted by the operations of many other non-elected bodies. It is this element of restriction combined with the presence of elections that makes the Islamic Republic a hybrid, semi-authoritarian regime. This view of the Iranian regime is based largely upon Juan J. Linz’s definition of authoritarian regimes as: political systems with limited, not responsible, political pluralism, without elaborate and guiding ideology, but with distinctive mentalities, without extensive nor intensive political mobilization, except at some points in their development, and in which a leader or occasionally a small group exercises power within formally ill-defined limits but actually quite predictable ones. (Linz 2000: 159) The Islamic Republic of Iran clearly exhibits many of the characteristics of this authoritarian model, although it combines them with other characteristics usually associated with the democratic model. Most notable among

16 Iran’s struggle for economic independence the similarities to Linz’s authoritarian ideal type is the limited nature of Iran’s political pluralism as well as the importance of the revolutionary mentality to the Iranian regime. Political pluralism is evidenced by the factional rivalry and contestation that has intensified in the country since Khomeini’s death in 1989, and a distinctive mentality can also be seen in the sense that attachment to the goals of the Revolution has continued to be essential for those groups and institutions that hold power within the regime. In Iran, of course, revolutionary goals and constitutional articles are both flexible and open to interpretation, but far from weakening the mentality at the heart of the political system, such flexibility can actually be useful for the authoritarian regime. Linz explains that the “vagueness of the mentality blunts the lines of cleavage in the coalition, allowing the rulers to retain the loyalty of disparate elements” (ibid: 164). This is precisely what can be seen in the Iranian case, where even though there has been considerable debate over the vague goal of economic independence, none of the participants in the debate has sought to abandon the goal altogether. Specifically, since there is “semi-opposition by groups . . . that engage in partial criticism but are willing to participate in power without fundamentally challenging the regime” (ibid: 168), policy debates can be effectively contained within certain parameters. Although the existence of institutional channels for political mobilization and political participation in the form of elections distinguishes the Islamic Republic from the “pure” authoritarian model, there are limits to what can be challenged through these electoral mechanisms in practice. Importantly, these limits apply to questions of economic policy just as much as they apply to other issues that more directly address the political power of the incumbents. On the question of how best to approach the forces of economic globalization in such a way that the revolutionary goal of economic independence can be secured, semi-opposition is most likely to emerge in either the parliament or the presidency. Since both institutions are elected every four years by universal suffrage, there is considerable opportunity for new and alternative views to develop and gain a voice here. Within the parliament, which is formally referred to as the Islamic Consultative Assembly (majles-e shawra-ye eslami, or majles), there is often heated policy debate and strident critiques of government bodies are not unusual. According to the Iranian constitution, parliament can question the government, it can subject the president and cabinet ministers to votes of no confidence (Constitution of the Islamic Republic of Iran: Article 89), and it has the right to investigate and examine all the affairs of the state (ibid: Article 76). Members of parliament do not hesitate in making full use of their constitutionally protected entitlements. Similarly, as head of the executive except in matters directly concerned with the office of the supreme leader, the president has the power to introduce and shape new government policies, and with the approval of the parliament, these policies have the potential to bring about significant shifts in the Islamic Republic’s relationship with Western capitalism.

Reform and counter-reform 17 However, while some parliamentary deputies and presidents, often in association with a range of technocrats and government officials, may develop new interpretations of the broad revolutionary mentality and thereby create an environment in which previously unconsidered policy options can be raised and discussed, they will tend to encounter the opposition of other parliamentary deputies who perceive such innovations to be wholly “un-revolutionary” and thus undesirable. Furthermore, there is always the possibility that, at the next presidential election, the new winning candidate will take steps to reverse some or all of the reforms that had been introduced under the previous administration. In light of the limits set to negotiations over important policy issues in a semi-authoritarian state like the Islamic Republic, reforms will tend to be rejoined with concerted efforts at counter-reform as soon as it is felt that these limits are in danger of being crossed. Specifically, although there are opportunities for elected officials to promote policies in favor of greater interaction with the global economy (if such a move should accord with their own understanding of the ideal of economic independence), various nonelected officials with a vested interest in the preservation of the Islamic Republic tend to stand in their way. The non-elected institution most capable of limiting contestation and participation is the Guardian Council (shawra-ye negahban), which is empowered to block any and all parliamentary bills that it perceives to be incompatible with either religious law or the Islamic Republic’s constitution. This body is comprised of six members of the ‘ulama (Islamic religious scholars), who are appointed directly by the supreme leader, as well as six Muslim lawyers, who are nominated by the head of the judiciary (who is himself appointed by the supreme leader) and then must be approved by the parliament. In addition to being able to reject legislation, these members of the Guardian Council are also empowered by the constitution to “supervise” (ibid: Article 99) presidential and parliamentary elections as well as the elections for the members of the Assembly of Leadership Experts (the body that selects the new supreme leader as and when necessary). Since 1992, this requirement has been interpreted to mean that the Guardian Council can vet candidates and prevent them from running for election. As such, this non-elected body has been able to influence the make-up of the country’s elected institutions, thereby ensuring that the underlying mentality of the Islamic Republic will survive and continue to be represented throughout the complex power structures of the regime. Another non-elected body that is similarly committed to protecting the interests of the Iranian post-revolutionary regime is the Expediency Council,14 which was established in 1988 with the task of arbitrating in cases of legislative dispute between the parliament and the Guardian Council. Its members (usually numbering around 31) are chosen from among top state and government officials by the supreme leader directly, and they usually include heads of the three branches of government, key ministers and military leaders, the

18 Iran’s struggle for economic independence ‘ulama members of the Guardian Council, as well as other important religious figures. Basing their decisions on an assessment of political expedience, the members of the Expediency Council make the final binding decision on all legislation that has been rejected a total of three times by the Guardian Council. The driving force underlying the rulings of the Expediency Council is thus different from that of the Guardian Council, which determines its decisions with reference to religious or constitutional requirements, but nevertheless both bodies have the power to block legislation that has been approved by the parliament. Furthermore, given that the Expediency Council is constitutionally charged with the task of advising the supreme leader on “delineation of the general policies of the Islamic Republic” (ibid: Article 110), the body serves as a powerful anti-democratic force in the Iranian state. Finally, the Islamic Revolutionary Guard Corps (IRGC) also holds an important position in Iran’s complex web of non-democratic decision-making bodies. The IRGC, often referred to as the Pasdaran (meaning “the Guardians”), was established soon after the Revolution in 1979. It was created for the purpose of safeguarding the religious and revolutionary ideals of the new regime,15 tasked with promoting the Islamization of society as well as with protection of the country’s borders. Many of the early members of this revolutionary guard came from poor and deprived sections of Iranian society, considered to be highly loyal to the post-revolutionary state. Over the years since the Revolution, the IRGC has developed a wide-reaching network of business enterprises, and it is because of this that “the Guardians” have been well positioned to shape Iranian economic policy. Furthermore, the IRGC exerts influence over the country’s economic and political activities by virtue of its representation on the Supreme Council for National Security (SCNS), which determines Iran’s defense and national security policies and also coordinates activities in political, social, cultural, and economic fields where these are related to the SCNS’s defense and security policies. In short, it is clear that the capacity for Iranian elected representatives to shape national economic policies is significantly limited by the existence of a host of non-elected entities, of which the Guardian Council, the Expediency Council, the IRGC, and the SCNS are just a few. The strength of these entities can be largely attributed to the Islamic Republic’s implementation of Khomeini’s doctrine of velayat-e faqih (guardianship of the jurist), which stipulates that specialists in Islamic jurisprudence (the ‘ulama) should rule the country on the basis of Islamic laws. As the vali-ye faqih (guardian jurist), the supreme leader is the highest authority in the Islamic Republic.16 He determines the general policies of the regime and supervises over their proper execution; he has supreme command over the armed forces; and he can appoint and dismiss the ‘ulama on the Guardian Council, the members of the Expediency Council, the head of the judiciary, the head of the state radio and television network, and the commanders of the military forces including the IRGC. Furthermore, he exerts considerable influence through his appointed representatives (who serve to ensure continued

Reform and counter-reform 19 Islamization of various areas of both state and society), as well as through bodies such as the Association of Friday Prayer Leaders and the Special Court for the Clergy.17 Acting under the authority of the supreme leader, the Islamic Republic’s various appointed institutions tend to resist external pressures for further liberalization of the Iranian economy to aid the inflow of foreign capital. When they do support specific policies of economic liberalization, this is usually done in such a way that the overarching logic of the Iranian political structure is felt to be protected. The general reasons for their continued resistance are three-fold, relating to issues of security, identity, and history. Often, concerns about national security are cited in relation to proposed economic policies, driven by perceptions of a serious threat from foreign economic forces either to the Islamic Republic as a whole, or to particular sections of it. This securityconscious view is strengthened by virtue of the fact that many of the Iranian ruling elites holding positions in these non-elected institutions have developed a common identity through their collective experiences of the revolutionary period. Having spent their politically formative years in an environment of revolution and war, and continuing to feel “attacked” by international sanctions, many of them have held on to a shared outlook that equates globalization with imperialism. Building on a particular view of Iran’s encounter with foreign powers through history, they have remained sensitive about the impact that foreign powers might have on their own survival within the Islamic Republic in the future. However, given that the mentality shaping actions in the post-revolutionary Iranian regime is both vague and flexible, there is considerable scope for variation in terms of specific policy recommendation. Just as a multiplicity of views has emerged in the parliament and the presidency over the period since 1979, so have various interpretations of the national interest been expressed across the numerous appointed bodies of the Islamic Republic. A single perspective is not held by all. In fact, it is often the case that individuals from one of the appointed institutions will team together with elected officials from one of the parliamentary factions, and together they will work toward the achievement of a particular policy aim, defending it against the opposition of a rival coalition of other elected and non-elected groups situated elsewhere in the complex network of the Iranian state. Consequently, even though the general desire to protect Iranian economic independence has persisted throughout the post-revolutionary era, it has been supported in a number of different ways by factions and coalitions holding opposing views on the question of how best to achieve their shared goal. In this chapter, it has been shown that multiple interests shape economic policy in the Islamic Republic in such a way that a straightforward linear development toward post-revolutionary Thermidor is impossible. As rival stakeholders bring their own material and ideational concerns to the table, directing policy in line with their own vision for as long as they are able to

20 Iran’s struggle for economic independence retain influence, there is bound to be constant fluctuation. Given that this policy fluctuation will ultimately be framed by the interests of the semi-authoritarian state, it will not tend toward any serious opening up to the forces of economic globalization. In particular, since the factions debating policy are themselves embedded in the state networks that depend upon a degree of independence from the global capitalist system to survive, the struggle for economic independence will not die out easily. Each group may seek to benefit from different opportunities offered by economic globalization, but they will all want to avoid its perceived threats. Thus, a Thermidor in which the recommendations of international financial organizations become accepted unconditionally will not be reached. Instead, debates over how best to impose a broadly nationalist economic agenda are likely to continue in the Islamic Republic of Iran for a long time to come. Chapters 3–7 will explore in detail the fluctuating policy-making process that has resulted from this factional competition over the legacy of the 1979 Revolution, with particular reference to the debates that have taken place over the extent to which foreign capital inflows should be encouraged. In order to fully understand these debates, however, it is important to look first at the historical roots of Iran’s revolutionary desire for economic independence. Accordingly, the following chapter will set out the story of Iran’s encounter with the global economy from the revolutionaries’ perspective. In so doing, it will explain the genesis of the key perspectives on global capitalism that have shaped Iran’s struggle for economic independence ever since.

2

Tracing the desire for economic independence

When the people awaken from their slumber, they will destroy the throne of the oppressor, and then righteousness and virtue will prevail. (Khomeini, cited in Zubaida 1993: 18)

Khomeini’s rallying cry for the people of Iran to rise up and “destroy the throne of the oppressor” could be interpreted not only as a call for the internal oppression of the Shah himself to be brought crashing down, but also for the supporting pillars of his external allies to be broken and removed. Indeed, the success of the Iranian Revolution of 1979 was facilitated by a widely held opposition to the Pahlavi regime’s Western backers that emboldened the antiregime sentiment already existing among religious leaders (‘ulama), merchants (bazaaris), intellectuals, and students across the country. As part of their movement to overthrow Mohammad Reza Shah Pahlavi from the Peacock Throne, the revolutionaries insisted that the overwhelmingly unequal relations between Iran and the West, which they claimed Iranian rulers had been allowing for over 100 years, simply had to be overturned. In so doing, they expressed a desire for economic independence that would go on to shape Iran’s relationship with Western capitalism throughout the post-revolutionary period. In order to fully appreciate how and why it was that Iranian feelings of economic nationalism became so strong at that time, an examination of the nationalist narrative of Iran’s relations with the West from the nineteenth century onward cannot be avoided. In particular, it is important to review those episodes that incited nationalist responses and went on to inform the antiWestern views of Iran’s revolutionaries in the late 1970s. Furthermore, given that the legacy of these historical episodes has left an imprint on actors involved in the formulation of economic policies up to the present day, some understanding of these long-term roots of the Revolution will be needed for a proper understanding of its outcomes. This chapter will therefore provide an overview of the growth of Iranian concerns about the economic and political interventions of foreign forces from the Qajar period onward. Specific attention will be paid to the way in which these concerns increased and developed into a revolutionary discourse of economic independence that combined Shi‘i concepts of social justice with Marxist–Leninist ideas of class

22

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struggle and anti-imperialism during the period from 1953 to 1979. The chapter will end with an overview of the main interpretations of this discourse that arose in the immediate post-revolutionary period, sowing the seeds for future debates over foreign investment.

Memories of foreign exploitation While never actually colonized by a foreign power, from the 1813 Treaty of Golestan onward,1 Iran had been subject to many instances of foreign penetration. Not all occasions of foreign intervention were resisted, as many Iranian reformers of the nineteenth century specifically sought out Western economic assistance for their development plans, but there were others who questioned the usefulness of such external intervention.2 These latter groups gradually developed a historical narrative of exploitation, raising concerns about the negative impact that foreign powers might be making on the country’s socio-economic situation. From the Qajar period (1796–1925), when numerous political and economic concessions were granted to Britain and Russia, through to the Pahlavi period (1925–1979), when Great Britain and then the United States enjoyed a growing influence over the political and the economic arena in Iran, foreigners were viewed with suspicion by these adherents of an anti-imperialist view. Following in the same rejectionist tradition, the revolutionaries in 1979 hoped to both remove the Shah and bring an end to foreign interference in their country, thereby freeing the nation from the yoke of Western imperialism. As early as 1872, Iran saw various social groups participating in a protest movement directed against both foreign domination and the encouragement thereof by the Iranian state. In this case, protesters objected to the concession that Naser al-Din Shah had granted to a British subject, Baron Julius de Reuter, empowering him to build a railway from the Caspian Sea through to Tehran and on to the Persian Gulf.3 The concession also gave Reuter a monopoly of all tramway rights, all the land necessary for the railway, and the exclusive privilege to exploit all natural resources in Iran for the next 70 years (Kazemzadeh 1968: 108). But even though this protest movement did result in the cancellation of the concession in late 1873, it could be argued that the long-term economic and political independence of Iran was still not secured. Indeed, it had perhaps been under the pressure of Russian and British opposition more than it had been in response to the expression of domestic outrage that the Iranian government had revoked the Reuter concession. In particular, while the Russians had been troubled by the prospect of a British subject acquiring so much power on the other side of its southern border, the British Foreign Office was less than pleased by the idea of a German-born British national single-handedly gaining control over Iran’s entire natural resources. Furthermore, although the concession was canceled, with the Iranian government retaining Reuter’s £40,000 advance, in 1889 Iran awarded Reuter the right to establish what became known as the Imperial Bank of Persia, as

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compensation for his earlier loss. This bank enjoyed a monopoly over the issue of banknotes in Iran,4 and as such it aroused not only the resentment of many local merchants and moneylenders, but also the jealousy of the Russians, who in 1890 acquired a banking concession of their own.5 The Iranian state was still under the sway of foreign powers, and from the point of view of anti-imperialist nationalists, Russo–British rivalry seemed to be leading Iran even further down the path of dependency. In addition to the establishment of these banks, various other concessions were granted first to one neighbor, and then to the other. For example, while the British were given the exclusive right to trade along the Karun River, the Russians received permission to exploit the Shah’s caviar fisheries in the Caspian Sea. It was subsequently commented that both of the two great powers had employed “trickery, pressure and deceit” (Jamalzadeh 1376/1997–1998: 100) to secure these concessions. Even today, so strong is the memory of this perceived exploitation at the hands of the foreigner that it continues to be criticized in a similar vein (see Ghanimifard 1380/2001–2002: 170–178). At the time, it must have been even more bitterly resented by many Iranians. It was not until the 1890 granting of a concession to a British subject named Major Gerald Talbot that Iranian concerns about the growing presence of foreigners in their domestic economy became expressed particularly forcefully. This concession, which gave Talbot complete monopoly over the production, sale, and export of Iranian tobacco, prompted numerous protests across the country as soon as news of it got out in 1891.6 As Nikki Keddie observes, “The tobacco concession was felt in Iran far more than others because it was the one to deal with a product already widely grown, sold and exported by Iranians, while the other concessions dealt with wholly or mainly unexploited products and spheres” (Keddie 1999: 47). However, it was not only opposed because it presented a financial threat to the many farmers, landlords, middlemen, and shopkeepers who profited from their involvement in the tobacco industry. In addition to this, opposition was strengthened because the very idea of foreigners being left in charge of this entirely Iranian product prompted even those whose material interests were not at risk from the concession to speak out against it. In the end, the issuance of a fatwa (religious ruling) brought about a countrywide boycott and forced the government to repudiate the entire concession in January 1982.7 However, just as the cancellation of the Reuter concession had been followed by the establishment of the British-owned Imperial Bank of Persia, the negation of the tobacco concession left Iran with a foreign debt of £500,000, to be paid back to the same bank as compensation to Talbot’s tobacco company. This bittersweet nature of their victory must have highlighted for the protesters the challenges that stood in the way of their vision for an independent and free Iran. Indeed, although the Iranian government avoided granting any further major concessions to foreigners for the next few years, the country’s economy was increasingly drawn into and dependent on the global capitalist system.8 While some Iranian exports, such

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as opium, Persian carpets, and dried fruit and nuts, did largely benefit from Iran’s entry into the world market (Gilbar 1988), overall the lack of government protection for domestic farmers and merchants meant that many of these economic actors felt they were being negatively affected by recent changes.9 This situation generated a significant amount of discontent both with the Qajar state and with the foreign powers present in Iran. Furthermore, in addition to the emergence of this “dependent development” (Foran 1989) throughout the latter half of the nineteenth century, it was not long before the Qajars returned to their old pattern of concession granting at the turn of the new century, prompting the expression of even more grievances on the part of the anti-Western nationalists. The most significant of these concessions was made in 1901, when another British subject, William Knox D’Arcy, was granted exclusive permission for oil exploration and exploitation across most of Iran.10 Following D’Arcy’s discovery of oil in 1908, the Anglo-Persian Oil Company (APOC, later known as the Anglo-Iranian Oil Company, or AIOC) was established, but with the British government deriving more income from tax on the company than Iran did from royalties, disputes over the terms of the contract persisted throughout the first half of the twentieth century. In contrast to the success achieved by the protests to the Reuter and Talbot concessions, opposition to the 1901 D’Arcy concession had not proven capable of expelling the unwanted foreign power from the country. But rather than resulting in acquiescence to the influence of outsiders in Iran, it further increased the already widespread feelings of suspicion, as well as the accompanying desire for future independence. Nationalist sentiments in Iran grew even more noticeably from this point onward, peaking with the outbreak of the Constitutional Revolution in 1905 and the founding of a national consultative assembly one year later.11 Responding to widespread resentment at the Qajar state’s apparent failure to protect Iran’s national interests and Islamic identity in the face of Western economic and political penetration, the constitutionalists hoped that a “house of justice” (‘edalat-khaneh) would be able to right the wrongs of their incompetent rulers. However, their attempts to free Iran from foreign penetration ultimately failed. The country was divided up into Russian and British spheres of influence in 1907. Then, in late 1911, in anger at the new government’s decision to invite a young American expert named Morgan Shuster to help put their finances in order, the Russians embarked on a violent mission to get this rival foreign influence removed from Iran. As they moved toward Tehran with increasing force and brutality,12 enjoying tacit British approval for their actions, the already weak Iranian government felt obliged to dismiss Shuster and close down the “rebellious” parliament. In this way, the constitutional movement ended even more quickly than it had begun. Of course, the increased political participation and strident nationalism of the revolutionary period did not disappear altogether with the 1911 closure of parliament. However, with Russian troops remaining in northern Iran and the British presence in southern Iran becoming even more noticeable following

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their government’s purchase of majority shares in the Anglo-Persian Oil Company in 1914,13 the country was far from independent. Although a new parliament was formed in December 1914, it was largely ineffective and dissolved within a year. Any central government that might once have existed in Iran became ever weaker, to the point that after the Bolshevik Revolution and the conclusion of World War I, the British felt confident enough to attempt to introduce the 1919 Anglo-Persian Agreement, a document that would have placed under British control all of Iran’s military and financial affairs (Ansari 2003: 23). While some Iranians believed strongly that the country would benefit from this agreement, others opposed the British government’s attempt to acquire overwhelming political as well as economic control over Iranian territory. In the end, domestic and international opposition to the move ensured Britain’s failure, but by helping Reza Khan come to power in a 1921 coup,14 the British hoped to retain some degree of influence. To the dismay of the British, however, Reza Shah tried to avoid becoming a puppet ruler (Avery 1965: 218), and instead he sought to exploit the nationalist trends that continued to increase in the country after 1919. With a view to freeing the country from external economic interference, in 1928 he established the National Bank of Iran as a replacement for the Imperial Bank of Persia. Four years later, in 1932, he did the previously unthinkable, and canceled the D’Arcy concession. While Britain had “floated to victory on a wave of oil” (Lord Curzon, cited in Kinzer 2003: 50) in World War I, Iran had not yet reaped any significant benefits from its God-given resource. Reza Shah hoped that he might be able to attain for Iran a better deal than the meager 16 percent of APOC’s stated net profits to which it was entitled. However, the British persistently ignored and rejected his demands, and in 1933 they managed to confirm their position with a “compromise” agreement whereby Iran’s share of the profits was increased to 20 percent in return for a 32-year extension of the concession, up to 1961, under the name of the AIOC.15 Much of what Reza Shah achieved during his time in power was subsequently viewed as superficial and insufficient by the revolutionaries who hoped for a truly independent Iran. Even at the time, many Iranian patriots harbored the same kind of concerns that had emerged in response to the Qajar concessions. Although Reza Shah introduced ambitious modernizing reforms throughout his period of rule (Banani 1961), most of these merely sought to emulate the West rather than actually stand up to it, and the ties of dependency to external forces were never removed altogether. Ultimately, and because he had also failed to arouse sufficient domestic support within his own borders, he was easily removed from the throne by the Allies in 1941, in response to his apparent German sympathies during World War II. His young son, Mohammad Reza Pahlavi, who succeeded him as shah, not only inherited a legacy of general Iranian monarchical weakness in the face of foreign strength, but he was also perceived as an embodiment of this continued inferiority and dependence himself. If his forceful father had not been able to turn the tables around, what hope was there for this inexperienced youngster?

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Initially, Mohammad Reza Shah’s weakness worked to the advantage of Iran’s nationalist forces. Continuing to believe that the oil concession enjoyed by the AIOC was unreasonable and undeserved, many activists became increasingly confident in their impassioned claims for the nationalization of the Iranian oil industry. By 1949, the public mood began to swing in favor of a move that no Iranian political leader had yet been able to pull off. Mohammad Reza Shah proved incapable of holding back this flood of nationalist sentiment, exemplified most powerfully in the person of National Front leader, Mohammad Mosaddeq. With Mosaddeq’s introduction of the oil nationalization law, which was duly passed by the Iranian parliament in April 1951 and even approved by the Shah himself, the bell of Iranian independence resounded proudly across the country. At last, someone had taken a serious step to end foreign control of Iranian resources: victory was sweet. However, it did not last long. In August 1953, with the cooperation and help of the British Secret Intelligence Service, the CIA carried out a swift coup to remove Mosaddeq from his post of prime minister and reinstate the Shah as a US-friendly autocrat.16 From this point onward, Mohammad Reza Shah gradually became emboldened in the face of domestic opposition. With American support assured, over time he was able to consolidate his power and consequently recreate himself in the image of his father, as a traditional, patrimonial, and often arbitrary ruler. Although the Consortium Agreement that was reached in 1954 between the Iranian government and a consortium of foreign oil companies17 did break AIOC control over the Iranian oil industry and provide for 50 percent of the net proceeds to go to the Iranian government, nationalization it was not. Consequently, the popular belief that a foreign conspiracy in alliance with domestic conservative forces had been the root cause of the failure to nationalize Iranian oil facilitated the arousal of antiShah feeling in years to come. Where once Iranian opponents to the granting of foreign concessions had been supportive of a select range of Westerninfluenced reforms that they believed might benefit them, now they began to develop an unreservedly anti-Western discourse that would play a key role in the Iranian revolutionary movement of the late 1970s. That the Shah then failed to spend in the interests of the Iranian people the oil wealth that became available following the dissolution of the consortium in March 1973 gave greater potency to these nascent feelings of economic nationalism. Specifically, even though this dissolution allowed the Shah to nationalize all assets relating to the oil industry in return for an assured 20-year supply of Iranian oil to the consortium members, much of the revenue that was thereby acquired was used to purchase military equipment from the West, and it was widely believed that insufficient funds were being spent on improving the standard of living of the Iranian people. As such, between 1953 and 1979, any faith that there might have been in the Shah’s ability to achieve economic and political independence for the Iranian nation was minimal. Instead, hope was placed in the idea that by combining Islam’s emphasis

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on social justice with the Third World movement’s focus on economic nationalism, genuine freedom and independence might at last be attained.

The emergence of a revolutionary discourse The nationalist sentiments that were aroused by the coup to remove Mosaddeq from his post of prime minister were so strong that they sparked off the development of a new discourse of economic independence in the lead-up to the 1979 Revolution. The heritage of this discourse was recognized in a 1979 commemoration of the day when “the Iranian nation . . . led by Dr Mohammad Mosaddeq, succeeded in severing the hand of the English oil companies from our great national wealth and in bringing an end to their oppressive and exploitative domination” (Ettela‘at 29 Khordad 1358/June 19, 1979). Given that Mosaddeq’s legacy went on to be largely ignored for much of the later post-revolutionary period, due to the Islamic Republic’s concern to avoid any encouragement of secular nationalist forces, this early recognition of his achievements is particularly significant. In particular, it indicates the extent to which the Mosaddeq legend was seen to have shaped the development of opposition politics in Iran from 1953 until the Revolution of 1979. Just as the nationalist sentiments aroused during the Mosaddeq period were voiced while the Cold War was taking hold and dividing the world into East and West, the emerging economic discourse of the 1960s and 1970s was affected by a trend that identified the West, and the United States in particular, with imperialism and injustice, and called for self-sufficiency of some kind.18 Indeed, Marxist–Leninist discourse can be seen to have played a significant role in shaping the Iranian struggle against the West during the two prerevolutionary decades. While the Iranian communist Tudeh Party had split in January 1948 following a period of mounting disagreements concerning the nature of the party leadership and its submissive attitude toward the Soviet Union, a wide variety of socialist groups continued to serve as the mouthpiece of this economic discourse right up until the Revolution of 1979. In spite of their brutal suppression by the state following Mohammad Reza Shah Pahlavi’s return to power in 1953, the remnants of the Tudeh and its splinter groups continued to influence and even perhaps drive the course of Iranian dissident activity.19 In particular, as the Shah had adopted a highly pro-Western stance in the post-1953 period, pursuing rapid capitalist development with the help of growing oil revenues and a surge in foreign investment,20 it was to be expected that opposition to his regime would lean toward a socialist trend. With the establishment of the Organization of the Petroleum Exporting Countries (OPEC) in 1960, Iran was able to secure its position as one of the leaders of the international oil market. In the belief that he could use these increased oil rents to transform Iran into the “Japan of the Middle East,” Mohammad Reza Shah launched the White Revolution in 1963.21 However, this program of socio-economic modernization ended up creating various social

28 Iran’s struggle for economic independence dislocations that contributed to the beginnings of revolutionary discontent across the country. In addition, rather than help Iran achieve independence from other countries, it seemed to put the country at greater risk from the threats of the global capitalist system, and so hostility to the West grew as the Pahlavi regime extended these policies of apparent Westernization. Nevertheless, Iranian opposition groups did not respond by embracing all that the East had to offer. Although they adopted a discourse broadly influenced by Marxism–Leninism, they took care to develop a specifically Iranian interpretation and application of it. The political environment of 1940s Iran had required the adoption of either a pro-Western or a pro-Soviet stance, but the introduction of Khalil Maleki’s Third Force theory in the early 1950s indicated a move toward the indigenous. Maleki, who developed his theory soon after leading the Tudeh split of 1948, made a call for a break from both poles, in order that a truly independent and specifically Iranian social and economic development might be achieved (Katouzian 2004). In so doing, he made a significant contribution to the development of a discourse of economic independence, as the echo of this call was clearly heard in the revolutionary cries of “Neither East nor West, Islamic Republic” over a quarter of a century later. Building on the general atmosphere of anti-Westernism and nationalism that had been growing among the Iranian opposition during the 1950s, the 1962 publication of Jalal Al-e Ahmad’s seminal essay Gharbzadegi [Plagued by the West] (Al-e Ahmad 1982) conveyed to a wider audience the critique of the Pahlavi regime that had previously been articulated by only a small group of intellectuals and political dissidents. By popularizing the concept of gharbzadegi, which highlighted the detrimental effects that Westernization was perceived to be having on the Iranian economy as well as on its culture and politics, Al-e Ahmad had brought to the general public an Iranian version of the Third Worldist resistance to imperialism and promotion of nationalism that had become a hallmark of mid-twentieth-century opposition politics. Criticizing the way in which “western industry plunders us, rules us, and determines our fate” (ibid: 38), Al-e Ahmad called on Iranians to stop emulating the West and instead regain their self-confidence and self-worth. Furthermore, Al-e Ahmad’s contribution to the post-1953 spread of a discourse of anti-Westernism was given even greater significance by his introduction of a revived understanding of Islam, which he suggested might help advance the Iranian struggle against Western dominance and subjugation. In particular, he pointed out that “the lives of 90 percent of the population of this country are still guided by religious values and standards” (ibid: 47) and argued that religion should be cleansed of “superstition and . . . decayed customs” (ibid: 50) and rejuvenated as a force for struggle. From this point onward, out of what had previously been a largely secular nationalist discourse advocating independence from the West emerged a selfconsciously religious branch. Religion had played a significant part in the

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uprisings of the Qajar period (Keddie 1966). However, its role had declined during much of the Pahlavi period, and around the time of the 1953 coup, many senior ‘ulama chose to support the Shah (Keddie 1980: 100), while others retreated from the political sphere altogether. Most notably, Ayatollah Hosayn Borujerdi, the leading marja‘-e taqlid of the time, had a largely apolitical outlook, and his discouragement of political activism had a significant impact on the behavior of other ‘ulama. It was only after the death of Ayatollah Borujerdi in 1961 that the oppositional role of many ‘ulama was revived and became a real possibility for effective action. With much of the secular opposition now quashed by the Pahlavi state, religion became perhaps the only vehicle through which the nationalist and socialist trends of the day could be spread. As such, by the mid-1960s, not only did the mosque present itself as an ideal forum for mass political action, but also religion itself, with its emphasis on social justice and equality, fitted well with the slogans of the nationalist and socialist opposition. In this way, the critique of the West that was presented in Al-e Ahmad’s Gharbzadegi appealed to the secular opposition and the clergy alike. However, the individual who made an even greater contribution to the promotion of a distinctively Islamic expression of the need for Iran to gain political, cultural, and economic independence from the West was Ali Shari‘ati.22 Blending the discourse of gharbzadegi with a range of concepts taken from Marxism, and bringing them together to form a new and radical version of politicised Islam, Shari‘ati went even further down the path that Al-e Ahmad had begun. In his numerous publications as well as in his many lectures at the Hosayniyeh Ershad, an Islamic center in north Tehran, Shari‘ati put forward his belief that Shi‘ism was the perfect vehicle through which the masses could rise up against the injustices of the Pahlavi regime and its foreign backers. Such a concept was particularly powerful at this time, when religious sentiment among the populace as well as the clergy’s involvement in national politics was growing in the wake of the Shah’s decision to arrest Ayatollah Khomeini and send him into exile. Confrontation between the Shah and the Ayatollah had been sparked by the former’s announcement of the White Revolution, which called for land reform and the enfranchisement of women, among other things. When Khomeini then denounced the Shah for trying to destroy religion, comparing him to the Umayad Caliph Yazid, who had martyred Imam Hosayn, he was sent to Turkey, in November 1964. One year later, Khomeini moved to Najaf in Iraq, where he remained until October 1978, exerting from abroad a considerable influence over the development of anti-Shah sentiment among his supporters. Inside the country itself, the Organization of the Iranian People’s Mojahedin (Mojahedin-e Khalq) acted as the militant mouthpiece for Shari‘ati’s ideas of resistance and social revolution, and consequently many people across the country became persuaded that Shi‘ism would help them to defeat the Pahlavi regime.

30 Iran’s struggle for economic independence While Al-e Ahmad had called for a rejection of the foreign and a readoption of the native, Shari‘ati’s concept of bazgasht be khishtan (return to the self) stressed the argument that the native, or the self, in Iran was necessarily religious. Therefore, just as Khalil Maleki had called for a rejection of both pro-Soviet and pro-Western positions in favor of a uniquely Iranian development, Shari‘ati could be seen to have altered the nationalist, antiimperialist discourse of Frantz Fanon (1967), and applied it to the Iranian case. Like Fanon, Shari‘ati advocated the need to stop imitating the West, but unlike Fanon, he did so by insisting that the correct path to achieving a truly independent development was a religious one. While Shari‘ati did incorporate some of the Marxist–Leninist ideas that were present in other Third Worldist writings, arguing in favor of revolution as a means to end colonial repression, he believed that this revolution would only happen if the people drew on Shi‘ism to understand their own social condition (Abrahamian 2004). By the late 1960s, therefore, the anti-Western stance that had been taken up after the 1953 US-led coup developed into a rich discourse containing nationalist, socialist, and religious strands. Given that the period featured a profusion of anti-imperialist and anti-capitalist movements across the globe, from North Africa to Latin America, with protests erupting even within the borders of the United States and Western Europe, it is clear that the Iranian situation did not emerge in isolation. Furthermore, with the presence of foreign business interests continuing to increase in Iran23 alongside the Shah’s efforts to “modernize” the economy and Westernize the country, it would have been surprising had feelings of resentment toward foreigners not escalated at this time. Then, when a general socio-economic crisis started to grow in Iran from 1973 onward, the response of many was to build on this global atmosphere of protest. Hyperinflation, overheating of the economy, and failure of an overburdened infrastructure became apparent from 1973. In the lead-up to the revolutionary upheavals of 1977–1979, there were bottlenecks in the ports and transportation networks, and shortages of electricity caused frequent blackouts.24 Furthermore, there were growing social and economic inequalities, with some regions of the country lagging far behind others.25 Revolutionaries therefore soon focused their attention on the perceived injustices of the Shah’s economic system, which was criticized both for its reliance on oil revenues and for its dependency on the West. Overall, it can be seen that a peculiar blend of Shi‘i concepts of social justice and Marxist–Leninist discourses of class struggle and anti-imperialism informed the economic outlook of Iran’s burgeoning revolutionary movement during the period from 1953 until 1979. The perception that Iran had been continually exploited by outside powers ever since the early nineteenth century, when the treaties of Golestan and Torkmanchai were signed, contributed significantly to the widespread desire for all forms of oppression to be ended in 1979.

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However, the particular form in which this desire was expressed was largely shaped by the developments that took place in Iranian politics following the coup d’état of 1953, when American influence and Pahlavi injustice were both increasingly resented by many. The revolutionaries’ critique of economic dependency thus emphasized the need for struggle against the oppressor, a powerful notion that had deep roots in Iranian culture26 and that was complemented by the focus of Marxist–Leninist discourse. Since a range of domestic and international influences had shaped the emergence of Iran’s revolutionary discourse of economic independence, it was of course possible for diverse interpretations of that discourse to emerge following the establishment of the new regime. Nevertheless, all of these interpretations would be situated within the parameters of their shared heritage.

Post-revolutionary economic perspectives While there were multiple influences on the emerging discourse of economic independence, the vision held by the most prominent Iranian intellectuals and political dissidents of the mid- to late-twentieth century was strongly shaped by Marxist–Leninist discourse, even if this was altered and “Islamicized.” The Marxist–Leninist discourse was influential not only in politicizing the concept of “the West” by equating it with imperialism and colonialism, but also in fostering a broadly leftist economic outlook among most branches of the Iranian opposition. Ezzatollah Sahabi, a member of the liberal-democratic Liberation Movement of Iran, stated that “all of the revolutionaries before the revolution, other than the Liberation Movement, had an economic viewpoint that was inclined to the Left,” and even he was “inclined to a socialist, state-run economy” (Ahmadi-Amui 1383/2004–2005: 12) during the early revolutionary period. According to Sahabi, so strong was the inclination toward the Left that not only the Marxists and the socialists endorsed it, “but the religious forces, too . . . both the Mojahedin-e Khalq and the seven groups that later came together as the Mojahedin of the Islamic Revolution, from an economic point of view, were leftist or even radical leftist” (ibid: 10). Of course, it is important to note that in Iran, the Left is not equated with communism alone, but rather is understood to encompass such a diversity of tendencies that most revolutionary groupings are identified as broadly leftist (Matin-Asgari 2004). From an economic point of view, not only did the antiWestern stance adopted by most revolutionaries cause them to be considered as leftist, but also the importance that they attached to social justice and the disdain with which they treated capitalists were seen to indicate the leftist roots of their outlook. In fact, so fundamental a part of Iranian revolutionary discourse had the leftist trend become that even the clergy, often viewed as a traditional and conservative group in society, were calling for economic independence and social justice, as well as fighting against capitalism and imperialism, during the late 1970s.

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It was largely due to the emergence of a discourse of Islamic economics in Iran that members of the country’s religious establishment joined secular forces in making this shift toward the Left.27 Specifically, when they came to discuss the goals and structure of an ideal Islamic economy, their desire to help the mostaz‘afan (the “downtrodden”) and achieve social justice made them more receptive to leftist economic views than they might otherwise have been (Ahmadi-Amui 1383/2004–2005: 143). Furthermore, the strong influence of the Iraqi Shi‘i theologian Mohammad Baqer al-Sadr on the development of the economic thinking of many Iranian clergy during the lead-up to the Revolution also played a role in directing them toward a leftist economic outlook. Baqer al-Sadr’s Eqtesaduna [Our Economics]28 views both capitalism and Marxism as a threat to Islamic culture, but as it argues for the establishment of a strong Islamic state to guarantee the authentically Islamic nature of the economy (Tripp 1997), the work favors an anti-Western and state-controlled economic system not dissimilar from that which was being promoted by the secular leftist anti-Shah groups in Iran during the 1970s. One of the most vocal proponents of Baqer al-Sadr’s economic views was the Paris-based economist, Abolhasan Bani-Sadr. Prior to the Revolution, by articulating his arguments for an Islamic economy of the type that had been proposed by Baqer al-Sadr in the language of the secular Left, Bani-Sadr was able to provide a link among groups as disparate as the Tudeh Party and the religious establishment in Iran, especially with the 1978 publication of his book entitled Eqtesad-e Tawhidi [Unitarian Economics]. While the text was criticized by some groups in the clerical establishment because of its lack of reference to recognized religious authorities (Rahnema and Nomani 1990: 224), since other members of this establishment, including in particular Ayatollah Mahmud Taleqani, supported a view of the economy similar to that of Bani-Sadr,29 his overall influence on revolutionary economic thought in Iran was not insignificant. The general popularity of a leftist economic perspective had been made evident during the period of demonstrations in the lead-up to the overthrow of the Pahlavi regime, when all opposition groups had come together and agreed in principle on the importance of resolving existing inequities in Iranian society and of establishing a more just economic system. The resolution of the Ashura march, which took place on December 11, 1978, demanded “the establishment of ‘social justice, the right of workers and peasants to the full product of their labor’, and an end to ‘any form of discrimination, exploitation, profiteering and economic domination which may result in the accumulation of great wealth, on the one hand, and deprivation and poverty on the other’” (Behdad 1989: 327). In addition, a desire for economic independence and an end to foreign interference in the country was expressed in some of the demonstration placards, which called for, “neither communism, nor imperialism, only Islamic leadership,” “independence, freedom, Islamic leadership,” “punishment and penalty for those who take money out of Iran,” and “freedom from the yoke of bondage and slavery” (Ettela‘at 16 Day 1357/January 6, 1979).

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With the victory of the revolutionary movement, this stance acquired the official approval of Ayatollah Khomeini himself. On the day of his return to Tehran from Paris, after 14 years’ exile in Iraq, Khomeini made his first speech to a large crowd of supporters at Tehran’s Behesht Zahra cemetery in a language replete with the nationalist and leftist concepts that had been developing among the Iranian opposition groups over the previous two decades. In tones reminiscent of Mosaddeq’s nationalization of the oil industry, he referred to the Pahlavi regime’s economic dealings with foreign governments as subservient and reprehensible. Crying out that, “they have given away our oil, all of our oil,” he continued to explain that: They have given it to Americans and non-Americans, and in return, they have taken weapons to set up a [military] base for them . . . With trickery . . . America has taken our oil and in return it has built a base for itself. It brought us weapons that our army cannot use, that require the help of their advisors and their experts. And this is what we get in return for our oil that, if the monarchy had continued for a few more years in this fashion, would have soon been fully depleted. (Ettela‘at 14 Bahman 1357/February 3, 1979) By giving voice to these revolutionary desires for independence and equality from a strong position of authority, Ayatollah Khomeini and his followers in the religious establishment were able to gain approval from most sectors of the population (Zubaida 1993: 81). Building on this support, the members of the Khomeini camp were able to confirm their own place as the rightful leaders of the post-revolutionary regime as early as March 1979. Less than two months after Khomeini’s return to the country, a referendum was put to the people of Iran, asking if they wanted to replace the Pahlavi monarchy with an Islamic Republic, and in spite of some opposition, the new government was able to announce a 98.2 percent majority in favor of the Islamic State. This strong endorsement meant that post-revolutionary policies would henceforth remain within whatever limits these “winners” of the revolutionary movement chose to set down. It has been observed that, “many groups must join together to make a revolution, but only one emerges victorious” (Milani 1989: 5). In the case of the Iranian Revolution, it can be seen that a section of the ‘ulama and their allies benefited most from the emergence of a discourse of anti-Westernism in the post-1953 period. Exploiting their ability to represent the nationalist, the socialist, and the religious strands of the opposition movement, they were able to gain a hegemonic position in the country that allowed them to silence all potential rivals. In particular, since the radical opposition groups such as the Tudeh party offshoots and the Mojahedin-e Khalq were much less experienced and less established than the religious opposition (Moghadam 1988), Ayatollah Khomeini’s group alone was able to emerge victorious in 1979.

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However, in the same way as heterogeneous influences had informed the economic outlook of the various groups participating in the anti-Shah movement, so too was there a variety of economic perspectives within the dominant group itself. The winners of the 1979 Revolution all subscribed to a broadly leftist outlook favoring economic self-sufficiency and independence, but within that framework a range of views could be found. In his discussion of Iran’s post-revolutionary political economy, Sohrab Behdad recognized the existence of two general tendencies in the Islamic Republic’s ruling elite: a “moderate” one comprised of those who believed in respect for private property and favored limited nationalization; and a “populist” one whose members were in favor of a limitation of private property rights and the creation of various revolutionary foundations to inspire grass-roots support for a fundamentalist Islamic regime (Behdad 1988). Broadly speaking, there have indeed been two tendencies such as these throughout the post-revolutionary period in Iran. Both have taken the view that Iran’s economic independence should be protected by limiting the reach of foreign capital within the country as much as possible, but their views on how best to achieve this have varied. Since the “moderate” tendency represents predominantly mercantile interests while the “populist” camp tends toward the opposite end of the spectrum, favoring the concerns of the Islamic Republic’s state economic enterprises and revolutionary foundations, they are referred to in this book as mercantile and statist elites. As will be shown below, since each of these groups is embedded in a different part of the extensive network of the Islamic Republic, both the statist and the mercantile elites have certain means at their disposal to bring about shifts in the country’s economic policy. However, the influence of each side necessarily varies from time to time, and both mercantile and statist elites have been in general agreement on the need to protect the domestic economy against the perceived risks of foreign investment; it is simply that their differing interpretations of the Islamic Republic’s leftist and anti-Western economic outlook cause them to make different policy recommendations. The statist elites encompass a range of groups who are broadly in favor of a limitation of private property rights. They can be found in certain factions of the parliament and in government, at the head of Iran’s many state-run industries and some para-statal revolutionary foundations, and also in the business enterprises of the Islamic Revolutionary Guards Corps (IRGC). They argue for an interpretation of Islamic economics that supports their claim for the necessity of a large, strong state to ensure that the economy operates in the interests of social justice and the needs of the “downtrodden.” At the same time, they seek to protect the various business entities that purportedly channel a significant proportion of their profits back into Iranian society, helping the poor and the needy in particular. As such, they appear to have both ideational and material motivations for holding their chosen economic stance. The influence that they are able to exert over economic policy at any given time is largely dependent upon how persuasively they can argue for their statist

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version of Islamic economics, and how well they manage to exploit their connections to the relevant state-affiliated business interests in Iran. As will be shown in the next chapter, these statist elites enjoyed considerable influence when the constitution of the Islamic Republic was written in 1979. Dominating the assembly formed by Ayatollah Khomeini to revise the draft constitution, the statists were able to establish an economic system in which the state would play a key role. In particular, with Article 44 of the constitution they allocated to the state sector “all large-scale and mother industries, foreign trade, major minerals, banking, insurance, power generation, dams, and large scale irrigation networks, radio and television, post, telegraph and telephone services, aviation, shipping, roads, railroads and the like” (Constitution of the Islamic Republic of Iran: Article 44). Subsequently, statist elites have been able to refer to this article to justify their position. The statists have also benefited from the prominent position of the revolutionary foundations in Iran’s economy and society. These revolutionary foundations, also known as bonyads, are major para-statal organizations with a profound influence over Iranian politics and economics. Operating under the supervision of the supreme leader, they were set up in the immediate aftermath of the 1979 Revolution with funds obtained by the expropriation of the wealth and properties of those affiliated to the old regime, and it was then that they were given the mission of carrying out “good deeds” and supporting Iran’s poor and disadvantaged communities. In the years since, the bonyads have become engaged in a wide range of business activities both in Iran and abroad, benefiting significantly from tax exemptions, subsidized loans and foreign currency, and freedom from governmental monitoring of their accounts.30 Nevertheless, at all times, the bonyads’ activities have been presented as in keeping with their original mission. It is with reference to the important role played by these foundations in protecting revolutionary goals that the statist elites have been able to argue for the continuation of a relatively closed economic system in Iran: only in this environment would the bonyads be able to thrive and thereby protect the security of the regime. However, given that the bonyads are engaged in a wide range of business activities, some individuals incorporated into their strong patronage networks have supported the mercantile instead of the statist position. Most notably, the son of a fruit and vegetable merchant and supporter of mercantile interests, Mohsen Rafiqdust, headed the most powerful bonyad of all, the Foundation for the Oppressed and Disabled (Bonyad-e Mostaz‘afan va Janbazan), from 1988–1999. Nevertheless, by carrying out their “revolutionary” mission and offering low-interest loans, pensions, and other forms of financial assistance to many of the poor and needy in Iranian society, bonyads have often acted to support statist arguments for the Islamization of the Iranian economy under a strong state. In a similar manner, certain branches of the IRGC are involved in economic endeavours31 that endow them with considerable influence and bring them into contact with many Iranians in the name of protecting the revolutionary values of the Islamic Republic. These activities and connections

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to the non-elected institutions of the Islamic Republic help to further strengthen the sway of the statists. However, the mercantile elites also have access to their own sources of influence, and they too make use of a range of persuasive arguments to support their own views on how the Iranian economy should be run. While a broadly leftist outlook favoring economic self-sufficiency and independence was held by all Iranian elites immediately following the overthrow of the Shah’s regime, some argued that Islamic economics was in fact fully compatible with the needs of mercantile activity and the protection of private property. Alongside the Islamization of the state, these mercantile elites suggested that the traditional bazaari private sector (or at least those sections of it that actively supported the new regime) should be strengthened in the post-revolutionary economy. Among their number was included the influential Ayatollah Ahmad AzariQomi, one of Khomeini’s students who was appointed to the assembly for revising the draft constitution in 1979 and who became publisher of Resalat newspaper in the 1980s. Azari-Qomi interpreted Islamic economics in such a way that Islam’s defense of private property was emphasized and the role of the state was minimized. By making reference to this kind of interpretation, the mercantile elites were able to include in the Iranian constitution Article 46, which states that, “Everyone is the owner of the fruits of his legitimate business and labour,” and Article 47, which confirms that, “Private ownership, legitimately acquired, is to be respected” (Constitution of the Islamic Republic of Iran: Article 47). In addition to their assertion that well-connected bazaaris should be supported by the post-revolutionary state, especially given the important role that many of them played as fellow members of the “downtrodden” in the movement to bring down the Pahlavi regime, the mercantile elites also have access to a range of appointed institutions and personal relationships that further strengthen their desired economic approach for the Islamic Republic. The statist elites benefit from their power bases in various institutions such as the bonyads and the IRGC. But the mercantile elites exert considerable influence in some bonyads too, as well as in other appointed bodies such as the Guardian Council, in pro-mercantile factions of the government and the parliament, and across the patronage networks established by those prominent bazaaris who were able to gain a position in the post-revolutionary system. As such, these mercantile elites do not comprise a private pressure group; instead, they are a diverse group of people who have a close connection to the state, often via a personal alignment with a particular individual, and who are also in some way involved in the general mercantile activities of importing and exporting, buying and selling (Keshavarzian 2007: 100–103). Seeking to protect private property and trade, and pointing to their particular interpretation of Islamic economics, the mercantile elites have argued for a position that challenges the one being presented by the statist elites. However,

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when it comes to their views on how the Islamic Republic should deal with global capitalism, the two camps have often shared key concerns. In particular, given the overriding feelings of suspicion and even hostility that were directed toward foreigners and their involvement in the Iranian economy during the period of revolutionary upheaval, both strands of the elites that emerged victorious after the Revolution were broadly opposed to economic relations with the West. The main difference was that the statist elites argued for the establishment of a “just” state to control the Iranian economy, while the mercantile elites defended instead the rights of their own allies to rise up and take the place of the Western-tied economic agents of the Pahlavi regime. In short, each camp favored a centralization of resources in its own hands, but neither wanted a “modern” economy with close links to the outside world. With the passing of time, however, the various elites of the Islamic Republic have adopted changing positions on the debate over foreign capital inflows. In this debate, the statist elites have tended to take the most skeptical view of the global economy, warning against the acceptance of any capital from the West because of the conditions that might be attached to it and because of the consequences that might follow from it. A moralizing tone has often been exploited in this endeavor. Mercantile elites, on the other hand, have taken a slightly less rejectionist stance in this debate. As a group, they have also looked upon foreign investment with great caution, especially since they have been keen to avoid any opening-up to the global economy that would cause them to lose access to the various perks that they currently enjoy by virtue of their position in Iran’s closed economy.32 However, when the need has arisen, they have been far more willing to accept investment from abroad than has been the case for their key rivals. Nevertheless, it should be recognized that the individuals engaged in negotiations over economic policy in Iran are not clearly divided between these two elite camps. In fact, given the multidimensional nature of the economic system that was formulated alongside the establishment of the Islamic Republic in 1979, policy recommendations have been contested from a range of angles by individual members of these ruling elites over the course of time. Jahangir Amuzegar commented of the early post-revolutionary period that, “there were profound differences in analysis and outlook between traditional bourgeois elements in and out of the bazaar on the one hand, and radical reformers in and out of religious circles on the other” (Amuzegar 1993: 310). Similarly, we can see enormous heterogeneity within as well as between the statist and the mercantile elites, and the fluidity that exists between the two will be highlighted in the remainder of this book. While the next chapter shows how strong a hold the statists had over the formation of economic policy in the immediate post-revolutionary period, the subsequent chapters will show how new circumstances changed this situation. Specifically, the gradual emergence (discussed in Chapters 4 and 5) of reformist and pragmatist elites, whose members held a more enthusiastic

38 Iran’s struggle for economic independence attitude to the idea of opening the Iranian economy up to foreign investment, caused both the statist and the mercantile positions to shift and change over time. Nevertheless, throughout this period of fluctuation, the connections of both statist and mercantile elites to the Islamic Republic’s appointed institutions put them in a powerful position vis-à-vis the comparatively weaker reformists and pragmatists, who tended only to occupy positions in the state’s somewhat restricted elected institutions.

3

Consolidating the post-revolutionary economic system

The master fell, but what was most substantial in his work remained. (de Tocqueville 1998: 245)

In the immediate post-revolutionary period, it seemed possible that the broadly leftist discourse of Islamic economics might not actually affect the new state’s economic policies to any significant extent. Now that the Shah had been overthrown, Iran’s economic system could simply return to its prior model, with the revolutionary goals of social justice and independence pursued by largely “conventional” means. Indeed, the provisional government of Prime Minister Mehdi Bazargan (February–November 1979) did follow a moderate line after the upheavals of the anti-Shah movement (Pesaran 1985: 37). What was perhaps “most substantial” in the Shah’s work appeared set to remain. However, as was argued in Chapter 1, revolutions do not cause the countries in which they occur to simply revolve back to their original starting point. In the case of Iran too, a great deal of change was in fact introduced to the economic system after the fall of the Shah, strongly influenced by the economic discourse that had featured in the emergence of that country’s revolutionary opposition to him and his Western-tied regime. In fact, even the apparently moderate provisional government reflected certain aspects of Iran’s revolutionary economic discourse. Although Bazargan seemed willing to maintain the economic framework of the Shah’s regime, he did remain broadly committed to the revolutionary goals of his Liberation Movement of Iran.1 Similarly, it was not due to a lack of interest in the Revolution’s economic discourse that most of the cabinet members appointed to the provisional government were technocrats who had served under the pre-revolutionary system (Pesaran 1982: 514). On the contrary, Bazargan’s decision to retain staff from the old regime in this manner was perhaps more due to practical than political reasons, for he is reported to have believed it better to appoint people on the basis of relevant experience alone (Rahnema and Nomani 1990: 239). Furthermore, although Bazargan opposed some revolutionary policies, his provisional government did criticize those who were fleeing abroad with their wealth and leaving the Iranian economy in a poor condition just after the

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Revolution. On the one hand, Bazargan was opposed to the proposal supported by Bani-Sadr before his return to Iran from Paris that banks, as well as the oil industry, should be nationalized (Ettela‘at 14 Bahman 1357/February 3, 1979), as he believed that the implementation of such a large task in a short space of time would disrupt the banking system and only serve to place a heavy debt on the shoulders of the state (Ahmadi-Amui 1383/2004–2005: 30–31). But on the other hand, his government was well aware of the need to protect the economy against those whom Ettela‘at newspaper referred to as “parasites and thieves,” whose “dirty” money had been “like a thorn in the eye of the nation,” and would now be replaced by “patriotic” and “beneficent” investments in the national economy (Ettela‘at 2 Mehr 1357/September 24, 1978). Nevertheless, as the process of capital flight intensified, so the provisional government’s ability to justify a relatively moderate stance that took no concrete action against the perceived “anti-revolutionary” businessmen and industrialists of the Pahlavi private sector became weakened. Following the November 1979 seizure of the American embassy in Tehran by university students supporting Ayatollah Khomeini, Bazargan and his cabinet resigned. This action strengthened the new regime’s political elites and allowed them to assure a predominant position for their preferred revolutionary economic outlook. These elites were represented by the Islamic Republican Party (IRP), which had been founded by Ayatollah Mohammad Beheshti, Dr Mohammad Javad Bahonar, Ayatollah Mir Karim Musavi-Ardebili, and Hojjat-ol-Eslam Akbar Hashemi-Rafsanjani in March 1979, with the intention of defending the interests and requirements of Islam in the face of the secular tendencies being promoted by Bazargan’s provisional government. In particular, the IRP members were well aware of the importance of meeting the demands of the mostaz‘afan in the immediate post-revolutionary atmosphere. At a time when private banks and investment companies were widely perceived as vehicles for colonial penetration of the economy,2 and Ayatollah Khomeini was expounding on Islam’s requirement for national wealth to be redistributed among the needy (Ettela‘at 29 Khordad 1358/June 19, 1979), a populist, statist approach was essential. Even before the resignation of Bazargan’s provisional government, the IRP and the IRP-dominated Islamic Revolutionary Council had been able to exert considerable influence over economic policy, encouraging the adoption of a self-consciously leftist position that ensured against any return to the “normalcy” of the pre-revolutionary era. This influence was evidenced clearly in the Law for the Protection and Expansion of Iranian Industries. While this law of July 1979 did encourage “initiative in the private sector” (Ettela‘at 16 Tir 1358/July 7, 1979), it nevertheless introduced extensive nationalization and state control. The foreword to the law accused the previous regime of “destroying agriculture while apparently protecting the country’s industries,” “looting the national wealth,” and bringing about “dependency of Iran’s economy on foreign capitalists” (ibid). Dividing Iranian industry into four sectors, the law nationalized a wide range of industries, including steel, copper

The post-revolutionary economic system

41

and aluminum, car, ship, and airplane manufacturing, and retained the oil, gas, and electricity sectors in state hands. Furthermore, the state was given permission to take over the shares and management of those “large industries and mines whose owners had been involved in illegal relations with the previous regime” (ibid) or who had fled the country since the Revolution. These leaders of the new regime may have adopted a particularly radical approach in their first few months of power because of a desire to appear as “revolutionary” to the masses who had supported them in their move to establish an Islamic Republic in Iran. However, even with the establishment of bonyads and other revolutionary organizations as well as this extensive nationalization of the economy, there remained a degree of inconsistency in their overall outlook. Only two days after the Revolutionary Council’s approval of the Law for the Protection and Expansion of Iranian Industries, Ayatollah Khomeini sought to reassure bazaar merchants that the new state was not interested in destroying the private sector (Rahnema and Nomani 1990: 242). It was because of ambiguities such as this that both statist and mercantile elites were able to justify their own preferred economic policies, thereby increasing the likelihood of subsequent fluctuations in the Islamic Republic’s relationship with global capital. Nevertheless, even with these ambiguities, the radical atmosphere that reigned in the immediate post-revolutionary period was overwhelmingly in favor of the creation of a state-controlled economy and the adoption of a tough stance on economic relations with the West. As will be seen in this chapter, the constitution that was passed by popular referendum in December 1979 gave broad endorsement to the statist approach to economic affairs. However, the constitution did allow for the possibility that alternative interpretations of its prescriptions and proscriptions might emerge in the future. Indeed, during the period of war with Iraq that followed immediately after the approval of the new constitution, Iran was witness to the continued contestations of statist and mercantile elites, each side seeking to implement its own interpretation of the post-revolutionary economic system in preference of the other.

The constitutional framework That the authors of the Islamic Republic’s constitution were preoccupied with protecting the country from foreign interference is made clear in the preamble to the constitution, which refers to the “foreign domination . . . [which was] shattered” (Constitution of the Islamic Republic of Iran: Preamble) by the Revolution, and to the “foreign exploitation” (ibid) that was suffered under the previous regime. The preamble also commends that, “our nation, in the course of its revolutionary developments, has . . . purged itself of foreign ideological influences” (ibid). In addition, Article 3 of the constitution includes “the complete elimination of imperialism and the prevention of foreign influence” (ibid: Article 3) within its list of “state goals.” Furthermore, with revolutionary calls for economic independence still ringing in their ears, the

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members of the Council for the Appraisal of the Constitution of the Islamic Republic of Iran (commonly referred to as the Assembly of Experts)3 were also intent on ensuring that the economy in particular would be able to prosper without any help from abroad. The assembly’s aim to achieve economic independence is encapsulated in Article 43 of the constitution, which calls for the “prevention of foreign economic domination over the country’s economy” (ibid: Article 43). Furthermore, the prohibition of “any form of agreement resulting in foreign control over the natural resources, economy, army, or culture of the country” (ibid: Article 153) indicates the strength of feeling against foreign interference in Iranian affairs. As Islamic economics had been key to the religious opposition’s response to the previous regime’s failure to prevent such interference, it was agreed that the framework of an Islamic economic system should be included in the new constitution. However, because of competing interpretations of Islamic economics among the statist and mercantile branches of the religious leadership, the economic system outlined in this document was not devoid of ambiguity and inconsistency. Nevertheless, the influence of the statist elites was significant. This is primarily because the belief that only a state-controlled economy would be able to defend the country against foreign economic exploitation, and ensure that the Western-tied and “corrupt” private sector of the previous regime would not act against national interests, was very strong at this time. In what follows, the comments made by members of the Assembly of Experts during discussions of the major economic articles of the constitution will be reviewed and put into context. But before proceeding further, it should be noted that all 72 members had been elected to this assembly with the help of some electoral manipulation on the part of Khomeini’s associates (Schirazi 1998: 31), and they all acted under the influence of Ayatollah Khomeini’s expressed hope that those “inclined to Western or East European schools of thought or influenced by deviant views” (cited in ibid: 33) would not interfere in the formulation of the constitution. As such, although there were differences of opinion among these authors of the Islamic Republic’s constitution, they all shared a desire to move Iran’s economic system away from the “dependent capitalism” (Pesaran 1982) that had existed under the Shah. Establishing a new economic system: Article 44 Members of the Assembly of Experts were keen to protect the Iranian economy from foreign economic domination, and they were equally concerned to ensure that a Western-tied domestic private sector would not dominate the economy either. At this time, it was perceived that economic dependence and foreign economic domination had been at least accentuated if not created by the domestic capitalist class of the previous regime, which had been tied to the court as well as to its “imperialist” foreign allies. Therefore, there were many calls for the new state to play a more dominant role in the Iranian economy,

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in order to limit interference in the national economy of both the domestic capitalist class of budding industrialists and the international capitalist class of large multinational corporations.4 It was with Article 44, which divides the Iranian economy into state, cooperative, and private sectors, that the transfer of economic control from the Shah to the new regime was achieved. As has already been mentioned in the previous chapter, Article 44 specifies that: the state sector is to include all large-scale and mother industries, foreign trade, major minerals, banking, insurance, power generation, dams, and large-scale irrigation networks, radio and television, post, telegraph and telephone services, aviation, shipping, roads, railroads and the like; all these will be publicly owned and administered by the State. (Constitution of the Islamic Republic of Iran: Article 44) While the draft version of this article5 had divided the economy into three sectors, it had not elaborated on how each of these sectors should be defined. The proposal to hand over a wide array of economic activities to the state sector, including especially those related to the oil industry, was made by the members of the Assembly of Experts themselves, in their efforts to establish an Islamic-nationalist economic system in post-revolutionary Iran. With the March 1979 cancellation of all remaining consortium agreements, the Iranian state had already taken sole responsibility for the exploration, production and marketing of Iranian oil,6 and the new ruling elites were now seeking to acquire similar control over other areas of the economy. An examination of the assembly’s discussions of Article 44 is essential for an appreciation of the reasons for which they chose this new economic path, and of the impact that this choice would have on Iran’s future economic relations with the outside world. The most prominent feature of the assembly’s debates on how to define and organize the economic system of the Islamic Republic of Iran was their preoccupation with the need for this system to be distinctively Islamic. While no such mention of an Islamic economy had been made in the preliminary draft of the constitution, members of the Assembly of Experts referred to Islamic as well as revolutionary values in their discussions of Article 44. In so doing, they clearly echoed the new economic discourse that had been emerging in Iran during the two decades leading up to the Revolution. As the delegate Ayatollah Naser Makarem-Shirazi remarked, “the philosophy of this article is clear to us all—we wanted to create an Islamic economy that would be not Western capitalism and not Eastern socialism. On this basis, we created these three sectors” (AE Minutes 3: 1,545). Stressing his support for this view, Ayatollah Beheshti, a founding member of the IRP and the deputy president of the Assembly of Experts, commented, “we all know that the current economic system in Iran is against Islam . . . [so we are proposing] neither a capitalist economy, nor a Marxist economy, but an Islamic economy” (ibid: 1,564).

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In light of this, the decision of the Assembly of Experts to create a strong state sector seems to have been motivated not by a desire to emulate the socialist system of the Soviet Union, as it was commented that “that system has clearly failed” (ibid: 1,536), but by a religiously informed belief that the state should be the driving force of the economy in Iran. The delegate Habibollah Hashemi-Nezhad referred to this vision when he asserted that, “there is no doubt that all actions of the Islamic economy are done for the protection of the down-trodden (mostaz‘afan)” (ibid: 1,524). While he believed that the state should be responsible for the direction of this Islamic economy, Hashemi-Nezhad stressed that he did not equate such a system with socialism. On the contrary, he supported Islam’s protection of private ownership, arguing that the worker must be viewed as the owner of his production, “for if a worker is not the owner of his production, then how can we criticize exploitation?” (ibid: 1,524). Furthermore, Hojjat ol-Eslam Mir Abolfazl Musavi-Tabrizi recommended that the rights of the private sector should be protected within certain limits: As long as the private sector does not go beyond the limits of the laws of Islam, and contributes towards the economic growth and development of the country, and does not cause any economic harm or damage to society, then it shall be protected by the government. (ibid: 1,534) So while private ownership was supported, capitalism was not. In fact, the terms capital and capitalism were considered “illegitimate” (ibid: 1,525), to the extent that there was even a suggestion that the constitution should state explicitly that, “the capitalist system is abolished in the Islamic Republic” (ibid: 1,561). Although the assembly members did not vote in favor of this suggestion, they reflected the leftist trend of the day when they agreed with the principle that the capitalist system of the previous regime should be brought to an end. As Beheshti explained, “a capitalist economy is an antiIslamic economy, and it is condemned by us all. However, in the constitution, we want to write about what we have and what we are, not what we are not” (ibid: 1,565). It was therefore stressed that the new economic system would be “based on state and public and private ownership” (ibid: 1,548), summarized by Abdolrahim Rabani-Shirazi as as “a people’s economic system” (ibid: 1,561). According to Rabani-Shirazi, it was desirable to place public property under government control because then “people won’t be able to take fields and forests and other natural resources . . . and so the previous system will not be repeated” (ibid). In this new Islamic-nationalist economic system, it was expected that nationalization of a wide range of industries and services would reduce the scope for interference of the domestic private sector and their foreign partners in the economy, achieving more than Mosaddeq had even hoped for. That the members of the assembly were particularly concerned to reduce the possibility

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of economic dependence was illustrated by delegate Ahmad Nurbakhsh’s insistence that not only “mother” but also “large-scale” industries should be included in the list of economic areas under state control. Arguing that, “what is really important for our nation . . . is that we break down dependent investment” (ibid: 1,567), he warned that if large industries, such as the carmanufacturing industry, were not placed under government supervision, they would return “to those factory owners who had previously made us dependent on foreigners” (ibid). Although Beheshti believed that such desires for the economy to be made independent should not be allowed to lead to economic isolation (Jomhuriye Eslami 28 Aban 1358/November 19, 1979), most of his colleagues in the assembly were more worried about independence than isolation. Thus, by approving Nurbakhsh’s proposal to include “large-scale industries” in Article 44, they demonstrated their shared suspicions of both the Pahlavi private sector and the foreigners who had worked with them. In making such a decision, the members of the Assembly of Experts received much praise. Ettela‘at newspaper, for example, congratulated it on handing the ownership of the means of production from a small group of Western-tied capitalists to the workers of Iran (Ettela‘at 5 Azar 1358/November 26, 1979). Others, however, believed that the new constitution did not go far enough in revolutionizing the economic system: “In the economic articles of the new constitution, there is no mention of the struggle against imperialism and its local base . . . they say that as it is not capitalism and it is not socialist, it must be Islamic . . . but there is no talk of an Islamic society” (Jomhuri-ye Eslami 19 Aban 1358/November 10, 1979). Prohibiting foreign concessions: Article 81 While Article 44 reveals general attitudes toward the previous regime’s economic system and its foreign ties, Article 81 deals with the matter of foreign capital more directly. It states that, “the granting of concessions to foreigners for the formation of companies or institutions dealing with commerce, industry, agriculture, mining or services, is absolutely forbidden” (Constitution of the Islamic Republic of Iran: Article 81). Although similar precautions against foreign exploitation of natural resources had been included in the Iranian constitution of 1906, it can be argued that greater sensitivity to foreign interference was exhibited in the drafting of the 1979 constitution. Indeed, whereas Articles 23 and 24 of the pre-revolutionary constitution simply made it necessary for the government to acquire parliamentary approval before granting concessions,7 Article 81 of the new constitution forbids the granting of concessions in a wide array of economic activities altogether. Furthermore, it is significant that the more nationalist constitution of 1979 explicitly forbids the granting of concessions to foreigners in particular, whereas in the previous constitution, parliament was to supervise the granting of concessions to all parties, both domestic and foreign.

46 Iran’s struggle for economic independence The particular concerns articulated by members of the Assembly of Experts during their discussions to finalize this article are discussed below, followed by an analysis of the three different interpretations of this article that are often used to justify contrasting positions on the question of whether or not foreigners should be allowed to invest in Iran. The journey from draft to final version Article 66 of the draft version of the constitution, put forward for discussion at the 33rd meeting of the Assembly of Experts, stated that: The giving of concessions for the formation of companies and organizations in the public sector, and the granting of monopolies in affairs of commerce, industry, agriculture, mining and services, is forbidden unless under special circumstances and with the approval of parliament. (AE Minutes 2: 865) By the time it was passed as Article 81 in the 65th meeting of this assembly, it had undergone many hours of discussion and debate. Comparing the proposed Article 66 with the ratified Article 81, three significant modifications can be noted. First, Article 66 differentiates between the giving of concessions to form companies in the public sector and the granting of monopolies in commerce, industry, agriculture, mining, and services, while Article 81 removes all reference to both the public sector and monopolies altogether. Second, while Article 66 forbids the granting of these concessions and monopolies unless under special circumstances and with the approval of parliament, Article 81 forbids the granting of concessions absolutely. Finally, Article 81 makes an explicit reference to foreigners, whereas in Article 66 no mention of foreigners was made. The reference to the public sector that appears in Article 66 was removed in Article 81 because, with the economy divided up into government, private, and cooperative sectors in Article 44 of the Constitution, the term “public sector” was simply no longer relevant. Therefore, this variation between the two articles is not indicative of any lessening of government concern for the affairs of the public arena of the national economy; indeed, quite the opposite was shown to be the case in Article 44. Similarly, the absence in Article 81 of Article 66’s reference to a banning of monopolies should by no means be understood as a newfound acceptance and approval of monopolies on the part of the members of the Assembly of Experts. In fact, they voiced a disapproval of monopolies that was far stronger than that which had been implied both in the proposed Article 66 and in Article 24 of the pre-revolutionary constitution. Whereas the granting of monopolies required parliamentary approval in these prior documents, they were banned completely in the 1979 constitution. This was done not in Article 81, as was originally intended, but in Article 43 of the final approved version of the

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constitution, which outlawed “infliction of harm on others, monopoly, hoarding, usury, and other practices forbidden by Islam” (Constitution of the Islamic Republic of Iran: Article 43). Monopolies were strongly opposed by all members of the Assembly of Experts in its 33rd meeting. The comments of one delegate, Aziz DaneshRad, were typical: “It is better that for the time-being, we ban monopolies. It is fine that in the case of necessity, the majles should allow concessions to form companies, but for the time-being we can’t see any necessity for giving monopolies” (AE Minutes 2: 867). Reasons for opposing monopolies were two-fold: first, monopolies were believed to lead to a concentration of wealth; and second, monopolies were considered to be against the tenets of Islam. Employing the former argument in his comments to the assembly, Mohammad Rashidian stressed that, “the seeking and holding of monopolies leads to the creation of large capitalists . . . and monopolies always bring about domination” (ibid: 868). Then, employing the latter argument, Jalal Taheri-Esfahani simply stated that, “monopolies are fundamentally against Islam” (ibid), while Ali Golzadeh-Ghaffuri elaborated on this with the explanation that, “in our regulations, we must take into consideration the spirit of Islam . . . each monopoly requires something being denied to others . . . therefore . . . it does not conform to the spirit of Islam” (ibid: 869). While they considered monopolies undesirable for these social and religious reasons, members of the assembly argued that a monopoly in the hands of the government should be regarded differently from one in the hands of the private sector. As Beheshti explained: We have two kinds of monopoly: one given to government and the other to individuals. I think that no one has any problems with giving monopolies to government: . . . it is possible that in some instances, the monopolization of a task in the hands of the government, which is the hands of the nation, that is to say nationalization of an industry, is in reality a proper thing to do, and it is to the good of the nation. However, with regard to monopolies of individuals, on the whole we are concerned about these. (ibid: 868) Therefore, with Article 43, members of the assembly banned monopolies in the hands of private companies or individuals, but they did not ban monopolies in the hands of government, as “when monopolies are controlled by the government, there is a reduced possibility that these [industries monopolized by government] will fall into the hands of private individuals and result in a concentration of capital” (ibid: 872). As mentioned above, the placing of a complete ban on extra-governmental monopoly in Article 43 rather than simply requiring parliamentary approval for the granting of monopoly in affairs of commerce, industry, agriculture, mining, and services, was not the only alteration made by the Assembly of

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Experts to the proposed Article 66. Members of this assembly also decided to forbid absolutely the granting of concessions to foreigners for the formation of companies dealing in a wide variety of economic activities. Their decision to frame the terms of Article 81 of the constitution in such a manner further demonstrates their desire for the economy to be controlled principally by the Iranian government, with restricted interference from either the domestic or the international private sector. Indeed, during discussions of Article 66, some members of the assembly were even uncomfortable with the idea that the parliament could, if deemed necessary, grant concessions to Iranians for the formation of companies and organizations in the public sector. Mohammad Rashidian, for example, thought that concessions as well as monopolies should be banned absolutely: “It is clear that in an Islamic nation, where we want to remove the roots of poverty and eradicate possibilities for those who seek dominance over us, even this ‘giving of concessions’ is not needed” (ibid: 871). However, Beheshti explained that to grant a concession for a domestic company to carry out activities in the public sector was not a problem, as long as parliamentary approval was obtained beforehand: Concession means permit. That is to say, you give a businessman a permit to carry out a certain activity. This is not a problem . . . sometimes the government wants to hand over an activity that it is doing in the public sector to a private unit . . . All that we are saying here is that it must be done with the approval of the parliament. (ibid) Therefore, while a monopoly outside of government hands was undesirable, a concession was acceptable in certain circumstances. But when Article 66 was discussed in more detail, the question of whether it was equally acceptable to grant a concession to a foreigner as it was to grant one to a private-sector entity within Iran was raised. Given the intense anti-Western sentiment that prevailed at this time when the American embassy in Tehran had just been taken over by a group of Islamist university students in response to US support for the exiled Shah,8 the threat of foreign companies was deemed to be far greater than that of Iranian private-sector companies. Such a view toward foreigners was typified in an article in Jomhuri-ye Eslami, which criticized the previous regime for its support of projects that were “mostly imposed on us [by foreign capitalists], and led to nothing but increased reliance on the Western economy” (Jomhuri-ye Eslami 10 Mehr 1358/October 2, 1979), and suggested that under the new regime, the priority must be to encourage Iranians to invest in their own economy. In the assembly’s 65th meeting, it was proposed that while the approval of two-thirds of the parliament should be required for the government to grant to foreigners a concession for the formation of a company in affairs of commerce, industry, agriculture, mining, and services, the approval of only

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the majority of parliament was required for the granting of such a concession to an Iranian (AE Minutes 2: 1,799). When Mohammad Karami then suggested that the granting of concessions to foreigners should in fact be banned completely (ibid: 1,800), members of the assembly agreed, hastily passing an article that made no more mention of conditions under which concessions could be granted to Iranians. In choosing to ban the granting of concessions to foreigners in particular, the authors of the constitution demonstrated that their anxiety about foreign penetration of the economy was far stronger than their desire to limit the domestic private sector. Competing interpretations of Article 81 However, while Article 81 bans the granting of concessions for the formation of companies or institutions dealing with commerce, industry, agriculture, mining, or services, the precise implications of this ruling were not made clear within the text of the constitution itself. As a consequence, it is impossible to be sure how the members of the Assembly of Experts intended this article to be observed in practice by those who would come to govern the country following ratification of the constitution. The article does not specify, for example, if it is possible for foreign companies or institutions, including those that were established by means other than the granting of an Iranian governmental concession to that effect, to simply participate in activities relating to commerce, industry, agriculture, mining, or services. Nor does it indicate whether the granting of concessions for activities other than the formation of companies is permissible. Finally, Article 81 does not specify whether the Iranian government can give non-concessionary contracts to foreign companies for projects dealing with commerce, industry, agriculture, mining, or services if and when this is deemed necessary. As the answers to these questions cannot be found in the minutes of the Assembly of Experts or in the wording of Article 81, a range of competing interpretations of this article emerged soon after ratification of the constitution in 1979. At any given time thereafter, the various groups taking different positions in the debate on foreign investment in Iran have made use of whichever interpretation best fits their particular argument. There are three main interpretations of Article 81, each one justifying a particular standpoint on the extent of the involvement of foreign companies in the Iranian economy.9 The first argues that the registration of foreign companies is prohibited in Iran, unless under special circumstances. The second argues that as long as the percentage of company shares held by the foreign party does not go beyond a certain limit, a concession has not been granted, and therefore the contract between Iranian and foreign companies is permissible. Finally, the third seeks to present a clear definition of the term “concession,” in order to ensure that only true concessions are prohibited, thereby rendering legitimate other forms of contract with foreigners.

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Interpreting Article 81 in its broadest possible sense, the supporters of the first view construe the ban on the “granting of concessions for the formation of companies and organizations” as a complete ban on all activity of foreign entities in Iran. They tend to defend their position by referring to some of the statements that were made by the members of the Assembly of Experts during their discussions of this article. Principally, they focus on Beheshti’s explanation that, “concession means permit . . . [like] a permit to carry out a certain activity” (ibid: 871), and they argue that a ban on concessions for the formation of companies is therefore, by definition, also a ban on permits for all activities. During the immediate post-revolutionary period, when a general atmosphere of apprehension toward foreigners prevailed, this interpretation was so widespread that the Organization for the Registration of Companies and Industrial Properties stopped registering foreign companies in Iran altogether, for fear of contradicting the terms of Article 81. However, the existence of other interpretations of the article led to a questioning of the legitimacy of this decision to end the registration of foreign companies in Iran. If this was the case, it was asked, then how was the Iranian state to interact with foreign companies on its own soil? In 1981, in light of the difficulties arising from the lack of registration of those foreign companies with which the Iranian government had already made contractual agreements, Mohammad Ali Raja‘i (then prime minister) asked the Guardian Council to: “give its opinion on whether foreign companies that have signed contracts with the Iranian government and that are registered and active in their own country, in order to carry out legal affairs and activities according to the aforementioned contract, can be registered to carry out activities or not” (Majmu‘e-ye Nazariyat-e Shawra-ye Negahban: 42). The Guardian Council responded by ruling that: “Foreign companies that enter into contracts with Iranian governmental organizations, in order to carry out legal affairs and activities within the limits of contracts signed according to Article 3 of the Law for the Registration of Companies, can register their offices in Iran. This matter does not contradict Article 81 of the constitution” (ibid: 41). Thus, it can be seen that only a year after the ratification of the new constitution, practical problems relating to its interpretation had already emerged. While declarations of economic independence had been voiced during the revolutionary period, by 1981 the government realized that it might be difficult to generate the wealth needed to secure this economic independence if some form of economic cooperation with foreigners were not conceded. However, although the Guardian Council’s ruling supported Raja‘i’s implicit resistance to a complete ban on all foreign economic activities in Iran, it did not settle the problem of how to interpret Article 81. Rather, it left much unresolved, such as the question of whether activities such as the registration of foreign companies that do not have a contract with the government, went against Article 81 or not, for example. As a consequence, opponents of foreign investment continue to cite this article as justification for their views to this day.

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The second interpretation of Article 81, which argues that a concession has not been granted if the foreign party’s share in a joint company is 49 percent or less, is generally held by those individuals who are in favor of restricted foreign investment. This interpretation is based on the idea that as long as control of any given company is in the hands of Iranian citizens, a concession has not been granted. However, no justification for such a view can be found in the minutes of the Assembly of Experts, and in fact various legal hurdles must be overcome in order to defend this interpretation.10 Included among these hurdles is the fact that majority ownership of a company’s shares does not necessarily equal practical control of that company. Indeed, a 1979 article in Ettela‘at newspaper pointed out that the involvement of foreigners in the Iranian economy had grown from 1953 until 1979 even though foreign investment was nominally no higher than 49 percent, as in practice the “Iranian” company was in foreign hands, and most of the profit was expatriated to the foreign investor’s home country (Ettela‘at 20 Khordad 1358/June 10, 1979). As such, it would be difficult to guarantee Iranian control and argue that a concession has not been granted even with the maximum 49 percent share allocated to the foreign partner. Nevertheless, this interpretation does answer the needs of those who want to attract foreign investment, while appearing to defend against exploitation. The third interpretation attempts to avoid these difficulties surrounding the association of foreign share ownership with concessions, however, by focusing its attention on the meaning of the term “concession” itself.11 Supporters of this interpretation believe that the word “concession” is of key importance in explaining Article 81. They demonstrate that a concession is, in essence, a permission given by a government to a real or legal entity. Indeed, the Oxford English Reference Dictionary defines concession as “the right to use land or other property, granted esp. by a government or local authority, esp. for a specific use” (Pearsall and Trumble 1996). However, what is less easy to explain is what is meant by the prohibition of granting concessions “for the formation of companies and institutions.” Farhad Emam suggests that perhaps the authors of the constitution included the second half of this phrase because they understood that the granting of a concession requires the existence of a company or institution to receive and carry out that concession (Emam 1373/1994–1995: 107–120). Therefore, to ban the granting of concessions for the formation of companies is to ban the granting of concessions altogether, and we return to the same problems that were presented by the first interpretation. Indeed, although the third interpretation seeks to present a clear definition of the term concession in order to ensure that only “true” concessions are prohibited, its analysis does not clarify what such a “true” concession is. In short, while some argue that Article 81 is a ban on the granting to foreigners of any permits for any activities, and others argue that it is only a ban on those permits that give foreigners majority ownership of the company or that are concessionary in nature, none of their interpretations is without problems.

52 Iran’s struggle for economic independence As a result of the ambiguities left unresolved in Article 81, then, none of the various positions on foreign investment can claim exclusive legitimacy, and the path of debate and negotiation is left open. Restricting the presence of foreigners: Article 82 Whatever the correct interpretation of Article 81, a review of the discussions surrounding Article 82 underlines the mistrust that members of the Assembly of Experts felt toward foreigners in general. The preliminary version of this article, which appeared as Article 62 of the draft constitution, called for the government to limit its employment of foreign experts and consultants to times of necessity, and required parliamentary approval for any such employment. The fact that the response of many members of the assembly to this proposal was to suggest that a complete ban should be placed on the employment of all foreigners, expert or not (AE Minutes 2: 874–875), is surely a strong indicator of the antipathy to all things foreign, which predominated at the time. Full consensus could not be reached on this specific matter, as there were some members of the assembly who argued that it was acceptable, in case of necessity, for non-expert, “ordinary” foreign citizens to be employed as chauffeurs for government ministries (ibid: 875), for example. Nevertheless, there was general agreement that the employment of experts was to be avoided. Indeed, foreign experts were described in negative terms throughout the discussions of Article 82. For example, Beheshti maintained that, “employment of foreign experts should be banned because many dangers have always been created for our country from these very people . . . [and because] . . . normally among them are found some ‘lizards’ that bring about corruption and sedition” (ibid: 74–75). Given that, in Iran, lizards are considered to be devious and untrustworthy creatures, these were harsh words indeed. Adopting a similar view, the delegate Ja‘far Sobhani even called for the wording of the article to be altered in order to state explicitly that employment is conditional upon the employee not interfering in domestic affairs, “because any expert that we have seen has interfered” (ibid: 892). Furthermore, Aziz Danesh-Rad voiced concerns about the problem of unwanted foreign experts, who might succeed in entering the country through the back door, as part of a foreign investment package. He commented that, “Sometimes we don’t employ experts, but we purchase equipment and materials and we sign a contract and some experts are included along with it. That is to say, in reality, these people work here without actually being employed . . . in this instance what should we do?” (ibid: 876). However, not all members of the assembly perceived foreign experts as wholly dangerous. For example, when Beheshti suggested that the problem raised by Danesh-Rad could be averted by re-wording the article to ban outright the “use” of foreign experts rather than simply their “employment” (ibid), Abolhasan Bani-Sadr pointed out that there would be occasions when the use of foreign experts would be to the benefit of the country, and therefore

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such a ban would not be in the national interest. He argued that, “If we write [the law] like this, then if the government wants to ask the opinion of some specialists and experts related to a matter such as, for example, the economy, it would not be allowed to do so unless it went and got a permit from the parliament” (ibid). Consequently, it was agreed that to ban the use of foreign experts altogether would not be in the national interest. The final version of Article 82 was passed to read that, “The employment of foreign experts is forbidden, except in cases of necessity and with the approval of the Islamic Consultative Assembly” (Constitution of the Islamic Republic of Iran: Article 82). Nevertheless, the fact that Beheshti had to reassure other members that government approval, in the form of a work permit, would be required for the employment of all foreigners, even in the private sector (AE Minutes 2: 893), is a strong indicator of the cautious atmosphere of the immediate post-revolutionary period.

The defense of revolutionary values, 1980–1998 That a constitution dispensing so many economic powers to the state was ratified in December 1979 indicates the considerable influence being exerted by statist elites at this time. Perhaps the radical atmosphere that had taken hold in the country after the hostage taking at the United States embassy less than one month earlier had made this inevitable. Indeed, not only did this episode push Prime Minister Bazargan and his provisional government, which had been seeking rapprochement with the West, to resign from office possibly in frustration at the increasingly radical stance of certain branches of the Islamic Republic, but it also served to emphasize the populist nature of the new regime. By enabling Ayatollah Khomeini and his supporters to secure their position as the “true” leaders of the Revolution, events at the American embassy had ensured that a strong Islamic state would hereafter be responsible for protecting the country against the invasion of the “corrupt” values of Western capitalist societies. From late 1979 onward, the Islamic Revolutionary Council embarked on a process of Islamizing and revolutionizing the country’s economic system. In April–May 1980, the Office of Revolutionary Planning published a report of its intentions for the “economic, financial, social, cultural, spatial, and structural” development of the Islamic Republic (Gozaresh-e Naha‘i-ye Siyasat-ha-ye Tawse‘eh va Takamol-e Jomhuri-ye Eslami-ye Iran: Eqtesadi, Mali, Ejtema‘i, Farhangi, Faza‘i, Kalbodi). Noting that, “the aim of Iran’s Islamic revolution was to establish a social, political and economic system that is based on the lofty ideals of Islam” (ibid: 24), the report stressed the need for such a system to achieve “economic independence, which is the basis and foundation of cultural and political independence” (ibid: 26). The report then outlined the various steps to be taken in order to establish this Islamic and independent economy. It maintained that in the past, the import of tools, machinery, technology, and expertise from abroad had turned Iranian industry

54 Iran’s struggle for economic independence into an “off-shoot of industrialized, Western economies” (ibid: 82). Under the Islamic Republic, agricultural and industrial self-sufficiency would be achieved through the state’s strengthening of the country’s economic foundations. Although many aspects of the oil industry had been “dictated to by foreigners” (ibid: 92), there was no reason why Iranians should not be able to use their own expertise to further develop it themselves. However, this statist position was not unchallenged. On the contrary, voices from the mercantile elites continued to make themselves heard, especially following the election of Abolhasan Bani-Sadr as the first president of the Islamic Republic on January 25, 1980. Bani-Sadr had previously been a strong advocate of the need for state regulation of the economy in order to reduce the country’s dependence on the West, calling for the nationalization of banks as well as of the oil industry in the last few weeks before the Revolution (Ettela‘at 14 Bahman 1357/February 3, 1979). But as president he defended many pre-revolutionary institutions and opposed those who sought to extend the economic role of the state under the pretext that a strong state alone would be able to defend the values of Islam and of the Revolution (Rahnema and Nomani 1990: 244). As a consequence, Bani-Sadr was attacked for being neither sufficiently religious nor revolutionary, and was labelled a “tool of the West” (Brumberg 2001: 118) because of his attempts to restore relations with the United States following the hostage crisis. The Mojahedin-e Khalq, which had rallied around Bani-Sadr at the start of the Revolution, was also pushed into open conflict with the Islamic Republican Party at this time, and soon became removed from the political scene.12 With the election of Mir-Hosayn Musavi as prime minister in November 1981, the clerical establishment could claim final victory over all opposition forces.13 Musavi’s election marked the beginning of an eight-year period of relative political stability14 in which a strong centralized economy was seen as instrumental in defending the values of the Islamic Revolution. But did this mean that members of the mercantile elite had been eradicated too? Given that President Khamene‘i had initially nominated Ali Akbar Velayati as his first choice for prime minister, it can be seen that the supporters of mercantile interests were actually still very much present, and at the highest levels of the political elite too. However, the majority of majles deputies at this time were opposed to Velayati, and refused to give him the necessary vote of confidence. Thus, under the staunchly statist Mir-Hosayn Musavi, the advocates of a state-controlled economy enjoyed a great deal of influence over the country’s decision-making apparatuses. Even so, other groups in favor of a role for the commercial elite did continue to voice their opinions and views. In the remainder of this chapter, each of these contesting groups will be examined with reference to the debates that took place on the divisive issue of economic planning during Musavi’s premiership. In addition, the impact of the Iran–Iraq war on Iranian policy toward foreign capital will be considered.

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To plan or not to plan? On July 11, 1983, Musavi’s cabinet approved the bill for the first development plan of the Islamic Republic of Iran, which had been prepared by the Planning and Budget Organization (PBO). Clearly a product of its time, the bill reflected the influence of the school of economic thought that had emerged in the prerevolutionary period, stressing the need to realize a self-consciously Iranian economic development that was neither Eastern nor Western. Calling for economic independence, it criticized the Pahlavi economy for having sought “to obtain a higher national income in a manner that was not in the interests of the majority of the Iranian people but that . . . used economic resources for the implementation of the regional plans of foreign dominant powers, and the protection of the interests of a limited group of their domestic agents” (Layeheh-ye Barnameh-ye Avval-e Tawse‘eh-ye Eqtesadi, Ejtema‘i, Farhangiye Jomhuri-ye Eslami-ye Iran 1362–1366 1: 11). It argued that by making the Iranian economy “tied to the capitalist system of the West” (ibid: 14), the Pahlavi regime had betrayed domestic needs. Now that the country had obtained political independence, however, economic independence could be pursued (ibid: 15). It was proposed that state-directed economic planning would set the country on the right track to achieving such a “revolutionary” objective. However, with some majles deputies and influential clerics arguing that state planning of the economy was against Islam, and others claiming that economic planning was acceptable only if such plans remained loyal to the aims and ideals of the Revolution, this bill was attacked on two fronts. Specifically, the suggestion that “national property and resources” (ibid: f) as well as nongovernmental sectors should be “directed towards correct and coordinated growth” (ibid: j) by the state was seen to afford the state too great a role. Furthermore, the authors of the bill were perceived by some to be tied to foreign interests, making them insufficiently “revolutionary.” As a result, the bill for the first development plan of the Islamic Republic was never passed into law. While many of the aims and solutions outlined in this bill matched those of the new economic discourse that had emerged in the lead-up to the Revolution, and had been broadly accepted by all of the groups involved in it, they did not represent the precise views of all factions of the postrevolutionary Iranian state. The bill for the first development plan had been prepared by a group of (mostly) foreign-educated economists who, while approving of state control to ensure economic independence, did not call for a cessation of economic relations with the outside world. In their proposed plan, these technocrats of the PBO explained their view that, “economic independence and selfsufficiency should not lead to the creation of a closed economy, and in an independent economy, there can and should be economic relations with foreign countries” (ibid: 1.5). While they wanted to reduce the Iranian economy’s reliance on the import of industrial and agricultural goods from abroad, the

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authors of the bill were willing to invite a limited degree of foreign investment, skills, and technologies for the advancement of domestic production and non-oil exports. However, this preparedness to work with the outside world was not shared by the majority of the country’s political elite, among both those who were in favor of economic planning and those opposed to it. Consequently, the PBO technocrats who did not adjust their views to match those of the ruling elite were to a large extent excluded from the process of formulating economic policy during Musavi’s premiership. The new regime had gone to great lengths to try to ensure that its economic decision-making bodies remained loyal to the values and aims of the Revolution. The PBO itself had been closed down for 10 days in 1981 in order to cleanse it of all “un-revolutionary” elements.15 However, even after 1981, there were various interpretations of what those revolutionary values actually were, and a range of opinions on how they would best be achieved. Indeed, the PBO proposal was criticized by factions on both sides of the economic divide in the majles. On the one hand, it was attacked by the pro-mercantile majles deputies of the hojjati and mo‘talefeh factions, who were opposed to the idea of state economic planning. On the other hand, it was opposed by the statist majles deputies of the maktabi faction, who shared with their parliamentary opponents a mistrust of foreign capital and a desire to distance Iran from relations with foreign countries (Baktiari 1996: 80–83). Both were therefore keen to limit the activities of the apparently Westernized PBO. The strength and breadth of this opposition raises the question of why Musavi’s cabinet had approved the PBO’s proposal for a development plan in the first place. Perhaps the answer can be found in the fact that while this cabinet included supporters of the mercantile faction in the majles, such as Habibollah Asgarawladi (commerce minister) and Ahmad Tavakolli (labor minister), nevertheless it was dominated by a statist trend that believed fervently in the benefits of strong central economic planning. Under Musavi’s leadership, the prevailing view in cabinet was that the state needed to draw up new and “revolutionary” social, economic, and cultural development plans for the country, in order to ensure that the policies of the previous regime were not continued. Even though there were some concerns about the level of devotion of the PBO experts to the Islamic Republic’s revolutionary ideals, these were not so strong that they were able to sever relations between the cabinet and the PBO. In the majles, however, suspicions of the PBO were more pronounced, and the insular economic outlook of most deputies prevented them from being able to accept the PBO’s recommendations that the country’s economic problems be solved by looking to the world outside Iran’s borders as well as to domestic potential and capabilities. Of course, majles opposition to the bill for the first development plan of the Islamic Republic of Iran was not solely due to these suspicions and differences in outlook; there were also disagreements on some of the particular details of the proposed plan, such as

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the use of oil income and the rate of inflation (Ahmadi-Amui 1383/2004–2005: 156). But to a large extent, it was because of the difficulties inherent in reconciling revolutionary ideals with practical economic policies that the Islamic Republic lacked a long-term, coherent development plan throughout the period 1979–1989. Wartime exigencies While doubts about the PBO’s ability to prepare a plan that would secure the revolutionary aims of the Islamic Republic had combined with a religious critique of planning itself to hamper the Musavi government’s proposed fiveyear development plan, the emergence of arguments that it would in any case be impossible to implement such a plan during wartime brought the debate to a final close. Nevertheless, in spite of the fact that long-term economic planning was not a possibility under the uncertainty of war conditions, the economy fell under increasing state control. Even Mohsen Nurbakhsh (Central Bank governor from 1981 to 1985), who believed that the state must not be allowed to grow so large that it eclipsed the private sector, accepted the view that in times of necessity, such as war, the state must take control of the economy (ibid: 67–68). Similarly, Mas‘ud Rawqani-Zanjani (head of the PBO from 1984 to 1995) also supported the implementation of a state-controlled economy during the war years. Justifying this position, Rawqani-Zanjani subsequently explained that, “there was no way we could have talked about an open economy during the war. The state had to take on all the risk: even coupons were used in England during the [second world] war” (ibid: 155). In addition to this statist economic outlook that prevailed in Iran among the technocrats of the Central Bank and the PBO, a negative attitude toward foreign capital was also adopted by most of the Islamic Republic’s political elite at this time. Although Nurbakhsh and Rawqani-Zanjani’s acceptance of the need for a state-controlled economy during wartime was accompanied by a belief in the potential benefits of economic relations with the outside world, the majority of cabinet members and majles deputies sought to appear loyal to the revolutionary aim of achieving economic independence by adopting an anti-foreign stance. For them, a command economy equalled a closed economy. Even most of the mercantile elites shared in their rivals’ disapproval of foreign economic influences on the Iranian economy in spite of their disagreements on most other economic issues. This common rejection of global capitalism was highlighted in a report written by various economic experts, with mercantile as well as statist sympathies, which argued that one of the biggest economic problems facing Iranian society was caused solely by “imperialist conspiracies to bring down the price of oil” (Kayhan 5 Shahrivar 1365/August 27, 1986). Such a view gained so much support partly because the war situation increased widespread feelings of antipathy toward those foreigners who were seen to be helping “the enemy.” Furthermore, another

58 Iran’s struggle for economic independence reason contributing to this broad consensus was that the less attractive the economy became for foreign investors, the more Iranians sought to appear able to manage on their own, without any outside help. Indeed, there was hardly any foreign investment forthcoming at this time, whether the Iranians had wanted it or not. The United States had imposed economic sanctions on Iran following the occupation of the US embassy in Tehran in November 1979.16 The addition of an unstable, war-ravaged investment environment17 to this harsh US sanctions regime meant that there were very few foreigners who were willing or able to invest in Iran at this time. Consequently, as can be seen in Table 3.1, inflows of foreign direct investment (FDI) into the Islamic Republic, both in US dollars and as a percentage of GDP, fell with the onset of war and remained very low throughout the 1980s, even becoming negative in several years. The unwillingness of most potential foreign investors to bring any funds into Iran caused statist and mercantile factions alike to resent their perceived ostracism from the international community, and encouraged them to focus even more strongly on domestic resources alone. While it was able to secure some short-term credit from abroad in the decade after 1979, the Islamic Republic relied primarily on loans from the Central Bank to finance its war with Iraq.18 However, this solution to the country’s wartime financial needs did not necessarily ensure it the economic independence that had been pledged at the time of the revolution. Although foreign funds were not used directly to boost the economy, it was difficult to argue that self-sufficiency had been achieved. On the contrary, the revolutionary ideal of establishing an economy that could prosper on the basis of domestic resources alone was undermined by the burgeoning import levels during the war years. As is shown in Table 3.2, the dependency ratio, or the ratio of imports to total GDP, increased with the commencement of war, indicating the persistence of an economy dependent Table 3.1 Inflows of foreign direct investment (FDI) to Iran, 1979–1988 Year

In millions of US dollars (at current prices and exchange rates)

As percentage of GDP (%)

1979 1980 1981 1982 1983 1984 1985 1986 1987 1988

164.4 80.9 28.2 –136.1 –78.5 42.7 –38.2 –112.4 –307.6 60.5

0.19 0.09 0.03 –0.11 –0.05 0.03 –0.05 –0.16 –0.35 0.07

Source: United Nations Conference on Trade and Development (2010).

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Table 3.2 GDP and imports, 1979–1988, in billions of rials at constant prices Year

GDP

Imports

Ratio (%)

1979 1980 1981 1982 1983 1984 1985 1986 1987 1988

185,308 157,647 170,081 194,578 214,613 221,751 231,047 209,454 204,882 176,076

61,733 67,471 74,083 71,847 108,129 94,072 74,975 54,358 57,760 43,066

33 43 44 37 50 42 32 26 28 24

Source: International Monetary Fund (April 2010).

on domestic oil production as well as on foreign raw materials and consumer goods. In this situation, the country appeared to be no closer to achieving the revolutionary ideal of economic independence than it had been under Pahlavi rule. Gradually, then, criticisms of the Musavi government’s management of the economy grew with the argument that it was not even succeeding in defending the core values of the Revolution. Unsurprisingly, it was the camp of mercantile elites that embarked on the most vociferous campaign in opposition to Musavi’s statist economic stance. While they had been significantly weakened by the cabinet re-shuffle of 1983, in which Tavakolli and Asgarawladi were dismissed and the supremacy of the statist faction in government was assured, the mercantile elites were able to mount an attack less than a year later. In opposition to the proposed budget for 1985–1986, which sought to amend the taxation system and cut overall expenditure, they accused the Musavi government of wastefulness and an inefficient use of economic resources (Kayhan 29 Day 1363/January 19, 1985). However, although Khomeini did caution the Musavi cabinet against concentrating so much economic power in the hands of the state that no significant role was left over for the private sector,19 he continued to support its general handling of the war economy. Specifically, by keeping Musavi and his statist team on for a second term, Khomeini made it clear where his sympathies lay at this time. Arguing that state control of both industrial production and the distribution of imported goods was better suited to the needs of war, he did not allow the mercantile opposition campaign to gain much ground. In spite of this, as the war continued without an end in sight, disputes between the statist and the mercantile branches of the country’s political elite carried on nonetheless, with each group dominating its own particular corner. As well as leading the government through to the end of the war, the statist group enjoyed a majority in all of the first three post-revolutionary parliaments. Here, they were headed by Mehdi Karrubi and supported by the newspapers

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Kayhan and Jomhuri-ye Eslami (Baktiari 1996: 138–140). However, throughout this period, they were constantly challenged in the majles by the mercantile camp, which was headed by Ayatollah Ahmad Azari-Qomi and supported by his newspaper Resalat. Furthermore, the mercantile elites were able to counterbalance the influence held by their opponents in both the parliament and the government by virtue of their strong position in the Guardian Council. However, it was only when the economic situation deteriorated even further, the war approached its end, and the government’s economic advisors at the PBO began to recommend a change in economic direction, that the statist camp moderated its view. Disputes over economic policy began to die down at this time, even if only temporarily. Rawqani-Zanjani subsequently recalled of this period that, “the government gradually came to realize that the state cannot turn the wheels of the economy all on its own . . . it was as if the country was one big family, and the state had been like a father, making and distributing the bread, whereas really the children should have been getting their bread themselves” (Ahmadi-Amui 1383/2004–2005: 162). From 1986 onward, he and his staff in the PBO came to appreciate the benefits of a market economy and the need to move away from a strict statist outlook. According to Mas‘ud Nili (director of the PBO’s macroeconomic bureau from 1985 to 1988), it was predicted that if the war were to continue, the state alone would not be capable of making the necessary investments to re-build what had already been damaged in the war (ibid: 259–260). As the private sector had been so limited up to this point, with what did exist involved in the traditional activities of trade and commerce rather than production or industry, the PBO recommended that a new approach was vital if the economy were to have any chance of revival, or indeed survival. Alongside this push to reduce state control of the economy in the latter war years, it slowly came to be argued that economic relations with the outside world would have to be augmented if the necessary economic growth were to be achieved. Although Musavi remained vehemently opposed to the idea of foreign loans and foreign investment, the country’s dire economic situation eventually forced him to swallow a bitter pill and request financial help from abroad (ibid: 278). In 1987, his government reluctantly started to take out limited foreign loans, in the belief that borrowing would present less of a threat to the Islamic Republic’s interests than would foreign investment. However, by not discussing these loans openly, and by referring to them instead as “yuzans” [usance],20 the Musavi government showed a continued desire to appear to be defending the revolutionary values of economic independence and self-sufficiency. The fact that such short-term borrowing actually ended up being far more costly than a standard foreign loan was not acknowledged. While he had taken actions that caused Iran to become dependent on imported goods, and had also resorted to foreign loans in order to meet the country’s war needs, Musavi maintained his original and “revolutionary” attitude toward the domestic economy and its relations with the outside world throughout the 1980–1988

The post-revolutionary economic system

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period. As will be seen in the next chapter, it was only after Khomeini’s acceptance of the UN Cease Fire Resolution 598 in July 1988 and the subsequent formation of a new government with an economic outlook that looked more favorably upon the concerns of the mercantile elites, that an alternative approach to foreign capital gained strength in Iran.

Concluding remarks Many theorists of revolution hold that a return to the “normalcy” of the prerevolutionary situation will inevitably take place once the immediate heat of the revolutionary movement has died down. If they were to look to the case of Iran, they might suggest that the apparently anomalous experience of this country, as it has been described in this chapter, was caused simply by the additional factor of war with Iraq. This war, they might say, heightened revolutionary fervor and caused the revolutionary experience to persist far beyond the point at which the post-revolutionary state was formally established. With the cessation of hostilities, then, the revolutionary movement should at last be able to “normalize” itself, and pragmatic considerations should once again be allowed to drive policy decisions. However, the above examination of the Iranian post-revolutionary elite’s handling of economic policy during the period 1980–1988 indicates that, in fact, the complicated process of post-revolutionary politics had already begun well before the war ended. Rather than simply voice revolutionary slogans and aspirations for a future where “righteousness and virtue” (Khomeini, cited in Zubaida 1993: 18) might be allowed to prevail, the leaders of the new regime sought to implement actual policies that they hoped would respond to the needs of the day and ensure their own survival. The challenges that they faced in bringing these policies about, due to the existence of opposing interests and contrasting views on the best way forward, were typical of a post-revolutionary regime composed of rival elite factions, undergoing a difficult process of negotiation between goals and realities. As has been seen in this chapter, certain elements of each of the various opinions and viewpoints that had fed into the revolutionary movement could subsequently be found in the positions and policies of the post-revolutionary state. True, a broadly unified discourse of economic independence had emerged in the country from 1953 onward, lending all revolutionaries a shared purpose and direction. However, the fact that this discourse was the product of multiple interests and influences, including Shi‘i concepts of social justice as well Marxist–Leninist ideas of anti-imperialism and nationalism, meant that different strands did exist within it. These strands became increasingly evident in the years after the overthrow of the Shah and the return to Iran of Ayatollah Khomeini—and the difficulties inherent in realizing the ambiguous goals of the Revolution soon became apparent, too. Of course, the additional factor of war did mean that there was less room for negotiation of these goals, but negotiation did take place. As such, post-revolutionary politics, where an

62 Iran’s struggle for economic independence attempt is made to reconcile the revolutionary ideals and the realities of the post-revolutionary situation without simply returning to “normalcy,” had begun. In particular, while most articulations of the new economic discourse could be positioned within the framework of a broadly leftist outlook, mercantile and statist interpretations of it competed against each other. There was a general agreement that a tough stance on economic relations with the West was desirable, but competition over wants and needs meant that there was disagreement on how this should be achieved. This potential for the adoption of contrasting approaches could be seen most clearly in the ambiguity of Article 81 of the new constitution. Even after the election of Prime Minister Musavi, when it had appeared that the statist elites would dominate the entire decision-making process, the continued (if minimal) influence of the mercantile elites indicated that this was not necessarily the case. In short, it was clear that the state’s economic policies were not formed in isolation, but rather were shaped by the particular environment in which the elites of the day found themselves. What would happen when this environment changed, with the end of war in 1988, is the subject of the next chapter.

4

Redefining revolutionary goals

Economic forces are in fact political forces. Economics can be treated neither as a minor accessory of history, nor as an independent science in the light of which history can be interpreted. (Carr 2001: 108)

In contrast to the classical economist’s nineteenth-century vision of a world where the market is a distinct and coherent unit with natural laws of its own, and political intervention into the economic sphere is kept to an absolute minimum in the interest of profit, experience has taught us that the world is actually a much more nuanced and complicated place. Writing in 1939, E.H. Carr observed that although the “theory of the nineteenth-century liberal state presupposed the existence side by side of two separate systems” (ibid: 106), namely the “political” sphere of government and the “economic” sphere of private enterprise, in fact this “illusion of a separation between politics and economics . . . had ceased to correspond to any aspect of current reality” (ibid: 108). In the age of European imperialism, he argued, political weapons were used to secure economic gains, and economic weapons were used to bring about political advances. However, Carr maintained that only after the conclusion of World War I did it begin to become widely accepted at government level that the two spheres were intricately related and dependent upon each other. The previous chapter’s examination of the debates that took place in Iran during the early post-revolutionary period, surrounding the question of precisely how the revolutionary goal of economic independence should be pursued and protected, illustrated just how close this interrelationship of politics and economics can be. In particular, the arguments that were put forward in support of each group’s views on economic policy contained both economic and political justifications. Furthermore, the members of the mercantile elite did not represent purely economic, private sector interests, but instead were themselves closely connected to the networks of the state. Finally, both of the two main camps, statist as well as mercantile, were of course participating in largely political debates over economic policy, the limits of which were set by the economic realities as well as the political

64 Iran’s struggle for economic independence considerations of the semi-authoritarian state. In short, economics and politics could be seen to be acting together on various different levels in Iran at this time. Because of the importance of these interrelated politico-economic considerations to the decision-making process, it was not surprising to see that the statist elites enjoyed a dominant position vis-à-vis Iran’s economic relationship with the outside world during the war years. At a time of war, it seemed natural for Iran to want to prove its ability to cope on its own in the face of enemy aggression, and even more natural for it to do so via statist, interventionist means. As Carr argued, “The impulse which [World War I] gave to the pursuit of autarky was immediate and powerful” (ibid: 112). Under the threat of war, it was normal for the countries of Europe to seek to preserve their own independence, and with the added factor of blockades and other challenges to overseas trade, it was understandable for them to want to become self-sufficient. Thus, there were economic reasons for why autarky should be used as an element of power, and there were political reasons for why it should be used as an economic tool. Throughout the Iran–Iraq war, it had been equally important for Iran to maintain control over its own resources, and to stand up to the outside world as an independent actor. But what would happen when the war ended? With the arrival of new politico-economic conditions, would Iran shift away from strict isolationism and begin to open to the outside world? Certainly, an array of economic problems faced the Islamic Republic after the devastation of the war, and solutions needed to be found to resolve them. During the first decade after the Revolution, which itself had caused considerable economic upheaval, all major economic activities in the country had slowed down (Pesaran 2000: 64), prices for consumer goods in urban areas more than doubled (Behdad 1996: 111), and the living standards of much of the population had declined. In addition, eight years of war had led to a reduction in Iran’s output, destruction of parts of the country, and a loss in labor resources. Total war damages were estimated at over US$400 million by the Iranian government (Mazarei 1996: 294). Given that Iran’s oil revenues at the end of the war were about 40 percent lower than they had been just before the Revolution, due to both reduced export capability and a global fall in oil prices (ibid: 293), the foreign exchange required to rebuild Iran’s war-ravaged economy was simply not available. Consequently, there ensued a debate over the desirability of using foreign finance for the pursuit of post-war reconstruction. The Musavi government had already begun taking out a limited number of short-term loans from abroad as an emergency measure during the latter years of the war, but did it want to continue borrowing in the long term? How could it face the Iranian population, which had sacrificed so much for a war that sought to protect the values and ideals of the Revolution, and announce that it intended to give up its aim of economic independence in favor of economic growth? Whatever approach was adopted following the end of the war, it could not be a return

Redefining revolutionary goals

65

to the “normalcy” of the pre-revolutionary period. Eight years of war had not been merely a continuation of the revolutionary fervor, to be followed by normalization and the endorsement of pragmatic policies. Perhaps now more than ever, the passions of the Revolution were felt strongly in the minds of Iran’s leaders: the war could not have been suffered in vain. And yet, something needed to be done to improve the economic situation. In this chapter, the various proposals that were put forward by adherents of both the statist and the mercantile view as possible solutions to the challenges facing Iran after 1988 will be examined. Initially, the rise of the mercantile elite under the leadership of Akbar Hashemi-Rafsanjani will be discussed. With the removal of the factor of war as a restriction on potential policy recommendations, those with mercantile interests were now free to push for a more lenient approach to Iran’s economic dealings with the outside world. However, given that the revolutionary goal of economic independence had not simply disappeared overnight, this was done in a sensitive manner: by redefining the goal rather than by abandoning it altogether. The way in which Hashemi-Rafsanjani’s government sought to do so will be the focus in the first part of this chapter. The second part will consider the reactions of members of both the mercantile and the statist elites to these attempts, showing that while policy can be driven in new directions with the changing of conditions, these new directions may themselves be re-shaped and re-formed in accordance with the particular interests of rival factions.

A new agenda: post-war economic reconstruction Had it not been in the interests of Islam and Muslims, I would never have accepted this, and would have preferred death and martyrdom instead. But we have no choice and we should give in to what God wants us to do . . . I reiterate that the acceptance of this issue is more bitter than poison for me, but I drink this chalice of poison for the Almighty and for His satisfaction. (Khomeini, cited in Moin 1999: 269) Khomeini’s decision of July 1988 to bring an end to eight years of war with Iraq marked a turning point in the Islamic Republic’s history. While accepting the United Nations Security Council Ceasefire Resolution 598 had been, for him, like drinking from a “chalice of poison,” once he resigned himself to the fact that military stalemate and economic difficulties left no alternative but to end the war, Khomeini could not prevent the changes that would inevitably take place in post-war Iran. Indeed, the overwhelming need to rebuild the economy and the infrastructure of the country following the ceasefire dictated a new approach that afforded the supporters of a mercantile economic outlook an opportunity to seek greater influence in the decision-making bodies of the state. Arguing for a relaxation of state controls over the economy and a resumption of economic relations

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with certain “friendly” states, the mercantile elites embarked on a mission to forge a new agenda for the next phase of the country’s post-revolutionary political and socio-economic development. Of course, with a strongly statist and fervently anti-Western group dominating the third majles, which had been inaugurated in May 1988, the mercantile elites would have to overcome a tough adversary if they wanted to shape economic policy after the end of the war. However, when Khomeini declared that, “the people should be allowed to participate in importation, while the government should only supervise” (Enqelab-e Eslami 21 Shahrivar 1367/September 12, 1988), those in favor of a more open economy were given tacit approval to redefine the revolutionary goals of post-war Iran. Indeed, on the same day that Khomeini indicated his support for increased private participation in foreign trade, President Khamene‘i stated that: In the past, foreign investment made our country dependent . . . and we have a very bitter experience of that. But that doesn’t mean that we should turn that past experience into a dam to be placed in front of those countries that have good relations with us. We will open up the path for cooperation with other countries within the framework of the constitution and in accordance with our ideals and needs. (Ettela‘at 21 Shahrivar 1367/September 12, 1988) In this way, the indication was made that the mercantile elites were ready and willing to put forward an alternative view to that of their opponents in the majles. They were given additional confidence when they considered the influence they could exercise in other institutions outside of the majles. Indeed, in the words of majles speaker Hashemi-Rafsanjani, “the hands of the majles are tied” (Ettela‘at 9 Khordad 1367/May 30, 1988), as the government and the Guardian Council can at any time act to limit its actions. Following the ceasefire, then, and especially after Khomeini’s death in June 1989, the statist and anti-Western economic stance that had predominated during the war years began to lose influence. However, with many political actors nevertheless holding steadfast to the belief that only a state-controlled economy could be relied upon to protect Iran from its enemies, both domestic and foreign, the period from 1988 until 1992 became characterized by contestation over the formation of a new agenda for the Islamic Republic. In what follows, the conflict that pitched the mercantile elites, led by Khomeini’s successor Ayatollah Ali Khamene‘i and the new president, Akbar Hashemi-Rafsanjani, against the statist faction dominating the third majles will be considered. After a brief overview of the rise of Hashemi-Rafsanjani and the mercantile elites, the views held by the two main competing groups on the topic of economic relations with the outside world in the post-Khomeini era will be examined. Finally, the approach to foreign capital that was endorsed in the First Five-Year Plan will be discussed.

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Hashemi-Rafsanjani and the rise of the mercantile elites Often described as a pragmatist, Hashemi-Rafsanjani spent the first decade of the Revolution following Khomeini’s guidelines for state control of the economy while at the same time defending the interests of the mercantile elite. With close ties to both Khomeini and the bazaar, he kept to the middle of the road and avoided extreme solutions. But he was prepared to alter his position alongside changing circumstances if he felt this was necessary. Thus, in the midst of the leftist atmosphere of the Revolution, Hashemi-Rafsanjani had joined his fellow IRP leaders in support of a large degree of state control over the economy. Then, during the early 1980s, he had acknowledged that the exigencies of war would not allow for the flourishing of an active commercial sector but rather necessitated a continuation of the status quo. However, by the end of 1986, when differences between the statist and mercantile factions in the IRP became particularly heightened (Baktiari 1996: 139–140), HashemiRafsanjani began to take steps that heralded the rise of the mercantile elites. Lending his support to Azari-Qomi’s mercantile-friendly faction of the IRP, Hashemi-Rafsanjani persuaded Khomeini to close down the party in June 1987 in order to deprive the statists of one of their key centers of influence. Thereafter, Hashemi-Rafsanjani’s alliance with the mercantile elites was confirmed, and could be seen most clearly in his continued membership of the Society of Combatant Clergy (Jame‘eh-ye Rawhaniyat-e Mobarez, or JRM) after 1988, when the statist wing of this religio-political organization separated from it to form the Association of Combatant Clerics (Majma’-e Rawhaniyun-e Mobarez, or MRM)1 and its own economic outlook became more emphatically in favor of mercantile interests. Together with its associated organizations, the Islamic Coalition Association (Jam‘iyyat-e Mo‘talefeh-ye Eslami, or Mo‘talefeh) and the Society of Qom Seminary Teachers (Jame‘eh-ye Modarresin-e Hawzeh-ye Elmiyeh-ye Qom, or Hawzeh), the JRM was a main source of membership for the mercantilefriendly faction in the majles.2 However, their opponents continued to carry significant political weight, not only in the majles but also in government. Indeed, following the replacement of Mohsen Nurbakhsh with Majid Qasemi as Governor of the Central Bank in 1986, the statist camp was represented in government by the powerful triumvirate of Prime Minister Musavi, Central Bank Governor Qasemi and Finance Minister Mohammad Javad Iravani. In accordance with his general policy of mediating between these two competing groups, however, Khomeini appointed the “pragmatic” HashemiRafsanjani as acting commander-in-chief of the armed forces on June 1, 1988, in the hope that he would direct the war effort toward a satisfactory conclusion. Such a move indicated that although the Musavi government and its supporters in the majles had been able to maintain a statist approach to economic affairs during the eight years of war, their time was now drawing to a close. Following this appointment, not only was Hashemi-Rafsanjani placed in an ideal position to influence Khomeini and secure a greater role for commercial interests, but

68 Iran’s struggle for economic independence also the statist elites were likely to find it more difficult to justify a continuation of their centralized economic policies once the war was over. The economic devastation that became apparent at the end of the war served as a green light to encourage the mercantile tendency to criticize these policies of the previous eight years. Furthermore, since post-war economic planning was the responsibility of the Planning and Budget Organization (PBO), which had distanced itself from a statist economic outlook over the previous two years, the mercantile elites of the JRM, the Hawzeh, and the Mo‘talefeh were provided with additional support in their struggle against the Musavi-Qasemi-Iravani triumvirate. Indeed, following the removal of Nurbakhsh from the Central Bank, the PBO had stood firm as the only state body with an economic outlook that was sympathetic to the needs of commerce. While its head, Rawqani-Zanjani, had supported state control of the economy during the early stages of the war, by the time it neared its end, his outlook had changed considerably. Although Rawqani-Zanjani and his colleagues at the PBO sought to retain a degree of independence, viewing their recommendations as purely “scientific” (Ahmadi-Amui 1383/2004–2005: 174) rather than of benefit to either one of the political groupings, those recommendations were increasingly in line with the aims of the mercantile elites. A letter that Rawqani-Zanjani sent to Prime Minister Musavi in 1988, describing the domestic crisis that he feared would result from a long-term continuation of the war with Iraq, had been instrumental in persuading Khomeini of the need to take steps first to bring that war to a close and then to rejuvenate the economy with emphasis on the private sector (ibid: 171). Using the argument that while the Iranian people would tolerate hardship during wartime, they would need to see real improvements in their standard of living once war was over, PBO advisers called for the private sector to be encouraged to bring about economic growth. Of course, the outlook of the PBO as a technocratic organization must be differentiated from that of the JRM-affiliated mercantile faction in the majles. Although both shared a belief that the role of the state in the economy should be minimized now that the war was over, they did not agree on the details of how the economy should be managed in the absence of centralized state controls. While the pro-JRM majles deputies were largely focused on defending the particular interests of privileged sectors of the traditional private sector, engaged predominantly in trade and commerce, the PBO advisers tended to promote a “modern” and competitive economy in which industrial production played a key role. Nevertheless, as both were opposed to a continuation of strict state controls, they were willing to join together with Hashemi-Rafsanjani’s group of pragmatists in a broad alliance against the Musavi government’s post-war economic policies. Although the statist camp initially sought to maintain the argument that only a state-controlled economic system could guarantee the realization of revolutionary goals such as social justice and economic independence, it became significantly weakened when Khomeini indicated his support for private enterprise.

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Indeed, with even Prime Minister Musavi speaking in favor of the market as necessary for post-war economic development (Rahnema and Nomani 1990: 357), the rise of the mercantile elite appeared to be secure. However, as this group was increasingly associated with a more relaxed approach to foreign affairs, the Salman Rushdie episode offered the statist camp an opportunity to profit from its strong anti-Western credentials.3 Just as the taking of American hostages had encouraged the adoption of a more radical stance vis-à-vis the outside world by the authors of the 1979 constitution, here again the statist groups attacked their opponents on non-economic grounds in order to ensure that ties with the West were not strengthened. To a large extent, they succeeded: diplomatic ties with Britain were severed, and anti-Western sentiment was revived around the country. Nevertheless, following the death of Khomeini in June 1989, the close relationship between Hashemi-Rafsanjani and Khamene‘i offered the mercantile elite a renewed opportunity to achieve the influence that it had long been seeking. After Khomeini: re-linking with the outside world? Khomeini’s decision to accept the UN ceasefire had represented a turning point in the Islamic Republic’s history, and his death was similarly a key event that forced the members of each faction to carefully consider the direction in which they wanted to see the Revolution progress from this point onward. Having entered its second decade, the Islamic Republic needed to evaluate the legacy that had been handed down by its founding father in order that it might formulate a new set of goals for the future. However, as Khomeini had always remained non-committal in his support of any one faction, intervening in defense of the statists one day but endorsing the views of the mercantile groups the next, it was almost impossible to know what path he would have chosen for the country had he been alive. Indeed, the ambiguity of his legacy was acute: even in his last will and testament (Khomeini February 15, 1983), he did not make it clear to what extent the state should control the economy, and to what extent the private sector should be left free to regulate itself. Consequently, the selection of new economic policies soon aroused heated contestation between the two groups. Written in February 1983, Khomeini’s will was made public after his death to remind the Iranian people of those duties that he had considered essential for the survival of the Islamic Republic. While over six years had elapsed from its completion to its publication, the fact that Khomeini made no changes to his will during the intervening period indicates that he saw it as a representation of those core values that would forever define the Revolution and the post-revolutionary regime. But exactly how he expected those core values to be realized was not clear. He stated that, “Islam does not support oppressive and uncontrolled capitalism which deprives the masses . . . [but] nor is Islam a communist or Marxist–Leninist regime which opposes private ownership and advocates, or advocated, communism in all things . . . rather,

70 Iran’s struggle for economic independence Islam is a balanced and moderate regime that recognizes ownership and respects it in a limited form of production and consumption” (ibid: Section 2o). Therefore, just as the constitution had been vague on such matters as the degree to which private ownership was respected, so too can Khomeini’s will be seen to have failed to provide definitive support for the policies of either one faction or the other. By calling on the government to “reassure the nation so that private and creative initiatives proliferate in order to make the country and government reach self-sufficiency in all areas” (ibid) however, Khomeini did suggest that the bazaar sector should also be sufficiently encouraged for the revolutionary goal of economic independence to be realized. Indeed, he emphasized the importance of this goal and congratulated Iranians for having “risen to the occasion to create and build, at their own initiative, commodities . . . that all thought could not be manufactured locally . . . without assistance of foreign experts” (ibid: Section 2e). Khomeini further stressed the continuing importance of economic independence when he stated that, “if we succeed in finding our true selves and not let despair overtake us, and rely on ourselves and expect nothing of others, we shall be able, in the long run, to do and make everything” (ibid). In doing so, he was making a clear reference to Frantz Fanon, who had declared in The Wretched of the Earth, “Come then, comrades, the European game has finally ended; we must find something different. We today can do everything, so long as we do not imitate Europe, so long as we are not obsessed by the desire to catch up with Europe” (Fanon 1967: 251–252). As such, his allegiance to the leftist pre-revolutionary economic discourse was clear. To reinforce this point, Khomeini cautioned that although “dependence on others may appear useful and even yield rich fruit now, in the long run, it will corrupt the country at the roots” (Khomeini February 15, 1983: Section 2j). Therefore, it can be seen that Khomeini intended for the revolutionary goal of economic independence to be taken seriously. While he did not specify whether or not the state alone should be responsible for the industrial production that would bring about self-sufficiency, he made it clear throughout his will that such production should be carried out domestically, exploiting Iranian resources and capabilities. In so doing, he revived the emotions and sentiments of the Revolution that had swept the country more than 10 years before. In addition, he seemed to lend some support to the statist faction, whose loyalty to the anti-Western sentiment of the Revolution had been highlighted through the adoption of such a tough stance during the Salman Rushdie affair. Nevertheless, Khomeini had accepted that the “artificial backwardness” (ibid: Section 2l) imposed on the country by the Pahlavi regime would necessitate some contact with foreigners in order to acquire the knowledge and technology vital for achieving self-sufficiency. As such, his last will and testament did allow for the possibility that limited concessions might be made to the strict revolutionary position in the future.

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It was on such a possibility that Hashemi-Rafsanjani’s mercantile supporters placed their hopes for increased influence in the post-Khomeini era. While many members of this camp continued to hold anti-Western views, they also hoped to enjoy a more prominent role in the post-war reconstruction of the Iranian economy, and this caused them to moderate their approach to foreign relations at this time. In particular, as Khomeini had given permission for future governments to “send dedicated students to those countries that possess advanced technology but who are not colonizers or exploiters” (ibid), they were in favor of gradually starting to make greater use of the technology and expertise of “friendly” states for the purpose of re-building the economy. Such a move was confirmed by foreign minister Ali Akbar Velayati, who announced shortly after the death of Khomeini that, “we are going to pursue a policy of restoring relations with the advanced countries of the world, in order to meet our own country’s need for technology . . . but of course this will be done within the framework of our own clear principles” (Kayhan 28 Tir 1368/ July 19, 1989). However, although the Musavi government did include in Velayati a representative of the mercantile elite, it was dominated by members of the statist camp, notably Behzad Nabavi (minister of heavy industry) and Ali Akbar Mohtashami (interior minister), who were not keen to pursue any such policies of rapprochement. Mohtashami emphasized his government’s view that, “there will be no change of any kind in the position and policy of the Islamic Republic of Iran following the passing of Imam Khomeini” (Kayhan 5 Tir 1368/June 26, 1989). While acknowledging that “the Islamic Revolution in Iran has never said that it will cut off all relations with the outside world” (ibid), Mohtashami stressed that, “we believe in setting up relations with other countries only if they are reciprocal and are not accompanied by [foreign] interference in our domestic affairs” (ibid). Indeed, the Musavi government was not willing to relax its strong emphasis on social justice or its preference for state control of the economy, unless placed under extreme duress. It conceded that to engage in economic relations with foreign nations was not necessarily “anti-revolutionary,” but nevertheless it was not in favor of seeking out such relations itself. It was only following the July 1989 presidential election and accompanying national referendum on the revised constitution,4 approving the abolition of the post of prime minister and a transfer of its powers to the president, that the mercantile camp, which did want to pursue such policies of rapprochement, was able to gain considerable influence over the decision-making apparatus of the Islamic Republic. Indeed, once Hashemi-Rafsanjani was elected as president, a serious movement toward re-linking with the outside world commenced. Not only did the ministers of Hashemi-Rafsanjani’s first cabinet support a market economy, but also many of them were technocrats, and a significant number had been educated abroad (Baktiari 1996: 189). As such, they were far less ideologically opposed to re-defining the revolutionary goals in order to bring them in line with the reforms that were considered vital if

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the war-damaged economy was to be revived and their own commercial activities rejuvenated. But of course, to minimize any potential challenges, Hashemi-Rafsanjani’s government had to ensure that its new agenda for postwar development respected Khomeini’s central preoccupation with economic independence. Indeed, it is important to note that even after the conclusion of the war with Iraq, a strong sensitivity toward foreigners continued to pervade much of Iranian society. Shared by the general public and the ruling elite alike, and expressed by supporters of a state-controlled economy as well as by those calling for a greater role for the mercantile sector, this sensitivity could not be ignored. The Islamic Revolution, which had been fueled by a powerful wave of opposition to the West and had held the attainment of economic independence and selfsufficiency among its key goals, had been swiftly followed by eight years of war that only served to strengthen such feelings of economic nationalism in the country. The period of war with Iraq had not only united the country against a common enemy; it had also forced Iranians to rely on their own resources and abilities, a task that they had met with enthusiasm and determination.5 As such, many Iranians now believed that they could achieve post-war reconstruction on their own, without help from the outside world, and this belief was exploited by political elites opposed to economic reform. Therefore, when the Hashemi-Rafsanjani government set out to resolve the various economic problems that had arisen during the war not only by encouraging greater participation of the private sector but also by making use of foreign funds, it had to present such plans for economic reconstruction as constituting the “true” path to economic independence. For example, in his inaugural speech, while Hashemi-Rafsanjani reassured his audience that, “We will never be prepared to give up our revolutionary ideals,” he emphasized his view that, “we cannot secure the independence of our motherland if we do not have any serious production in the country” (Ettela‘at 26 Mordad 1367/August 17, 1989). Accordingly, the new government sought to persuade the public that state control of the economy was no longer necessary or even desirable. Adjusting the meaning of the revolutionary discourses that had become radicalized over the course of the war with Iraq, Hashemi-Rafsanjani argued that, “we must direct all our capabilities toward production, for production is equal to independence and . . . it is the key to all our economic problems” (Resalat 3 Mordad 1368/July 25, 1989). Habibollah Asgarawladi, a leading Mo‘talefeh member, who was then Khamene‘i’s representative at the Imam Khomeini Relief Committee, gave strong support to this stance. Reminding the Iranian people that, “the Imam himself emphasized the importance of the people’s participation in economic affairs and the reconstruction of the country,” he maintained that this popular participation “signifies the rule of Islam and shows that the economy is ‘neither East nor West’” (ibid). Having shown an increase in the role of the private sector to be compatible with the Revolution’s core ideals and principles in this way, Hashemi-

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Rafsanjani’s government and its supporters then embarked on a movement to pre-empt any potential opposition to its plans to make greater use of foreign funds. Acknowledging that the country’s excessive reliance on foreign investors during the Pahlavi period had not been in the national interest, Hashemi-Rafsanjani pointed out that a dearth of domestic investment during the war years had perhaps been equally detrimental (Resalat 4 Mordad 1368/July 26, 1989). He made the argument that a limited use of foreign funds and technology could help to stimulate the domestic industrial developments necessary for achieving economic self-sufficiency in the long term. An editorial in Resalat defended this view, arguing that, “any country that wants to become industrialized cannot avoid turning to advanced countries for a transfer of technology” (Resalat 6 Mehr 1368/September 28, 1989). Given that foreign technology is vital for the production of industrial goods, and as “we have to produce non-oil exports in order to gain true independence” (ibid), it followed that a resumption of economic relations with the developed world would be a source of “advancement, not dependency” (ibid). While the Musavi government had spoken of the importance of economic independence a great deal, the Hashemi-Rafsanjani camp argued that in practice it had done much to make the Iranian economy dependent on foreign countries. Self-sufficiency in agriculture and industry remained a distant dream as imports from abroad continued to overshadow domestic production, and the economy’s excessive reliance on its oil income left it vulnerable to fluctuations in the international oil market. Furthermore, the Musavi government’s policies to impose strict and centralized state control over most areas of the economy had led to soaring inflation, rising unemployment, and industrial under-development. Therefore, while some sections of the mercantile camp supporting Hashemi-Rafsanjani were wary of what they considered to be the new president’s inclination toward “Westernization” and “liberalism,” they were willing to tolerate his flirtations with the outside world on the condition that these resulted in long-term economic independence. For if the inefficiencies of government bureaucracy could be remedied through widereaching market reforms, and if stagnant industries could be revived through foreign investments, then perhaps the Islamic Republic might achieve its revolutionary goals after all. However, with a majority of seats in the majles taken up by supporters of a state-controlled economy, the Hashemi-Rafsanjani-led camp of various mercantile sympathizers would have a fight on their hands when they sought to shape the Islamic Republic’s First Five-Year Plan in line with their particular vision of economic reform. Considering foreign capital in the First Five-Year Plan The first majles had not voted in favor of the original proposal for a development plan in 1983, mainly because of widespread opposition to many of its particular policies, but also because of a lack of consensus on the desirability

74 Iran’s struggle for economic independence of long-term economic planning in general. As long as the country had been at war with its neighbor, any attempt by the government to re-introduce the plan had proven unsuccessful.6 At that time, priority was given to the immediate demands of the war effort rather than to long-term development policies. However, after the ceasefire of July 1988, thoughts turned again to the need for a development plan. As Morteza Alviri (president of the majles planning and budget committee) observed, “to manage the country without a plan would be like walking in the dark” (Majles Debates 10 Mehr 1367/ October 2, 1988). Therefore, and with a view to shedding light on the path that the Islamic Republic should follow in the future, the First Economic, Social and Cultural Development Plan (henceforth cited as First Five-Year Plan) of the Islamic Republic of Iran was finally passed into law on January 31, 1990. While the Musavi government had proposed the draft bill for this development plan in October 1988, less than three months after Khomeini’s acceptance of ceasefire with Iraq, by the time the plan was passed by both the majles and the Guardian Council over a year later, the Hashemi-Rafsanjani government had come into office. During this period, in which the majles planning and budget committee worked with representatives from the PBO, the Ministry of Economic and Financial Affairs, and the Council for Reconstruction to review and revise the plan, the political landscape in Iran had changed considerably. As a result, although much of the groundwork for the First Five-Year Plan had been carried out under the statist Musavi government, the new mercantile government was able to push through several important changes at the eleventh hour. Indeed, since many members of the majles’s traditionally statist planning and budget committee had by this point become more sympathetic to the idea of a market economy,7 toward which the Hashemi-Rafsanjani government was hoping the plan would direct the country, these revisions enjoyed considerable support during the majles debates of late 1989. On December 10, 1989, Hadi Ghaffari (spokesman for the majles Planning and Budget Committee) introduced his committee’s report on the bill for the First Five-Year Plan that had been presented by the Hashemi-Rafsanjani government in August 1989, outlining the main problems that it hoped to address. These problems included: a severe decline in GDP in recent years; strong dependence on oil income; widespread unemployment; a considerable budget deficit; inequalities across geographical regions and economic sectors; a gross lack of investment; a rapidly growing population; and poor management skills (Majles Debates 19 Azar 1368/December 10, 1989). While the Musavi government had also identified these post-war economic difficulties when preparing earlier drafts of the bill, the solutions proposed by the Hashemi-Rafsanjani government in this version were quite different from what had come before (MEED March 2, 1990). In comparison with the October 1988 version, the final and approved First Five-Year Plan placed greater emphasis on privatization and the use of foreign loans, and it also

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encouraged relations with foreign companies as a catalyst for development. However, as a substantial proportion of the majles deputies continued to hold tightly to their belief in a state-driven economy, there was significant opposition to those policies that proposed to reduce state control of the economy and increase economic relations with the outside world. In an open meeting between the government and the majles, HashemiRafsanjani defended his government’s stance toward the use of foreign loans and investment, as put forward in the proposed development plan. Referring to the vital developments that needed to be made to the war-damaged petrochemical industry in Iran, he said that “if, for example, the Japanese agree to come and build a petrochemical plant for us and then say that they want a 20 percent share of the production of this plant over the following ten years, [the project] will be to the benefit of that investor and he will take his own profit, but it will also have enormous value for us” (Resalat 19 Azar 1368/ December 10, 1989). Furthermore, he explained that he believed it was better for the country’s gas reserves to be extracted with the help of foreign investment rather than for them to lay vulnerable to exploitation by Iran’s neighboring countries, even if the foreign investor did take a share of the profit from that venture. He said that although “we think that it is ‘revolutionary’ to not accept any foreign funding, this is not the case at all . . . therefore I defend this policy with all my being” (ibid). The policy to which he was referring here was Note 29 of the First Five-Year Plan, which proposed that state organizations should be granted permission to use foreign credits and investment for various projects considered vital to the reconstruction effort. First, permission was given to the Central Bank to accept liabilities of up to US$7.5 billion (out of a total foreign exchange budget of US$96 billion) for investment in industrial and production projects, on the condition that all repayments were made in instalments of no more than US$2 billion per year, out of the profits made from these invested projects (First Five-Year Plan: Note 29d). Second, the government was given permission to secure foreign credit of up to US$3 billion for the creation of dams (First Five-Year Plan: Note 29g). Finally, the National Iranian Oil Company was given permission to sign agreements with “suitable foreign companies” for investment of up to US$3.2 billion in the Pars and South Pars gas fields, on the condition that repayments came out of the foreign exchange acquired from the output of those fields (First Five-Year Plan: Note 29h). Of considerable significance was the fact that this would include foreign investment in the oil and gas industries: given that high levels of sensitivity to foreign exploitation of the country’s oil industry had prompted the emergence of much of the Revolution’s anti-Western sentiment in the first place, this was a big step to take. However, Hashemi-Rafsanjani and his supporters argued that, throughout the first decade of the post-revolutionary period, Iran’s ties to the world capitalist market had remained in place by way of its export of hydrocarbons and its import of industrial and consumer goods

76 Iran’s struggle for economic independence (Ehteshami 1993). Accordingly, they reasoned that it would be better to make judicious use of foreign investment in this sector to the country’s own benefit, rather than allow the war-damaged oil-producing regions to remain underinvested and under-developed for years to come. This undesirable alternative, they suggested, would put the national economy in serious risk of further decline. Hashemi-Rafsanjani emphasized that the provisions of this note should not be regarded with apprehension, for without this money, “the people of this country will remain in dire straits for eternity” (Resalat 19 Azar 1368/ December 10, 1989). However, there were some critics of the development plan who expressed concern about the impact that economic relations with the West might have on Iranian culture. Even though at that time, foreign assistance was needed most urgently on offshore oil and gas projects, meaning that foreign workers would be largely absent from Iran proper (Salehi-Isfahani 1996: 160), many were still worried about potential negative consequences for Iran. One of those voicing concern was Sadeq Khalkhali, who had been a strong supporter of the Musavi government and its statist approach to economics. According to him, not only was it likely that the proposed use of foreign financing would cause the country to be weighed down under the burden of heavy repayments, but also, “more importantly than that, we must be careful about the return of degraded Western culture to this country” (Resalat 20 Azar 1368/December 11, 1989). Such trepidation about the detrimental impact of a possible foreign “cultural invasion” on the Iranian Revolution was also expressed by opponents to the First Five-Year Plan with relation to paragraph (c) of Note 29, which gave permission to the government to make use of foreign workers, tools, and equipment in order to increase technical knowledge and production in the country, and with relation to Note 19 of that plan, which gave permission to the government to establish up to three Free Trade-Industrial Zones (FTZs) on the borders of the country. In opposition to the reference to foreigners in paragraph (c) of Note 29, Seyyed Sajjad Hojaji argued that, “the word ‘foreign’ is an insult to our society” (Majles Debates 5 Day 1368/December 26, 1989). Seyyed AbolHasan Ha‘eri-zadeh argued that Note 19’s plan to establish FTZs would not only be to grant a foreign concession, which is outlawed in Article 81 of the constitution, but also it would harm domestic industrial production and encourage moral decay and degradation within the country (ibid: 29 Azar 1368/December 20, 1989). Furthermore, Mohammad Salamati maintained that when an FTZ is positioned right on the border, travel between the FTZ and the mainland means that “there will definitely be a cultural impact” (ibid: 28 Azar 1368/December 19, 1989) on the country. However, while many concerns were voiced throughout the majles discussions of the development plan with respect to the possible impact of increased foreign investment in Iran on the future of the Revolution, most deputies sought to present the new approach as a continuation of the

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“revolutionary line.” Ghaffari, for example, reassured opponents to Notes 19 and 29 of the First Five-Year Plan that economic decisions would always be in line with foreign policy, and the Islamic Republic would never sign economic agreements with enemies of the Revolution. Rather, priority would be given to other Third World and Islamic countries, for “if countries want to have good economic relations with us, they must behave like human beings” (ibid: 19 Azar 1368/December 10, 1989). Furthermore, Hosayn Herati (a member of the majles planning and budget committee) argued that as long as Iranians did not become “slaves to capitalism” (Kayhan 7 Azar 1369/November 28, 1989), the development plan might bring the country closer to the ideal society that had been envisaged by the Revolution 10 years before. He suggested that with a long-term plan outlining future policies, Iranians abroad would be encouraged to return and invest in their homeland, and the resultant flood of investment would strengthen the Revolution and prove unfounded the attacks made by the regime’s enemies on the international playing field. It was with a similar argument that members of the mercantile elite supported the economic policies put forward by the Hashemi-Rafsanjani government in the First Five-Year Plan. In particular, Seyyed Hosayn Hosayni Shahrudi defended the plan to establish Free Trade-Industrial Zones against attack from Ha‘eri-zadeh by suggesting that, “we can even export our revolution a little by this means” (Majles Debates 29 Azar 1368/December 20, 1989). Rather than standing by while business floods from Iran to Dubai, he believed that the Iranian government should set up its own FTZ to acquire a share of the region’s wealth for itself. With appropriate government regulations, it was suggested that cultural degradation could be easily prevented. Great emphasis was placed on those Iranians, both at home and living abroad, who had turned the desert of Dubai into a veritable oasis. Given the right incentives, these businessmen could return and invest in their own country, thereby creating the increase in production that was vital for the survival of the Islamic Republic. Furthermore, even if non-Iranian foreign investment entered the country, Mohammad Baqer Nawbakht insisted, “we can stay true to our ideals, for we believe in these [revolutionary] aims” (ibid: 18 Azar 1368/December 19, 1989). On the whole, most support for the approach to foreign capital that was outlined in the First Five-Year Plan came from members of the mercantile elite. Just as they foresaw increased profits in the government’s plan to strengthen the private sector, so too did they hope to benefit materially from the economic boost that would undoubtedly result from an expansion of economic relations with the outside world. Although there were some who refrained from giving their wholehearted backing to these steps that might lead to political rapprochement with the West, the anticipation that an injection of foreign finance might spark off significant economic growth was enough to prevent anyone from opposing them outright either. Under the leadership of the Hashemi-Rafsanjani government, mercantile elites gave support to

78 Iran’s struggle for economic independence policies that they believed would allow the economy to become more selfreliant than it had ever been under Musavi, when high import levels and reliance on short-term credit loans had, for them, made a mockery of the concept of economic independence. Through the measures approved in the First Five-Year Plan, investment in productive industries would increase and the resultant extra income would benefit both the Iranian people and the survival of the Revolution (Resalat 8 Bahman 1368/January 28, 1990). Thus, in spite of substantial criticism from the statist camp, most of the policies proposed by Hashemi-Rafsanjani’s government passed into the law of the First Five-Year Plan. Although Salamati regretted that this plan was not as “revolutionary” as many had hoped it would be, for “we had all expected that . . . planning would be based on self-reliance and selfsufficiency” (Kayhan 18 Azar 1368/December 9, 1989), he conceded that the anti-foreign elements in the statist-dominated third majles had been powerless to withstand the pressures arising from the need for increased production and economic growth during the period of post-war reconstruction. At this time, when the Iranian public had high expectations of an increase in living standards, not only had the statist elites failed to suggest a viable alternative to the plan being put forward by the government, but also their credibility had been damaged by the decreased popularity that socialism was experiencing across the globe in the late 1980s. Therefore, due to both domestic and international pressures, a development plan that sought to rekindle economic relations with the outside world was perhaps inevitable. However, as will be seen in the next section, support for the policies of the First Five-Year Plan was by no means steadfast. Of course, statist critics of the government were lying in wait for an opportunity to challenge the development plan under any circumstance. In addition, many of the government’s mercantile allies were likely to reduce their support for this plan if they perceived it to be failing to meet their own needs and interests. This is because the various supporters of Hashemi-Rafsanjani’s economic approach, namely the pragmatists of the government, the technocrats of the PBO, and the mercantile JRM-affiliates of the majles, had come together because of their shared belief that the private sector should be expanded, but the particular aims of each group varied. As such, it was not unforeseeable that discontent with some or other aspect of the First Five-Year Plan, followed by disagreement over subsequent plans, would emerge in the future.

Mixed reactions to Iran’s perestroika Prior to his election as president of the Islamic Republic, and in his capacity as speaker of the majles, Hashemi-Rafsanjani had given some indication of the types of economic policies that he would come to endorse in the future. In June 1989, he had made an important visit to Moscow with a view to strengthening Iran–Soviet relations, and the memorandum of understanding that he signed on behalf of his country during this trip was presented as an

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ideal opportunity for the Islamic Republic to at last engage in economic relations with its neighbors while at the same time retaining its own independence. On this visit, Hashemi-Rafsanjani overlooked the anti-Soviet proclamations of the revolutionary movement, and said simply that Iran would have pursued rapprochement with the Soviet Union straight after the 1979 Revolution had it not been for the imposition of war with Iraq: Soon after the Soviet socialist revolution, Iran was placed in the domain of Western imperialism, and relations with her neighboring countries became shrouded in darkness. This darkness continued until recently, when Iran’s Islamic Revolution . . . opened up a new chapter for Iran and for the first time we experienced freedom and independence. However, unfortunately, before we were able to enter into discussions with our good neighbors, at Satan’s instigation Iraq imposed a war on us from all sides, and this prevented us from expanding our relations. (Kayhan 1 Tir 1368/June 22, 1989) In so doing, the soon-to-be president of the Islamic Republic argued that a strengthening of ties with the Soviet Union was entirely consistent with the revolutionary discourse of economic independence and even with the slogan of “Neither East nor West.” Confident that mutually beneficial cooperation between the two countries would not leave Iran open to exploitation by the USSR, therefore, Hashemi-Rafsanjani can be seen to have begun the process of altering the meaning of Iran’s revolutionary slogans, emulating what Mikhail Gorbachev had been doing in his country under the guise of perestroika. Indeed, Hashemi-Rafsanjani’s efforts to rejuvenate the war-torn economy of Iran clearly echoed Gorbachev’s economic reforms of the late 1980s, which had been implemented in the belief that they would give the Soviet economy a much-needed boost. Influenced by the international developments taking place around him, Hashemi-Rafsanjani was convinced that only through industrialization fueled primarily by interaction with the outside world would Iran achieve sustainable economic independence. This memorandum of understanding with the Soviet Union was simply the first of many steps that he would take to implement his own perestroika. However, although Soviet perestroika had signaled the decline of statecontrolled economic systems across the globe, Hashemi-Rafsanjani’s belief in the need for an Iranian perestroika was not shared by all of his compatriots. On the contrary, the concerns of some majles deputies about the effects that the First Five-Year Plan’s policies of economic liberalization might have on revolutionary ideals in Iran indicated that resistance to change still remained. Furthermore, the fact that Gorbachev’s perestroika ultimately failed to protect the Soviet Union from collapse, but was followed by a rise of pro-Western states across the region, perhaps gave them justification in worrying lest the Islamic Republic follow the same path.

80 Iran’s struggle for economic independence During the period from 1990 until 1997, the discourse of economic independence was exploited by all groups of the Iranian elite, both those criticizing and those defending Hashemi-Rafsanjani’s economic policies. Here, the initial optimism as well as the subsequent disillusionment with and opposition to Iran’s perestroika will be examined, and the views of the different groups discussed. In addition, the revised approach to foreign capital that was adopted in the Second Five-Year Plan in light of these mixed reactions will be considered. The initial aura of optimism Throughout the period of the First Five-Year Plan, Mohsen Nurbakhsh (minister for economic and financial affairs) and Hosayn Adeli (Central Bank governor) both remained optimistic about the benefits that would be reaped from the use of foreign capital for economic reconstruction of the war-torn country. Nurbakhsh argued that the foreign finance approved by the First Five-Year Plan was invaluable for the country’s future development: “with respect to the ever-increasing population growth and the basic needs of that [population], it would be impossible for us to complete important projects [in oil, petrochemicals, and dam-building] by ourselves” (Kayhan 16 Azar 1368/December 7, 1989). Similarly, anticipating potential criticisms, Adeli explained that: That which has been approved in the Five-Year Plan is not that the country go and take out loans; rather, the view is that in order to carry out productive investments and investments that can be profitable and make a good return, the government has been given permission to use foreign credit. And when the factories have been built and have reached profitability, only then will we repay the money used. (Resalat 13 Esfand 1368/March 4, 1990) Both were confident, in short, that foreign capital would serve as a catalyst for future domestic investment in industrial production, leading eventually to economic independence. While this positive outlook was by no means shared by all deputies of the third majles, a number of whom had voiced concerns about the detrimental impact of Notes 19 and 29 of the First Five-Year Plan, nevertheless the encouraging economic trends of 1990–1991 generated substantial support for Hashemi-Rafsanjani’s perestroika. Specifically, with an increase in Iran’s oil exports as well as an increase in the global price of oil, as illustrated in Table 4.1, many felt confident that these improved economic conditions since the end of the war would facilitate joint partnerships between domestic and foreign investors in the industrial sector. Of course, any mercantile support for an attraction of finance from abroad relied on the assumption that continued respect for Article 81 of the Islamic

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Table 4.1 Oil exports and prices, 1988–1991 Year

Oil exports (million barrels per day)

Oil prices (US dollars per barrel at constant 2009 prices)

1988 1989 1990 1991

1.65 1.82 2.22 2.46

27.06 31.53 38.94 31.51

Source: BP (2010) and Central Bank of the Islamic Repubic of Iran (2010).

Republic’s constitution would ensure that “such a wretched situation [as that experienced during the country’s previous periods of concession-giving] will never be repeated” (Resalat 8 Bahman 1368/January 28, 1990). However, if the national interest could be protected, even some members of the statist camp were willing to exhibit a degree of optimism with regard to HashemiRafsanjani’s liberalization plans. For example, former supporters of a statist stance, Morteza Alviri and Hadi Ghaffari, came to support the new agenda from 1990 onward. In addition to this weakening of the statist faction’s opposition to the economic policies of the Hashemi-Rafsanjani government, the rise of Reaganomics during the early 1980s, followed by the collapse of the Soviet bloc at the end of that decade, also played an important role in creating this aura of optimism in Iran. Even though Gorbachev’s experiment with perestroika had met a bitter end, nevertheless the impending break-up of the Soviet Union showed that economic liberalization had become de rigueur across the world, thereby knocking the confidence of anyone seeking to endorse a statist economic outlook. So, the early 1990s saw the dominant economic outlook in Iran shift from one that emphasized the role of the state to one that focused on the market. Alongside this shift, there was a relaxation of the official stance on the use of foreign capital inflows, as had been made apparent in Notes 19 and 29 of the First Five-Year Plan. In turn, this opening up to the outside world further strengthened the move toward a market economy, as the World Bank, IMF, and European banks all made it clear that credit would be more forthcoming if economic reforms were implemented in Iran. Initially, the international community seemed to be encouraged by the Islamic Republic’s new face that had emerged since the end of the war with Iraq. Several World Bank and IMF delegations went to Iran in 1990 with the aim of assessing the new economic environment there, and while acknowledging the existence of various problems, they returned with a generally positive impression of the country’s prospects (MEED November 16, 1990). Following the Manjil earthquake in June 1990, even the United States government indicated its willingness to support a US$300 million World Bank emergency loan for reconstruction in the affected areas (ibid).

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After Iraq’s invasion of Kuwait in August 1990, Iran’s position on the international arena seemed to improve further still. With increased oil prices and a weakened Iraq conceding to most of its terms for a formal end to eight years of war, Iran attracted “renewed international attention as the region’s biggest and most promising market” (ibid). Indeed, inflows of foreign direct investment shot up at this time, increasing from –US$362 million in 1990 to US$23 million in 1991 (United Nations Conference on Trade and Development 2010). Hashemi-Rafsanjani consequently enjoyed much support at this time, both at home and abroad, for the various policies of economic liberalization that had been put forward in the First Five-Year Plan. However, those who had been worried about the negative impact that close relations with the West might have on the fabric of Iranian society were not necessarily reassured by Hashemi-Rafsanjani’s initial success in boosting the post-war economy. In fact, it can be argued that even if the statist economic outlook had gone out of vogue by this stage, the anti-Western stance had not. Early expectations that the post-Khomeini era would be characterized by a more liberal foreign policy resulting in rapprochement between Iran and the West were not realized in full.8 Even though the Supreme Council for National Security’s January 1991 declaration of Iran’s neutrality in the Kuwait crisis suggested an acceptance of Hashemi-Rafsanjani’s call for a reduction in hostility to the United States, Khamene‘i continued to oppose even the idea of establishing friendly relations with the “great satan” (Moslem 2002a: 178). In fact, he even told a group of visitors to the country that, “confronting the aggression, ambitions and schemes of the US to encroach upon the Persian Gulf is counted as jihad ” (MEED September 21, 1990). So, while the government favored an opening up of the Iranian economy to foreign capital, many held to the conviction that this relaxed stance was only acceptable if it brought the country closer to selfreliance in the long term. As was made clear in series of articles that appeared in the pro-mercantile Resalat newspaper,9 discussing China’s experiment with economic liberalization by focusing on its handling of foreign investment, even the supporters of Hashemi-Rafsanjani were concerned that Iran should avoid the potential pitfalls of increased economic contact with the outside world. Having recognized that, “without a doubt, a large part of China’s extensive economic advances over the last 13 years . . . have been due to the use of investments from other countries” (Resalat 8 Ordibehesht 1372/April 28, 1993), the author of these articles, Ahmad Ma‘sumi-Far, acknowledged the negative side effects of this policy. In particular, alongside the economic benefits enjoyed as a result of opening its doors to the West, he argued that China suffered from both a dependence on international markets and a “cultural invasion” that was weakening family values and encouraging morally corrupt activities such as drug use and gambling (Resalat 9 Khordad 1372/May 30, 1993). But in spite of this,

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Ma‘sumi-Far remained confident that Iran would be able to open its doors to foreign investment in such a manner that these potential costs would be prevented, and the benefits of increased foreign exchange, development of non-oil exports, attainment of modern technology, and creation of employment would be assured in the end. Nevertheless, Iran’s inflows of direct foreign investment remained minimal in the early 1990s, even if they had increased significantly compared to those of the war years. Indeed, US$23 million of foreign direct investment inflows in 1991 was a mere drop in the ocean compared to China’s inflows of US$4,366 million in the same year; while Iran’s FDI inflows represented 0.02 percent of GDP, those of China represented 1.03 percent (United Nations Conference on Trade and Development 2010). With various domestic barriers to foreign investment only adding to the challenges already presented by the United States’ continued economic sanctions on Iran, very few foreigners viewed the Islamic Republic as an attractive investment opportunity at this time (Ghasimi 1992: 610). It seemed that many more incentives than those present in the First Five-Year Plan would need to be offered to encourage foreigners to invest in the Iranian economy over the coming years. However, whether or not these incentives would be forthcoming in the near future was not immediately apparent. Mounting opposition to economic reforms Various mercantile groups, having suffered under the statist, protectionist policies of the Musavi government during the war years, had allied with Hashemi-Rafsanjani in the immediate post-Khomeini period, in the expectation that his proposed economic reforms would offer them both raised profits and increased influence. But when the hoped-for fruits of economic liberalization failed to materialize, so the optimism that had characterized the first two years of the First Five-Year Plan began to subside, disillusionment mounted, and the support that mercantile elites had once given to Hashemi-Rafsanjani and his government started to wane. As early as 1992, widespread concerns that the country was facing a foreign debt crisis meant that HashemiRafsanjani’s economic team, comprised of Rawqani-Zanjani at the PBO, Adeli at the Central Bank, and Nurbakhsh at the Ministry of Economic and Financial Affairs, was placed under increasing pressure to justify its policies on foreign investment not only to the statist groups that had originally opposed them, but also to their own former allies. The election results for the fourth majles had been so overwhelmingly in favor of pro-mercantile candidates supporting Hashemi-Rafsanjani that the emergence of such a critique had not been anticipated. A new election law had been passed in 1991 that required all candidates to display their “absolute” loyalty to the supreme leader before being allowed to run for election, and the Guardian Council had received Khamene‘i’s backing to interpret Article 99 of the constitution in such a way that its powers of supervision over

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elections included disqualification of any and all candidates deemed “unfit” by the new requirements.10 With these legal weapons in hand, the Guardian Council had acted in Hashemi-Rafsanjani’s interests: by rejecting about a third of all candidates for the 1992 majles elections (Brumberg 2001: 175), it had ensured victory for supporters of the president’s line. Nonetheless, in spite of these precautions that the supreme leader, Guardian Council, and president had taken in advance of the elections, still the government was faced with majles opposition during the period 1992–1996. This was largely due to the fact that although the majority of deputies in this majles shared Hashemi-Rafsanjani’s economic outlook, they were more conservative when it came to social, cultural, and foreign affairs. Furthermore, it was significant that the powerful Guardian Council and the supreme leader also shared this conservative outlook. Many of the mercantile elites who joined with Hashemi-Rafsanjani in the immediate post-war period to bring down the Musavi government and its statist backers, therefore, never fully adopted the pragmatist outlook of their president. From 1992 onward, it became clear that their protection of bazaar interests entailed not only resistance to state control of the economy but also trepidation in the face of foreign encroachment of the market. Consequently, they gradually grew apart from a government that insisted on continuing with its program to expand economic relations with the outside world. As the JRM ’s 1993 evaluation of Hashemi-Rafsanjani’s economic policies indicated, while delighted that the current government had ended the “unsuccessful” policies of the Musavi era, nevertheless it desired renewed change (Resalat 19 Ordibehesht 1372/May 9, 1993). Referring to the “serious damage” inflicted on the economy by its “severe dependency on foreign elements” (ibid), the conservative JRM argued that the Revolution itself needed to be protected from the “renewed international pressures” that were being placed on it (ibid). In order to achieve this, it insisted that, “economic reform must be accompanied by cultural and social reform” (ibid). In other words, instead of increasing economic relations with the West, the government should pursue development at home, on the basis of “Islamic principles.” There had been some indication of a decline in conservative mercantile support for Hashemi-Rafsanjani’s pragmatic government as early as the summer of 1992, soon after the opening of the fourth majles. While AzariQomi had led the JRM-affiliated mercantile faction in the third majles, voicing support for the government in the face of majority statist opposition, the leader of this group in the new majles was not so loyal. In fact, when the conservative Ali Akbar Nateq-Nuri was elected speaker of the predominantly mercantile fourth majles, he revealed himself to be much more cautious in his backing for Hashemi-Rafsanjani’s policies. For example, in June 1992, he opposed the government’s proposal for Article 81 of the constitution to be re-interpreted, and emphasized the need for the majles to stand up against “global arrogance” (estekbar-e jahani, or imperialism) (Resalat 19 Khordad 1371/June 9, 1992). Furthermore, he argued that the priority for the country’s

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development plans should be on domestic investment, and insisted that any foreign investment should be achieved in accordance with “the preservation of Islamic principles and values” (ibid). Similarly, Qorban-Ali Dori-Najafabadi, the deputy whose experience of working in the third majles planning and budget committee had encouraged him to shift from a statist to a mercantile stance during the late 1980s, now came to stress the need for consideration of social issues alongside the economic. In particular, he argued that, “development is not a purely economic term and it is not limited to advances in industry and technology . . . rather, it also encompasses problems related to poverty, inequality . . . and improving people’s living conditions” (Resalat 24 Khordad 1371/June 14, 1992). Soon after, Habibollah Asgarawladi, the mercantile conservative who had initially been optimistic that the new economic approach put forward in the First Five-Year Plan would help the country realize its revolutionary aim of economic independence, also came to express his doubts (Resalat 20 Azar 1368/December 11, 1989). In 1993, he criticized government initiatives aimed at attracting Iranians living abroad to return home, arguing that there would be no way to ensure that these people, who had grown up in a foreign environment and were accustomed to a completely different way of life, would be able return and become the authentic face of the Islamic Republic (Resalat 12 Mehr 1372/October 4, 1993). To encourage these people to return would be just as damaging to the spirit of the Revolution as inviting foreign companies to do business in Iran. Comments such as these are important not only because they point to the particular challenges being presented by the mercantile-dominated majles to the Hashemi-Rafsanjani government at this time, but also because they are indicative of a more general trend in politics whereby the same discourse is used by different groups to different ends at different times. When the Hashemi-Rafsanjani government initially proposed that foreign capital should be used to fund the major projects of the First Five-Year Plan, it received the strong backing of these members of the mercantile elite. This backing was justified with the claim that such an injection of foreign finance would spark off economic growth, thereby making the economy more independent, which would ultimately benefit the Islamic Revolution itself. However, by the time the plan approached its end, the same individuals had changed their positions, and now criticized the First Five-Year Plan just as their statist opponents had done before. Whereas previously they had praised the policies of the HashemiRafsanjani government for leading the country to economic independence, now they used that same slogan to attack the government, arguing that its actions were putting the economic independence of the country at risk. But why did these mercantile deputies begin to turn against the HashemiRafsanjani government at this particular time? Although Morteza Nabavi remained confident that, “in order to achieve economic independence, there is no other path for us to take than that of increased production,” (Resalat 4 Khordad 1372/May 25, 1993), most of Hashemi-Rafsanjani’s supporters

86 Iran’s struggle for economic independence were involved not in production but in trade and commerce.11 As such, the new economic policies were not of much benefit to them. Furthermore, when the Central Bank floated the rial in March 1993, it became much more difficult for Iran’s merchant community to secure the huge profits that they had enjoyed under the previous multiple exchange rate system.12 In the months after March 1993, the country’s oil income decreased, domestic prices escalated, the rial depreciated further, and the Central Bank was placed under increasing pressure to pay off its short-term loans.13 In response, the badly affected conservative mercantile elites lashed out at the government even more strongly. Overall, the experiment with floating the currency proved to be unsuccessful both in terms of the economic consequences and in terms of damage wrought on the government’s reputation. Indeed, most mercantile deputies in the majles unsurprisingly criticized it for failing to protect the interests of the Revolution, not for failing to protect their own interests. By the time that Hashemi-Rafsanjani was elected president for a second term in June 1993, the economy was in dire straits, and many of the goals that had been set down in the First Five-Year Plan were far from being achieved. Raised imports in the immediate post-war period increased from 24 percent of GDP in 1988 to 32 percent of GDP in 1992 (International Monetary Fund April 2010), and the current account deficit is reported to have jumped to US$9.5 billion almost overnight in 1991 (Hakimian and Karshenas 2000: 49). In addition, as can be seen in Table 4.2, there was a serious and unexpected accrual of external debt, of which much was short-term in nature. By the end of 1993, total foreign debt had reached over US$23 billion, and the level of dependence on short term capital inflows in particular was said to be unprecedented (Pesaran 2000: 87). At the same time, oil revenues were sluggish and the economy was ravaged by the additional problem of inflation (Hakimian and Karshenas 2000). The PBO had anticipated that by the end of the First Five-Year Plan, exports would be raised enough and oil prices would be high enough for foreign loans to be paid back on time, but in the event this did not happen. As the only loans made available to the Islamic Republic had been short-term, when the country Table 4.2 Foreign debt, 1989–1993, in billions of US dollars at constant prices Year

Total external debt

Short-term debt

Short-term debt to total external debt (%)

1989 1990 1991 1992 1993

4.3 6.2 10.9 16.0 23.0

2.1 4.7 7.0 11.9 17.6

49 76 64 74 77

Source: International Monetary Fund (April 2010). Note: All amounts are for year-end outstanding debt.

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proved incapable of paying them back on time, it was soon confronted with what became referred to as a foreign debt “crisis” (Ahmadi-Amui 1383/ 2004–2005: 210–213). In this situation, the conservative mercantile groups in the majles cautioned the government against leading the country down a path of increased dependency on both oil revenues and foreign finance (Resalat 24 Aban 1373/ November 15, 1994). In the face of this “debt crisis,” they struck out in particular against the Western-educated architects of these policies, Mohsen Nurbakhsh and Hosayn Adeli, whose vision of a “modern” and industrial economy was simply incompatible with bazaari mercantilism. This opposition can be seen to have peaked in the summer of 1993, when the fourth majles refused to give Nurbakhsh its vote of confidence to continue serving as minister for economic and financial affairs.14 From this point onward, majles deputies became increasingly critical of the government’s economic policies. Although Central Bank governor Adeli subsequently argued that Hashemi-Rafsanjani’s opponents had simply used the poor economic situation as a pretext for their attack (Ahmadi-Amui 1383/2004–2005: 466), the fact was that the pragmatists and the technocrats of the government faced a serious challenge at this time. In addition to the JRM-affiliated mercantile groups, who were disappointed at how little they had gained in return for supporting Hashemi-Rafsanjani, the remaining statist groups also reacted adversely to the economic difficulties of this period. They argued that their original warnings about the perestroika should have been heeded, as at least Musavi’s closed-door policies had ensured a relatively stable economy. An article in the statist Asr-e Ma argued that, “government officials suddenly came to believe in market mechanisms . . . under the influence of the World Bank and the IMF” (Asr-e Ma 3 Esfand 1373/February 22, 1995). However, it continued, “these policies will fail in Iran and elsewhere . . . Previous supporters of the market mechanism must review their opinions and return to the values of the revolution and of Islam, which are best suited to the social and economic conditions of the country” (ibid). Of course, not everybody was critical of the government’s approach to economic affairs. Some members of the statist elite, especially those who had survived the Guardian Council’s vetting of electoral candidates in 1992 and remained active in political affairs, had come to agree with the economic views held by the technocrats and pragmatists of Hashemi-Rafsanjani’s government. Morteza Alviri, for example, as head of the High Council for Free TradeIndustrial Zones, had become a converted pragmatist and was now so much in favor of foreign investment that he was openly critical of Article 81 of the constitution, labeling it a “real barrier” (Resalat 16 Azar 1372/December 7, 1993) to the attraction of capital from abroad. But overall, the government did face the difficulty that without a majority of mercantile elites willing to back it up in the majles or the Guardian Council, they were left increasingly isolated. This was especially true when one considered that the majority of statist members had not been given a chance

88 Iran’s struggle for economic independence to become “converts” like Alviri, but instead had been eliminated from the majles and the government after 1992. Thus, facing resistance from both the sides of the divide, the pragmatists would have to work hard to defend a continuation of their economic reforms in the Second Five-Year Plan. Reconsidering foreign capital in the Second Five-Year Plan Khamene‘i’s speech to mark the Iranian new year in March 199315 indicated a move on the part of the supreme leader to rein in Hashemi-Rafsanjani’s economic policies even while outwardly supporting the president in his campaign to be re-elected for a second term. His emphasis on the need to pursue social justice above all else suggested that Khamene‘i shared with both mercantile and statist groups the belief that Iran’s inflation and foreign debt had been caused largely by the government’s preoccupation with economic liberalization. In this speech, Khamene‘i declared that, “economic growth and reconstruction work should only be a precursor to achieving social justice . . . and those in charge of planning should pay attention to these revolutionary criteria in the second plan, for it is vital that state and society reach the revolution’s goals” (Resalat 8 Farvardin 1372/March 28, 1993). His comments on the importance of helping the poor and the needy set the tone not only for most critiques of the development plan that was drawing to a close, but also for the expectations that many held of the plan that lay ahead. In short, this speech gave the green light for Hashemi-Rafsanjani’s perestroika to be challenged in the name of social justice. From this point onward, conservative mercantile majles speaker Nateq-Nuri became even more vocal in criticizing the perceived failings of the government’s development policies. He argued that, “while in the first plan, most stress was placed on industrial investments, . . . in the second plan . . . we need to pay more attention to the poor and low-income sectors of society” (Resalat 30 Day 1372/January 20, 1994). Nateq-Nuri suggested that the main goals of the Revolution would only be realized in the Second Five-Year Plan if less store were put in assistance from foreign states and international organizations, and more energy were put into domestic issues and local concerns. He argued that, “by relying on our own resources and by bringing together all our strengths—which are not insubstantial—and with trust in God and in ourselves, and without any help from outsiders, we will prepare the Second Five-Year Plan, and on our own we will achieve the aims of this plan” (Majles Debates 15 Farvardin 1372/April 4, 1993). With all of the critiques that had been emerging within the country, forcing the government to reverse many of its liberalization policies, international financial organizations had come to lose interest in Iran anyway. The high hopes for economic liberalization that had been expressed by the World Bank and the IMF in 1990 were soon dashed, and their involvement in Iran became considerably reduced (MEED January 30, 1998). Consequently, domestic

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forces were soon able to resume their position as the exclusive authors of the country’s future development path. In a December 1993 open letter to Hashemi-Rafsanjani, Khamene‘i outlined the specific development aims that he expected the government to achieve via its Second Five-Year Plan (Resalat 30 Azar 1372/December 21, 1993). In total, 12 points were set down, with “the recognition of social justice” placed at the top of this list (ibid). Other aims included “the strengthening of revolutionary values,” “the increase of domestic production, especially in agriculture,” “the encouragement of popular participation in reconstruction efforts,” and “the adoption of appropriate measures so that the country does not become forced to borrow from abroad and so that it can gradually free itself from its current undertakings” (ibid). This final point gave critics of the government further ammunition to push the government to alter its policies toward foreign loans and investment. Using the axiom of social justice to guide their recommendations for the next development plan, mercantile and statist groups alike called for greater attention to be given to the mostaz‘afan, and for preference to be given to the use of domestic over foreign resources. In so doing, they were likely to succeed in attracting the future votes of any members of the lower classes who had become disgruntled with Hashemi-Rafsanjani’s handling of the national economy. Consequently, when Hashemi-Rafsanjani submitted the government’s bill for the Second Five-Year Plan to the majles on December 21, 1993 alongside its budget proposal for the fiscal year 1994–1995, he was obliged to present both its past achievements and its future plans in terms that recognized these expectations. Arguing that, “we need to focus on the positive points [of the first plan] so that we can strengthen the resolve of our people and prevent our enemies from attacking us” (Majles Debates 30 Azar 1372/December 21, 1993), Hashemi-Rafsanjani went on to present the previous five-year plan as having contributed to exactly what Khamene‘i was calling for: “Nowadays, if we want to build a large dam, we would surely only need a fifth of the foreign exchange that we would have had to use about four years ago. We do everything ourselves. In construction, for example, we are not dependent on foreigners at all” (ibid). Finally, the president reassured the majles that while some of the projects proposed in the government’s bill for the Second Five-Year Plan would be carried out with the use of foreign investment, this would ensure success for these projects, and the independence of the country would not be put under any risk at all. However, there were many majles deputies who opposed a continued use of foreign investment in any form, as they considered this to be no more than blind emulation of the US-backed economic liberalization that had been taking place in the newly independent countries of Eastern Europe (Asr-e Ma 3 Esfand 1373/February 22, 1995). Since this emulation would only lead to further negative consequences for the Islamic Republic in the end, it was preferable that Iran should rely solely on its own resources.

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Bearing in mind Nateq-Nuri’s argument that, “the enemies of the revolution . . . try to attack us however they can . . . they put up economic barriers and . . . they prevent us from achieving economic development” (Majles Debates 15 Farvardin 1372/April 4, 1993), Hashemi-Rafsanjani’s stated intention to rely on financial assistance from such “enemies” to achieve Iran’s development aims was seen as nonsensical. In particular, deputy speaker of the majles, Hasan Rawhani, claimed that due to the low oil prices “imposed” on the country, and also because of fluctuations in the foreign exchange rate, Iran had lost US$6 billion during the First Five-Year Plan alone (Resalat 8 Khordad 1373/May 29, 1994). Therefore, the Iranian economy should be made less vulnerable to such negative influences from abroad, not more so by deepening its dependency on foreign capital. The persistence of this protectionist interpretation of economic independence among many of the government’s critics, an interpretation that bordered on a promotion of isolationism in extreme cases, showed that HashemiRafsanjani’s efforts to instil widespread confidence in his perestroika had to all intents and purposes failed. However, rather than give up his program of economic development, the ever-pragmatic president simply changed his tack and adopted the language of his opponents to justify a continuation of his previous policies. He declared that although many of Iran’s “enemies” had anticipated that, “necessity would force us to relinquish our ideals and give up . . . this did not happen, and now they can see that the Islamic Republic has come through the difficult post-war period by standing on its own two feet, by relying on itself and following its own plans” (Jomhuri-ye Eslami 3 Shahrivar 1373/August 25, 1994). Of course, Hashemi-Rafsanjani was expressing views here that he largely agreed with anyway; as a key player in the Revolution, he too desired independence for Iran to the extent that it would protect the Iranian regime’s survival. However, his emphasis on self-reliance and self-sufficiency was employed in order to detract from his unpopular, pragmatic belief that the Islamic Republic must accept some help from abroad in order to reach its post-war development targets. Indeed, although Hashemi-Rafsanjani conceded that, “definitely we are being subjected to an invasion, both in terms of our culture and from the point of view of our resources” (ibid), his government’s bill for the Second FiveYear Plan envisaged a continued use of investment from abroad, at about the same levels as had been permitted in the First Five-Year Plan, or approximately 8 percent of the total foreign exchange budget (Majles Debates 30 Azar 1372/ December 21, 1993). This, as well as various other proposals in the bill, led many deputies in the majles to believe that the government was continuing to favor a wholly undesirable approach to the country’s economic, social, and cultural development. Therefore, they set out to amend the bill according to their own vision. The lengthy debates concerning not only the content of the government’s bill, but also the manner in which this bill should be reviewed, meant that the

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Second Five-Year Plan was set back by almost a year. Whereas the government bill was presented to majles in December 1993 with the intention that the plan should come into effect from March 1994, in the event it was not actually approved and passed into law until December 1994. The first two weeks in June 1994 were spent just trying to come to an agreement on exactly which committee in the majles should be responsible for reviewing the government’s bill on the plan. Under normal circumstances, the planning and budget committee would be asked to carry out such a task, but in this instance a group of deputies that included Mohammad Reza Bahonar and Morteza Nabavi argued that it was not fair for a single committee to dominate the planning of something as important as the Second Five-Year Plan (Majles Debates 9 Khordad 1373/May 30, 1994). It seems that these members of the mercantile elite were concerned lest the planning and budget committee not sufficiently revise the government’s proposals to bring them more in line with Khamene‘i’s declared development aims. They suggested that representatives from the planning and budget committee should combine forces with representatives from all the other majles committees and work together as a joint committee for the appraisal of the second plan. Although some deputies, such as Ali Movahedi-Saveji, opposed this proposal with the argument that it would only set the Second Five-Year Plan even more behind schedule than it already was, those in favor of the formation of a joint committee won the day.16 With 35 members in total, the joint committee was chaired by Habibollah Asgarawladi, and had Bahonar and Dori-Najafabadi as its vice-chairmen (Resalat 2 Mordad 1373/July 23, 1994). Over the course of several weeks, they devised a new proposal for the Second Five-Year Plan, which they presented to the majles on August 8, 1994 (Majles Debates 17 Mordad 1373/August 8, 1994). Their proposed plan, in line with Khamene‘i’s 12 points, sought to slow down Hashemi-Rafsanjani’s policies of structural adjustment and instead place more emphasis on social justice. The spokesman for the joint committee, Mohammad Baqer Nawbakht, explained that in order to achieve this, the controls on both current foreign debt and future foreign undertakings would need to be stricter than had been set down in the government’s bill for the Second Five-Year Plan. Even when they increased the target for the percentage of debt repayments that should be made by the end of the plan from 15 percent to a more substantial 25 percent, some deputies in the majles continued to feel that this was not enough. Mahmud Astaneh in particular found fault with this item because, “the door for borrowing from abroad has been left open . . . by the end of the plan we will still have US$25 billion foreign debt” (ibid). However, while agreeing with Astaneh that, “the creation of new foreign debt and undertakings is not in the country’s interests at all” (ibid), Ghaffar Esma‘ili pointed out that Khamene‘i had called for a gradual end to borrowing from abroad and had not expected that it should end completely within the time period of a single five-year plan. Movahedi-Saveji joined Esma‘ili in

92 Iran’s struggle for economic independence concluding that the aim of repaying 25 percent of all debts by the end of five years was both realistic and commendable. When it became the government’s turn to comment, Rawqani-Zanjani confessed that he too had “a problem with those who criticize the [joint commission’s] proposal and say that to reduce repayments owed by 25 per cent is not enough” (ibid). Yet Rawqani-Zanjani’s rebuke of Astaneh’s suggestion that all debts should be paid off in full was more decisive than Esma‘ili’s had been. He stressed that, “a country that does not take out any foreign undertakings and does not use any foreign investment has not done itself any favors” (ibid). As long as all the foreign exchange received is used appropriately, for industrial production and for the creation of employment, and as long as the country can meet its repayment requirements, he maintained, that is all that matters. Indeed, even though the Second Five-Year Plan that had been put forward by the joint commission enjoyed the widespread approval of the majles, and was passed with few amendments in December 1994, it was not the case that the dominant view had shifted entirely away from one that supported the use of financial possibilities from abroad. While the plan placed certain limits on foreign capital, by no means did it prohibit its use altogether: Note 22 of the final and approved plan kept the recommendations that had been made by the joint commission. Specifically, it required that annual repayments of foreign debts and undertakings should not exceed 30 percent of the government’s foreign exchange income (Second Five-Year Plan: Note 22b). The amount of repayments owed were to be reduced by at least 5 percent during each year of the plan, and the total value of all debts and undertakings in the final year of the plan were not to exceed US$25 billion (ibid: Note 22c). Furthermore, while Note 22 of the new law granted the government permission to take out foreign finance in the form of “buy-back” contracts, where the foreign party undertakes the initial investment for equipment and services and subsequently recovers it through exploitation of the project’s final product, there were some limits in that all contracts had to be reported to the majles, and any contracts worth more than US$1 million had to be announced in the national press (ibid: Note 22f). Finally, this note of the Second Five-Year Plan stated that contracts between public organizations and foreign companies must result in a transfer of technology and knowledge (ibid: Note 22m). In light of this, it can be seen that, as long as foreign loans and credits were managed well and repaid in a manner that benefited Iran’s interests, a task which Dori-Najafabadi described as an “art” that the government needed to master (Resalat 16 Tir 1373/July 7, 1994), there was actually little outright opposition to the use of foreign investment on the part of the mercantile elite in the majles. Even Morteza Nabavi conceded that, “on the condition that it does not lead to economic dominance by our enemies, we can take advantage of its benefits” (Resalat 2 Azar 1373/November 23, 1994).

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Furthermore, with many of the technocrats of Hashemi-Rafsanjani’s government, notably Hosayn Adeli, claiming that the debt crisis of the early 1990s had arisen mostly because of poor implementation of the policies of the First Five-Year Plan, and not because of flaws in the general approach it recommended, there was some hope that with the introduction of various safety mechanisms in the Second Five-Year Plan, any potentially negative consequences of foreign investment would be avoided this time around. Nevertheless, these technocrats had become obliged to justify their preferred policies in terms that stressed the need to protect the national interest against foreign domination. This was a good indicator of just how powerful the original revolutionary ideals remained for the Iranian ruling elite. Iran’s subsequent experience of foreign participation in the oil industry soon gave powerful ammunition to anyone who wished to criticize the provisions that were made in the Second Five-Year Plan for buy-back contracts. These contracts had originally been devised as a way of getting around the negative perceptions relating to foreign investment in the country’s oil industry, as they were defined specifically as foreign finance instead of foreign investment. The intention was that the buy-backs would secure a transfer of technology while retaining for the NIOC complete control and total supervision over the project, but as a form of foreign contract, it has even been likened to the Treaty of Torkmanchai (Eqtesad-e Iran Esfand 1379/February–March 2001). Even though there are drawbacks to the buy-back contract for the foreign oil company, largely because of its short-term nature, many Iranians feel that it does not provide them with the necessary benefits either. In particular, they argue that, because there is no transfer of managerial skills to the NIOC, the buy-back does not meet Iranian needs.17 Early efforts to make a success of this new strategy for investment in Iran’s oil industry ended up backfiring on the Hashemi-Rafsanjani government. Specifically, the first buy-back project was awarded in March 1995 to an American company, Conoco, largely as a goodwill gesture from the government of the Islamic Republic to the government of the United States, but the Clinton administration responded by blocking the deal and introducing the D’Amato Act, which led to the notorious Iran–Libya Sanctions Act (ILSA),18 causing many Iranians to feel even more strongly that the world was against them. Ironically, even though it is the oil industry where foreign technology and assistance is perhaps needed most acutely, it is here where sensitivities have remained the most intense. These sensitivities were most vocally expressed by those members of the statist camp who continued to be vehemently opposed to opening up the Iranian economy to the outside world. Some of their supporters were based at Allameh Tabataba‘i University in Tehran, where an exhibition of “undesirable” Western goods being imported into the country, such as chocolate and chewing gum, had been held in the early 1990s with the aim of highlighting the cultural invasion that Iran was suffering under Hashemi-Rafsanjani’s presidency. Writing in 1994 about a debate that had recently taken place in Allameh

94 Iran’s struggle for economic independence Tabataba‘i University, in which various faculty members of this university argued the case for state control over the economy against those calling for increased privatization, Resalat newspaper expressed surprise that people with these statist views still existed, “in spite of the experience of the socialist countries and the proven benefits of handing some economic activities over to the people” (Resalat 30 Mehr 1373/October 22, 1994). But with the passing of time, increasing numbers of these advocates of a statist stance did move closer to the government’s pragmatic view, like Morteza Alviri had done before them. During discussions about the Second Five-Year Plan, for example, the statist Organization of the Mujahedin of the Islamic Revolution (Sazman-e Mojahedin-e Enqelab-e Eslami, or SMEE) had joined the government in calling for greater emphasis to be placed on industrial production, rather than trade and commerce (Asr-e Ma 23 Azar 1373/ December 14, 1994). Nevertheless, it was to be some time before groups such as this would join Hashemi-Rafsanjani’s pragmatists and technocrats in support of foreign investment, whether that was in the oil sector or anywhere else. For the time being, this segment of the statist camp maintained a cautious stance vis-à-vis the possibility of expanding Iran’s economic relations with the outside world. In its election statement prior to the 1996 majles elections, SMEE reiterated its view that Iran should be careful about using any sources of foreign finance: “We do not want to take out any foreign undertakings that will only put the country in debt . . . first, we must use domestic resources and . . . use foreign investments for infrastructure and production only” (Asr-e Ma 29 Farvardin 1375/April 17, 1996). But once its initial alarm about the implications of Hashemi-Rafsanjani’s perestroika had abated, this group did become less critical of the government. Overall, there continued to be mercantile support for protection against external encroachments on domestic trade, and many statist groups remained devoted to their protectionist economic outlook. However, some segments of both of these groups were beginning to gradually change their views and press for further pragmatic changes in the Islamic Republic’s economic policies. This development, of course, placed them in direct opposition to those who did not want such changes to occur. More debate and contestation was bound to emerge over the subsequent years.

Concluding remarks While many observers of the Islamic Republic of Iran anticipated that the end of the war with Iraq and the death of Ayatollah Khomeini would bring about a speedy “normalization” of the Revolution via an increased adoption of “pragmatic” policies, the events that have been described in this chapter indicate that any such change in approach was far from straightforward in practice. The early experiences of this new phase in the Islamic Republic’s history may well have seemed promising at the start, hinting at the possibility of a future amelioration in Iran’s relations with the outside world, but the

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trend toward liberalization did not play out as anticipated. Perhaps the most certain aspect of Iran’s evolution as a nation was that it would be uncertain. When it came to economic policies, the World Bank and the IMF had expected that the election of the pragmatist Hashemi-Rafsanjani as president in 1989, as well as the fortuitous increase in oil revenues one year later, would work together to create the ideal conditions for economic liberalization in the Islamic Republic. They were confident that Iran would open up its economy to the outside world, and allow private actors within the country to be liberated from the fetters of state intervention. Subsequently, it was expected that domestic private enterprise would put pressure on the Iranian state to engage more freely with the outside world. Furthermore, the supposed “logic” of the global capitalist market would leave it no option but to abandon all protectionist policies. But as early as 1994, the World Bank itself had realized that this was unlikely to happen any time soon, and under pressure from the United States government, it withdrew its offer of financial assistance (Behdad 2000: 114). In a post-revolutionary country such as Iran, where a long history of colonial penetration is unlikely to be forgotten easily and diverse groupings are all keen to hold on to their own hard-won influence, liberalization was never going to be easy. Instead, economic policies continued along a fluctuating path without any foreseeable destination, even after the “turning point” of 1989. Those groups who were debating the future path of Iranian economic policy during the presidency of Hashemi-Rafsanjani were all embedded in the complex networks of the Iranian semi-authoritarian state. It was largely because of this that the outside world’s encouragement for the supposedly autonomous private sector to be given greater voice was unsuccessful in bringing about the hoped-for outcomes. Iran’s mercantile elites were themselves part of the state, and they favored not the creation of an industrialized economy with close links to the outside world, but rather a facilitation of their own economic control over trade and commerce within the country. Because of this, Hashemi-Rafsanjani’s administration was unsuccessful in transferring wealth from the public to the private sector; instead, it only caused the boundaries between the two to become even more blurred.19 Multiple challenges thus faced the process of liberalization in Iran, both in terms of the overall legacy of the Revolution, and in terms of the variety of interpretations of this legacy that existed in different branches of the state. While the potential for a straight path of economic liberalization appeared to be present at the start of the Hashemi-Rafsanjani period, the conditions of the early 1990s actually gave rise to a new cycle of constantly shifting policies. During the period of war, a statist government and majles had been situated in opposition to the Guardian Council dominated by the mercantile elite. But during Hashemi-Rafsanjani’s presidency, a government broadly supportive of mercantile interests was joined first by the Guardian Council and then by the majles, too. However, this did not mean that a unity of outlook had been achieved across all institutions. On the contrary, from 1994 onward, the

96 Iran’s struggle for economic independence conservative JRM-affiliates in the majles were increasingly opposed to many aspects of the government’s pragmatist policies, on similar grounds as those being voiced by many in the statist camp. Divisions emerged where at first there had appeared to be agreement, and in response, the path of liberalization was interrupted and diverted. In short, complex negotiations of the Revolution’s legacy by rival factions situated in different parts of the Islamic Republic’s state network brought about the fluctuating policy stances that have been discussed in this chapter. In the next chapter, the continuation of this process of policy fluctuation, and the unexpected fruits that it bore in the period following the end of HashemiRafsanjani’s presidency will be examined.

5

Moving toward reform

Men make their own history, but they do not make it just as they please in circumstances they choose for themselves; rather they make it in present circumstances, given and inherited. Tradition from all the dead generations weighs like a nightmare on the brain of the living. (Marx 1996: 32)

When the Iranian revolutionaries ousted the Shah and brought an end to monarchy in their country, they inevitably had to “summon up the spirits of the past” (ibid), citing previous episodes of what they perceived as the nation’s long struggle against oppression and injustice in order to add depth and meaning to their current mission for freedom. A similar alliance of intellectuals, merchants, and religious groups to that which had achieved success during the tobacco protests of 1891–1892 was self-consciously revived during the revolutionary movement of the late 1970s, and many of the same sorts of slogans and emotions were at play on both occasions. Following the triumph of the 1979 Revolution, the key figures of the Islamic Republic remained indebted to the historical narrative that had supported their rise to power, and they continued to be influenced by their leader, Khomeini, long after his death. Of course, as has been shown in the preceding chapters, since the legacy of both the pre-revolutionary and the revolutionary periods was ambiguous and uncertain, the question of how to achieve the Revolution’s key goals was not easy to resolve. Nevertheless, the impact of what had come before continued to be felt, and it set the agenda for the subsequent shapers of Iranian history. In particular, the debate over the inflow of foreign capital that took place in Iran following the end of the Iran–Iraq war was clearly informed by the Revolution’s discourse of economic independence. Perceptions of historical events had left their imprint on the decisions of the future, and a clear effort was made to remain loyal to the shared experiences and revolutionary convictions that were common to all of the Islamic Republic’s ruling elites. Consequently, while each of the rival groups negotiating economic policy in the post-war period sought to redefine the revolutionary goals in line with their own preferences, at no point did any of them attempt to replace

98 Iran’s struggle for economic independence the revolutionary ideal of economic independence altogether. Nevertheless, President Hashemi-Rafsanjani and his supporters were the first to really test how much the limits of the Islamic Republic’s revolutionary legacy could be negotiated in practice. Before the rise of Hashemi-Rafsanjani, emphasis had been placed on the need for widespread state control of the economy, in accordance not only with the largely leftist atmosphere that had shaped the revolutionary movement itself, but also as a result of the practical exigencies of war with Iraq. There had been broad agreement across both statist and mercantile elites that the state should be responsible for directing the allocation of resources and for defending the revolutionary ideals of self-sufficiency and economic independence during wartime, even though there were differences of opinion on the specific policies under consideration. However, with the end of the war, there came into government a group of people who were in favor of shifting the emphasis of Iranian economic policy from statist isolationism to pragmatic openness. Throughout HashemiRafsanjani’s presidency, the Islamic Republic encouraged privatization and made greater use of foreign funds to finance economic reconstruction and development. This was all done by redefining the goals of the Revolution and presenting the new economic approach as in keeping with the revolutionary spirit. But Hashemi-Rafsanjani’s perestroika was not without its critics, and by the mid-1990s, concerns about foreign debt were expressed in such a way that it appeared the limits of acceptability had been reached. Nevertheless, given that already existing circumstances shape the path of the future, it can be seen that the policies adopted during the HashemiRafsanjani period themselves influenced the atmosphere in which subsequent policies were to be discussed and formulated. Having experienced a phase when economic independence was viewed in terms of increased production, and having witnessed the outcomes of that experiment, other groups and individuals were soon encouraged to learn from Hashemi-Rafsanjani’s mistakes and cast the slogans of the Revolution in a new light. Specifically, the statist elites that had been barred from running for the fourth majles elections in 1992 gradually adopted an economic outlook that took on some elements of Hashemi-Rafsanjani’s pragmatism, but combined these with an emphasis on social justice and equality instead of placing stress on the need for economic growth alone. The views of these groups had not remained static throughout the years of political exclusion; rather, they had observed the developments taking place around them, and they were influenced by these developments when considering their own views on the key issues of the day. Furthermore, they were able to see where Hashemi-Rafsanjani had perhaps gone wrong, and this prompted them to try to avoid making similar errors themselves. Under the leadership of Mohammad Khatami, who succeeded HashemiRafsanjani as president in 1997, various former members of the statist camp came to favor a reform, instead of a redefinition, of the revolutionary goals.1

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These reformists, as they became known, sought to implement policy changes that would avoid the threats of the global economy while benefiting from its opportunities in a more effective manner. This chapter will examine the debates that they had with their opponents over the future of Iran’s political and economic relations with the outside world. In the first part, the emergence of the reform movement and its relation to the fresh approach to foreign affairs that was adopted by President Khatami will be discussed. In particular, the increasing complexity of Iranian factions and their economic outlooks will be highlighted, and the subsequent changes in foreign policy will also be explored. In the second part, the reformist attempts to find a middle ground that lay somewhere between the Musavi and the Hashemi-Rafsanjani economic approaches, balancing the pursuit of social justice and the advancement of economic growth, will be discussed. The final part of the chapter will focus on the attempts that were made during the Khatami period to revise and update the country’s law for the protection and attraction of foreign investment.

Khatami’s fresh approach The landslide victory of Mohammad Khatami in the presidential elections of 1997 came as a surprise to many observers, not least to those who were aligned with the conservative mercantile elites. The JRM had assumed that their candidate, Ali Akbar Nateq-Nuri, would make the transfer from speaker of the majles to president just as seamlessly as Hashemi-Rafsanjani had done in his time. Given the strong reactions that had been aroused in many quarters by the Hashemi-Rafsanjani government’s policies of economic liberalization, these well-connected supporters of the traditional bazaar felt that they could capitalize on the renewed interest that was now being shown in the revolutionary slogan of economic independence. While they would take measures to ensure that any outside attempts to interfere in and possibly gain control of any sector of the Iranian economy were foiled, they would not stifle the domestic private commercial sector as the statist government of Mir-Hosayn Musavi had done during the years of war with Iraq. In this manner, they would protect and preserve what they saw as the “true” spirit of the Revolution while at the same time encouraging economic growth and development. Therefore, when Khatami emerged as a clear winner of these elections with almost 70 percent of the votes cast, the conservative mercantile elites must have been concerned about the future of their economic interests and of their revolutionary beliefs. Not only had Khatami been nominated as a presidential candidate by the statist MRM, but also many of his supporters were affiliated to the SMEE and other statist groups.2 As such, it was entirely possible that the new president might revert to a state-controlled economy in which the mercantile elites would be afforded few freedoms (Ansari 2006a: 91). Furthermore, remembering the relaxation of restrictions on film, art, music, and literature that Khatami had allowed as minister of culture and Islamic guidance during Hashemi-Rafsanjani’s presidency, many in the mercantile

100 Iran’s struggle for economic independence camp also feared that the new government might abandon Islamic values in favor of social reforms. Indeed, in addition to support from the statist elites, Khatami had received endorsements from a broad alliance of pragmatists, proWestern industrialists, women, and students, who all called for reforms of a type that Nateq-Nuri was not willing to offer. Referred to as the Second of Khordad Front, after the Persian date of the 1997 elections,3 these supporters of Khatami’s presidential campaign shared high hopes for change. But how did so many members of the statist camp, who had traditionally emphasized the need for self-sufficiency and separation from the outside world, come to favor an opening up of Iran’s economy? How did so many of those who had backed the premiership of Mir-Hosayn Musavi, a man who stood firmly against everything the mercantile elites represented, end up joining forces with a group of pragmatists who had willingly allied with the mercantile forces of the JRM throughout Hashemi-Rafsanjani’s presidency? In the following discussion, the constant fluctuation of both factional outlooks and policy decisions in the Islamic Republic will be highlighted. It will be shown how this process of continuous change alongside shifting circumstances allowed the statist camp to re-emerge so prominently as part of the Second of Khordad Front in the late 1990s, and the economic outlook of this new faction will also be explained. Furthermore, Khatami’s handling of relations with the outside world will be explored, as a prelude to the subsequent examination of his approach to economic affairs. The emergence of a reform movement From 1989 onward, the categorization of Iranian political factions, and their economic outlooks in particular, had become an increasingly arduous task. As several observers of contemporary Iran have pointed out (Baktiari (1996), Moslem (2002a, 2002b), Siavoshi (1992), and Wells (1999)), the emergence of new groups in the political landscape following the end of the Iran–Iraq war and the death of Ayatollah Khomeini meant that the standard classifications separating conservatives from radicals, or moderates from populists, no longer represented the true nature of factionalism in the Islamic Republic. Indeed, as was indicated in the previous chapter, even with regard to economic viewpoint alone, divisions between political groupings were increasingly complex and shifting during the presidency of Hashemi-Rafsanjani. Initially, the broadly leftist atmosphere of the immediate post-revolutionary period had generated a great deal of congruence in the economic views of most members of the ruling elite. Furthermore, the need to appear united in the face of an external enemy had minimized disagreements between statist and mercantile factions during the war years. However, by the time the Islamic Republic entered its second decade, contestation over the formation of a new economic agenda for the country’s future had led to a fracturing of political factions and a realignment of economic outlooks.

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Although the pragmatic president had initially enjoyed the backing not only of technocrats in the Central Bank, the Planning and Budget Organization, and elsewhere, but also of mercantile elites in the JRM, Mo‘talefeh, and Hawzeh, over time cracks developed in Hashemi-Rafsanjani’s apparently cohesive support network. The most notable difference between the technocrats and the JRM affiliates was that while the former were in favor of creating a “modern” economy in which industrial production and further incorporation into the global market would be the main engine of growth, the latter sought to protect the interests of the traditional bazaar sector, which was active primarily in trade and commerce and was therefore not concerned with promoting industrial production. Furthermore, in spite of their shared opposition to state control of the economy, it could be argued that in some respects the mercantile forces in the JRM had more in common with some of the statist groups than they did with the technocrats. At heart, both statist and mercantile camps wanted to centralize resources, one in the hands of the state and the other in the hands of the upper echelons of the traditional private sector. In contrast to these two groupings, the technocrats encouraged a competitive economy that would distribute resources more equitably. Consequently, the broadly mercantile alliance that replaced the statist Musavi government after the end of the war soon splintered and revealed itself to be a loose collection of interest groups whose politico-economic stance was often dependent on the particular issue under debate at any moment in time. For example, whereas Habibollah Asgarawladi initially supported HashemiRafsanjani’s pursuit of privatization via a selling-off of shares in state-owned enterprises (Resalat 3 Mordad 1368/July 25, 1989), no doubt in the expectation that “popular participation” (ibid) in the economy would increase bazaar control of it, this leading member of the Mo‘talefeh shared statist concerns on the topic of foreign investment. In light of this, and since it was not uncommon for individuals to move from one group to another over time, as was indicated by Morteza Alviri’s distancing from Musavi’s statist group and subsequent incorporation into Hashemi-Rafsanjani’s team of technocrats, the composition of each heterogeneous grouping was in constant flux. In his study of factional politics in post-Khomeini Iran, Mehdi Moslem underlined the importance of recognizing the areas of overlap between different factions (2002a: 91), and he credited Behzad Nabavi (minister of heavy industry in the 1980s) for having most satisfactorily re-conceptualized the various factions in the Islamic Republic. What is of interest here is not simply Nabavi’s description of post-1992 factionalism as such, the usefulness of which has been widely recognized since its first publication as a series of articles in the bi-weekly publication Asr-e Ma between November 1994 and May 1995. In addition, Nabavi’s writings can themselves be viewed as an example of the ever-changing nature of economic and political outlooks in post-revolutionary Iran. This is because they allow us to see the fluidity and ambiguity of Iran’s factional boundaries, making clear the ways in which the situation has changed even more since that time.

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Writing in an atmosphere of considerable economic strife, at a time when those with a statist outlook had been disqualified from candidacy for the fourth majles and were therefore largely excluded from the debate over future economic policies, Nabavi devoted much of his attention to the economic views of the various political factions in Iran. For this reason, his analysis is of interest to the present discussion of a realignment of economic outlooks. In particular, Nabavi argued that one could no longer refer to a simple battle between the statist left and the mercantile right. Rather, the complexity of the debate required each camp to be divided into two halves. Nabavi labelled the pragmatic trend that emerged under the presidency of Hashemi-Rafsanjani as the “modern right” (Asr-e Ma 19 Bahman 1373/ February 8, 1995), describing it as a group of technocrats, investors, traders, craftsmen, professionals, and some clergy, all of whom favored the establishment of a market economy in Iran as well as the incorporation of this economy into the global market. He said that while this group had enjoyed some success in the immediate post-war period, by 1994 it had been superseded by its one-time mercantile allies, the JRM-affiliated “traditional right” (Asr-e Ma 9 Azar 1373/November 30, 1994), which was composed of traditional traders and investors, of whom all opposed industrial and modern investments as well as state intervention in the economy. But of course, the fact that HashemiRafsanjani led the pragmatists and technocrats, while at the same time maintaining his membership of the conservative mercantile JRM, highlighted the close connections and continuing interrelations of these two politicoeconomic factions. At the other end of the spectrum, Nabavi split the statist camp into left and new left. While the original statist left had survived after the Revolution with the support of Khomeini and had been aided in its campaign to maintain state control over strategic sectors of economy by eight years of war, it had been decimated by the temporary alliance between traditional right (conservative mercantile elites) and modern right (pragmatists) in the period between 1990 and 1992 (Asr-e Ma 16 Farvardin 1374/April 5, 1995). Consequently, the new left had emerged, a group that Nabavi described as similar to the traditional right in its desire to reduce relations with foreigners, as well as in its opposition to the development of industry and technology in the country (Asr-e Ma 3 Esfand 1373/February 22, 1995). However, Nabavi anticipated that the alliance between new left and traditional right would not last long, and instead he put his faith in the revival of the original left (who were now reformists), with which he said a significant minority of majles deputies sympathized. He argued that it was this group, which had come to stand for independence alongside relations with foreigners, and for the establishment of a mixed economy with some state control, that could perhaps be a positive influence on decision-making in the Islamic Republic. By using Nabavi’s classification, it can be seen that it was indeed from the statist left that the reformist Mohammad Khatami emerged and took over from

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Hashemi-Rafsanjani as president of the Islamic Republic. As such, to a certain extent, Nabavi was right to put his faith in the revival of the left. However, he seems to have presented this group as more unified than it actually was, and he proved to be mistaken in thinking that it would thrive on its own. Taking into account the view that the circumstances of each day influence those of the next, it seemed unlikely that the reformist left would rise out of nowhere, forcing the pragmatist modern right to simply disappear. Instead, in keeping with Iran’s long tradition of heterogeneous groups coming together in order to achieve a united goal, it was more realistic to expect that the left and the modern right would work in unison to counter the force of the alliance between new left and traditional right. Given his predictions for the triumph of the left, it comes as little surprise to learn that Behzad Nabavi was himself the head of the SMEE, and that Asr-e Ma was the publication of this statist group. As such, it was in his interest to present this political grouping as stable, unified, and heading toward victory. Writing over a decade later in Sharq newspaper, Mohammad Quchani commented that Nabavi’s involvement as a political player in the very arena that he was trying to analyze undermined the usefulness of his categorization (Siyasatnameh-ye Sharq Shahrivar 1384/August–September 2006). In particular, Quchani observed that Nabavi had failed to acknowledge the existence of any diversity of opinion within his own faction or of any changes in its outlook over time, perhaps out of a desire to present it as indomitable. Furthermore, Quchani pointed out that as the organ of SMEE, Asr-e Ma was caught up in the political system of the Islamic Republic, and therefore it had no interest in including any groups or concerns that lay beyond the formal boundaries of this system in its classification. As a consequence, the categories of left, new left, traditional right, and modern right did not fully reflect the variety and fluidity of post-revolutionary political players and their economic outlooks. In short, a key problem inherent in Nabavi’s categorization of the Islamic Republic’s political factions was that he did not openly recognize the existence of any exceptions to the rule. In particular, he did not point to the fact that it was entirely possible for contradictory outlooks to come out of different corners of the same faction, or that particular individuals would move from one faction to another over time. It has already been seen that Morteza Alviri switched from holding a protectionist stance in the 1980s to promoting the attraction of foreign investment into Free Trade-Industrial Zones in the 1990s. Equally, Behzad Nabavi himself had abandoned his wartime belief in overwhelming state control of the economy to accept the need for some role for the private sector within a mixed economy following the end of the war. In addition, it should be noted that Nabavi’s label of new left did not correspond sufficiently accurately to that branch of the statist camp that shared with the traditional right conservative mercantile faction an unshakable suspicion of foreigners and an enduring sensitivity to the revolutionary aim of economic independence. The statist faction that responded negatively to

104 Iran’s struggle for economic independence Hashemi-Rafsanjani’s perestroika of the early 1990s sought to revive and even impose on others the slogans of self-sufficiency, independence, and social justice that had been promoted in the early stages of the Revolution; and it perceived the steps that had been taken by the pragmatists and technocrats since the end of the war to be endangering all of the revolutionary ideals that the war had fought to protect in the first place. Thus, and given this group’s emphasis on the need for a revival of the original revolutionary goals, it will be referred to in this book not as new left, but instead as statist revivalist. Overall, although his choice of label for the new left was perhaps not ideal, Nabavi’s analysis of those individuals comprising each of the main four factions in the mid-1990s was highly insightful. At this time, the statist revivalists and the conservative mercantile elites were increasingly sympathetic toward each other’s viewpoints, and the reformist supporters of Khatami were similarly close in outlook to many of the pragmatists who had thrived under Hashemi-Rafsanjani. Indeed, by the end of Hashemi-Rafsanjani’s second presidency, the conservative mercantile elites and the pragmatists no longer shared sufficient economic aims to maintain the semblance of unity that they had once exhibited. Instead, that section of the statist group that no longer demanded an all-encompassing control of the economy by the state, but rather had come to believe in the potential benefits of a mixed economy, grew closer in outlook to the pragmatists. It was this group of reformists that became allied to Hashemi-Rafsanjani’s pragmatist supporters. Reformists and pragmatists together comprised the Second of Khordad Front, and their fresh outlook encouraged them to support the new foreign policy that was introduced by Khatami soon after his election. The dialogue among civilizations It was clear from the start that President Khatami was keen to introduce a more reformist foreign policy. A hojjat-ol-eslam who had studied Western philosophy, Khatami stood out among most of the Islamic Republic’s ‘ulama in expressing an open willingness to engage with the West.4 In his inaugural address to the majles, he stressed his government’s belief that, “in the contemporary world, dialogue between civilizations is necessary” (Khatami August 4, 1997). In clear contrast to Khamene‘i’s continued defense of Iran’s “great nation” (Khamene‘i August 3, 1997) against the “propaganda” that he claimed was being disseminated by “Zionists, oppressors and capitalists who are opposed to Islam, Muslims and the Islamic system” (ibid), Khatami’s speech seemed to augur the beginnings of a new chapter for Iran’s relations with the outside world. Of course, Khatami did not advocate an abandonment of the Revolution’s central aim of economic and political independence. On the contrary, his speech emphasized the need to protect revolutionary goals: “It is particularly important for the government to defend the national interests; try to promote the integrity of the Islamic Republic of Iran according to its historical, cultural,

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geographic and economic status . . . while vigilantly and firmly fighting the expansionism of the hegemonic powers, alien threats and the onslaught of foreigners in the cultural, political and military domains” (Khatami August 4, 1997). Nevertheless, Khatami did suggest that Iran’s independence might be better achieved through interaction rather than through self-containment and hostility toward “the other.” As such, Khatami’s response to the thesis of a “clash of civilizations” (Huntington 1993) with his own theory of a dialogue among civilizations suggested to many that Iran might at last expand economic relations with the outside world. However, although Khatami said that Iran was prepared to “have relations with any government that respects our independence” (Khatami August 4, 1997), he did add that “we shall stand up to those powers who want to rule us as master or chief” (ibid). In his groundbreaking interview with CNN in January 1998, he made it clear that he believed that the “bulky wall of mistrust” (Khatami January 7, 1998) that existed between the United States and Iran had resulted directly from America’s previous interventions in Iranian domestic affairs. He referred in particular to “the 1953 coup d’état which toppled Mosaddeq’s national government, [and was] immediately followed by a $45 million loan to strengthen [an] unpopular foreign installed Government” (ibid). But while he said the cessation of relations was prompted by American bad behavior, he did not perceive it as an entirely negative event. On the contrary, Khatami acknowledged that there had been some benefits for Iran from this imposed isolation. He observed that the economic sanctions introduced by the United States had “caused us to mainly focus on our domestic capabilities and resources to advance our objectives” (ibid), and he argued that Iran had “no need for ties with the U.S., [because] . . . we can reach our objectives without U.S. assistance” (ibid). In spite of this recognition that Iran had proven capable of reaching its own economic goals even at a time when financial help from the United States had ceased and been replaced with various external barriers to Iranian growth and development, Khatami did not believe that it was desirable for discord between the two countries to persist in the long term. Adopting a philosophical approach to the matter, he hoped for the emergence of “a crack in this wall of mistrust” (ibid), so that negotiations based on mutual respect might lead to positive results for both parties. He concluded that, “We are looking for a world in which misunderstandings can be overcome, nations can understand one another and mutual respect and logic govern relations among states” (ibid). Two years later, speaking at the United Nations, Khatami reiterated such a hope for a dialogue among civilizations, recommending that, “Member States of the United Nations should endeavour to remove barriers from the way of dialogue among cultures and civilizations and should abide by the basic precondition of dialogue. This fundamental principle rejects any imposition and builds upon the premise that all parties to dialogue stand on essentially equal footing” (Khatami September 5, 2000).

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When he articulated this desire for the establishment of a more conciliatory stance toward “Western civilization,” thereby indicating a preparedness to resume economic and perhaps even political relations with the countries of the West, Khatami spoke not only for himself but also for his Second of Khordad supporters. Although the affiliates of prominent statist groupings such as MRM and SMEE had previously held steadfastly to the revolutionary goal of building a strong economy on the basis of local investments and indigenous technologies, by the late 1990s, they were more open to the idea of entering into dialogue with the outside world. While they still had concerns about foreign exploitation of the economy, many of them came to believe that foreign investment could be beneficial for the country, if managed correctly (Ansari 2006a: 116). But why did these individuals, who had previously been so suspicious of Western motives, and who remained protective of their country’s independence, decide to champion rapprochement with the West at this time? Perhaps it was because, having been purged from the majles in 1992, they had decided to modify their stance in the hope that this would help them to gain influence on the domestic political scene again, even if they did sit rather uneasily with their former opponents. Maybe, given the growing split between the pragmatists and the conservative mercantile elites during Hashemi-Rafsanjani’s second term, they had chosen to take advantage of this opportunity to ally with the pragmatists and thereby form a stronger front against the bazaar. Or possibly these statists of the revolutionary period had revised their views less self-consciously, with their decision to espouse this conciliatory stance more the result of a natural evolution of ideas than part of a pre-meditated strategy to gain power. Whatever the reason, it was nevertheless the case that, with only two ministries in the hands of the mercantile elites,5 Khatami’s first cabinet represented a strong coalition between pragmatists and statists-turnedreformists, all of them keen to promote dialogue with the outside world. However, although the views of pragmatists and reformists increasingly converged during the Khatami period, with constructive cooperation between the two groups welcomed by those desirous of change and reform in Iran, Khatami’s call for a dialogue among civilizations was critiqued by the other two groups. Morteza Nabavi, for example, argued that Iran should not even be considering a resumption of relations with the United States, a country that “insults our religion and our prophet” (Resalat 2 Azar 1377/November 23, 1998). Like many others who maintained their ties to the conservative mercantile JRM, the Hawzeh, and the Mo‘talefeh, he believed that not only the government but also the private sector and ordinary citizens of the Islamic Republic should refrain from entering into any kind of dealings with the United States, explaining that, “there is supposed to be privatization of the country’s economy . . . nobody has said that the foreign policy of the country should also be privatized” (ibid). By stating that, “people are pretending like we are sorry for having taken the hostages, but we are not” (ibid), Nabavi’s stance was clearly at odds with

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Khatami’s aspiration for reconciliation with America. Of course, it should be noted that not all members of the conservative mercantile elite adopted such a hostile position: Ahmad Tavakolli, for example, conceded that if America were to stop seeking dominance, then relations could be permitted and might even be desirable (Azad 10 Azar 1378/December 1, 1999). But a significant number of mercantile elites were opposed to the policies of the Khatami administration, and they were joined by statist revivalists such as Majid Ansari, head of the Hezbollahi faction in majles, who also stressed that relations with the United States were not in Iran’s interest (ibid). Outside of Iran, while unsure about how seriously it could take the Iranian president’s conciliatory statements, the American response to Khatami’s dialogue among civilizations was generally positive. President Bill Clinton had ratified the Iran–Libya Sanctions Act (ILSA) in 1996, imposing secondary sanctions on any company investing more than US$20 million in any one year in the Iranian oil industry, an act that had surely done little to reduce anti-foreign feelings in Iran at a time when concerns about a foreign debt crisis were only just beginning to abate. But following Khatami’s election and subsequent talk of reconciliation, the Clinton administration began to relax its position on Iran. In May 1999, it signed an agreement with the European Union that allowed a consortium including the French firm Total SA, Malaysia’s Petronas, and Russia’s Gazprom to proceed with its US$2 billion petroleum exploration deal with Iran, effectively waiving the 1996 ILSA in return for certain guarantees that the EU would help the United States to prevent Iran from acquiring weapons of mass destruction. However, while this move did open the doors for a wave of international oil companies to come forward and consider possible buy-back projects in Iran, ILSA has continued to inhibit foreign participation in the Iranian oil sector. Nevertheless, American overtures to Iran, which peaked in March 2000 with Secretary of State Madeleine Albright’s public apology for America’s role in the 1953 coup d’état to remove Prime Minister Mosaddeq from office, offered much hope to the reformist government. The reformists were also encouraged by the impression of Iran held by the rest of the world, which began to improve soon after Khatami’s election. In late 1997, those European ambassadors who had left Iran earlier that year, in response to a German court’s verdict that certain members of the Iranian intelligence had been responsible for the 1992 murder of four Iranian Kurds in the Mykonos restaurant in Berlin, returned in the belief that a new era had now commenced under the Khatami presidency. Two years later, in 1999, Britain and Iran jointly upgraded their relationship to ambassadorial status following the settlement of the Rushdie affair. Building on these positive signs, Khatami went to Europe, his trip to Rome in March 1999 the first made by an Iranian head of state to the West since 1979. During his three-day stay in France in October 1999, Khatami stressed that economic relations should be seen as “separate from political relations” (Azad 8 Aban 1378/October 30, 1999), thereby encouraging French businessmen to invest in Iran regardless of any remaining political tensions with the

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West. In addition to an anticipated French loan of US$1.5 billion, Iranian officials also hoped that foreign direct investment would be encouraged by Khatami’s trip to France (Azad 3 Aban 1378/October 25, 1999). Of course, the 1998 UN decision to proclaim the year 2001 as the United Nations Year of Dialogue among Civilizations served as an important motivation for the international community to reduce the tensions that had prevented business endeavors such as these in the past. But to what extent would this amelioration of Western attitudes toward Iran bring about a further shift of reformist views on the desirability of foreign involvement in the economy over the coming years? It is to an examination of this question that the discussion now turns.

An economic middle ground Where Hashemi-Rafsanjani’s administration had sought to attract the return of Iranians living abroad, and to encourage foreign business interests to participate in the Iranian post-war economy, Khatami’s administration was interested in improving Iran’s reputation overseas by entering into a meaningful dialogue with the global community. Clearly, each of the two presidents chose to emphasize a different aspect of Iran’s position vis-à-vis the outside world. However, the overall foreign policy message of the two men was largely consistent: rapprochement with the outside world should no longer be seen as an abandonment of revolutionary principles. But when it came to economic policy, the situation was altogether different. Here, Hashemi-Rafsanjani represented a group that favored pro-mercantile privatization and a relaxation of state control over the economy, while Khatami came from a group that favored statist solutions and a keen attention to poverty and income distribution. Yet, in spite of this, many of those who had supported HashemiRafsanjani’s economic approach also stood behind Khatami after 1997, so how exactly did the broad alliance of the Second of Khordad Front encompass these two apparently contradictory economic perspectives in practice? Clearly, President Khatami found himself at the head of an uneasy partnership in 1997 (Behdad 2000: 135). While many in the Western media initially presented his landslide election as a confirmation of Iran’s slow but sure progression toward moderation,6 in fact Khatami was bound by his past to follow a rather more unexpected path in the future. Given the multidimensional nature of the Second of Khordad Front, a multidimensional economic approach with clear differences from that of the Hashemi-Rafsanjani era was sure to be adopted from 1997 onward. Indeed, even though many in the reformist camp had loosened their strict demands for statist control and accepted the usefulness of a mixed economy, they continued to focus on the need for social justice rather than economic growth. But they had to now work alongside and in cooperation with those for whom economic growth was the priority. Furthermore, since the broader social environment could not but influence the array of policy options available to the new government, the corruption

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charges that had been put to Hashemi-Rafsanjani’s administration were bound to have an influence on the economic policies pursued under Khatami. Many believed that a new “thousand families” (Ansari 2006a: 58) had emerged under Hashemi-Rafsanjani’s watch, a select club of the mercantile elite benefiting from the financial perks that accompanied their support for HashemiRafsanjani. Similarly, the impressive influence of the country’s revolutionary foundations (bonyads), which had managed to ensure that neither their subsidies nor their access to preferential foreign exchange were restricted by the government, indicated that corruptive forces were at work more broadly, across both the public and the private sectors, under the pragmatist president (Maloney 2000). Consequently, it was important for the new administration to be seen to be responding to these problems of the previous period: the same path of economic liberalization could not be carried on blindly. Accordingly, shortly after Khatami’s election, efforts were made to fight corruption and start a new phase in the Islamic Republic’s economic strategy. The irony of the situation was that Khatami, a man who had entered into the Iranian political scene with very little interest in economics at all, would end up having to devote so much energy to improving the country’s economy and restoring its image on the domestic as well as the international arena. Exactly how he did this, and with how much emphasis on each aspect of the multidimensional approach projected by the Second of Khordad Front, is the focus of the following discussion. In particular, it will be shown how an economic middle ground was established, with recognition of the need for both social justice and economic growth. Prioritising social justice In the lead-up to the 1997 presidential elections, Khatami had spoken of his views and opinions on a wide range of topics, outlining the plans and programs that he hoped to implement if voted into office. However, while he widely discussed his general approach to matters in the social and cultural realms, he paid much less attention to economic affairs. The official statement of Khatami’s “political and economic plans” (Salam 5 Farvardin 1376/March 25, 1997) comprised 12 points, and out of these the only one that made any reference to the economy simply stressed the importance of achieving political development alongside economic construction. Both here and in many of his other pre-election statements, Khatami emphasized the need for justice and security, for freedom of speech and strong social institutions, for increased political participation of the Iranian people, and for government protection of national interests on the global arena. He stressed that, “the Islamic government is the servant of the people, not their master” (ibid), and he reassured the electorate that government would respond to their requests. However, unlike his predecessor, he did not embark on any detailed proposals of precisely how he would solve the nation’s economic problems.

110 Iran’s struggle for economic independence This omission is perhaps due to that fact that, although the general economic outlook of most reformists had begun to move more in line with that of the pragmatists by this stage, Khatami himself suffered from a lack of economic expertise. Furthermore, having been largely excluded from both the executive and the legislative branches of government in the period after 1992, the reformists as a group also lacked sufficient first-hand experience of the everyday running of the Iranian economy. In the words of Mas‘ud Nili (deputy head of the PBO in charge of economic affairs and coordination from 1997 until 2000), “Mr Khatami . . . and his supporters . . . did not have a clear and defined economic policy; they had a predominantly political and cultural approach to the problems [facing the country]” (Ahmadi-Amui 1383/2004– 2005: 323). Khatami was a cleric and a philosopher, not an economist, and those who backed him in the 1997 elections were focused more on promoting political development than they were on bringing about economic growth. They believed that only after social justice had been achieved, and the active participation of all sectors of the population in political affairs secured, could a sustainable development of the economy be realized. Therefore, the reformists were largely critical of the economic policies that had been pursued under Hashemi-Rafsanjani’s presidency, even though they did approve of the approach that had been followed by this pragmatic government in other areas. For example, Mohammad Salamati of SMEE was willing to admit that Hashemi-Rafsanjani’s expansion of relations with Europe, Russia, China, Japan, and India had been a positive step. In particular, he agreed that, “in order to struggle against America and England, we must establish appropriate relations with those countries that are in some way opposed to these two countries” (Sobh Bahman 1375/January–February 1997). However, Salamati also pointed to the high inflation, increased prices, and rising debt that Iran had experienced as a result of this government’s program of economic liberalization. He suggested that the main reason why these poor economic policies had been followed during the Hashemi-Rafsanjani period was because political influence had been monopolized by a broadly mercantile alliance at this time. Consequently, he anticipated that if political participation were widened to allow the expression of a more balanced range of economic outlooks, and social justice were afforded greater attention, better economic policies would automatically follow suit. Many of Salamati’s partners in the reformist camp shared this assessment of the post-1992 political and economic state of the country, and similarly hoped for a more positive situation in the future. In particular, it was widely believed that the mercantile elites and the pragmatists had formulated the economic policies of the Second Five-Year Plan with their own interests rather than the national interests in mind. Many reformists argued that the steps taken by Hashemi-Rafsanjani’s government toward initiating privatization had failed to transfer capital from the state to the people in a fair and equitable manner (Asr-e Ma 29 Farvardin 1375/April 17, 1996). Instead, these steps had benefited a small group of families with privileged ties to the state (Sobh

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Bahman 1375/January–February 1997), thereby further blurring the boundary between state and business. In short, corruption and rent seeking were increasing, while the Islamic Republic’s duty of ensuring social justice and protection of the poor was being compromised. In response, the reformists made a commitment to bring economic policies back in line with what they perceived to be the original revolutionary ideals. This path was confirmed with President Khatami’s announcement that his government would prioritize social justice over economic growth at any cost (Resalat 12 Mordad 1377/August 3, 1998). Such a mission clearly presented a direct challenge to many in the mercantile camp, and positioned the two groups in stark contrast to each other. Nevertheless, as was indicated by Khatami’s call for a dialogue among civilizations, the reformists had modified some of their views by this time, and this was seen in the economic as well as in the political sphere. Whereas the statist group of the early post-revolutionary period had favored extensive state control of the economy and opposed the use of foreign investment, those statists who evolved into reformists were in favor of a mixed economy and they were also willing to use limited foreign investments on the condition that economic independence could be assured (Salam 5 Farvardin 1376/ March 25, 1997). The reformists did not want to revert to the economic policies that had been in place during Musavi’s premiership, but neither did they want to continue with those that had been introduced by Hashemi-Rafsanjani’s government. As such, they aspired to a middle ground, where social justice would reign supreme while at the same time an increase of economic competitiveness, investment, and production would be achieved. However, as they had few detailed policies directed at realizing this ambitious aim themselves, Khatami found himself retaining a significant number of economic advisors and even cabinet members who had served under HashemiRafsanjani, thereby consolidating the newfound alliance between reformists and pragmatists. Indeed, with the new president awarding six ministerial positions to pragmatist members of the previous government, keeping Mohsen Nurbakhsh as head of the Central Bank, and Bizhan Zanganeh as minister of energy, a continuous thread can be followed from the Hashemi-Rafsanjani period into to the Khatami era. Nurbakhsh and Zanganeh were members of the Servants of Construction Party (Hezb-e Kargozaran-e Sazandegi, or Kargozaran), a recently formed political grouping that had backed Khatami in the presidential elections of 1997. The Kargozaran party was established by a group of pragmatists in January 1996, just before the elections for the fifth majles, in a move to cut their ties with the traditional mercantile elite. Fearing that their former allies would gain dominance of the majles and pass through legislation that would “slow down the country’s reform programs” (Kargozaran 1378/1999–2000: 2), these one-time Hashemi-Rafsanjani supporters formed a separate faction that shared many aims with the newly emerged reformists, even though Hashemi-Rafsanjani himself remained more closely tied to the

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conservative mercantile elites as a member of the JRM. The primary goal of the Kargozaran was to “change the political atmosphere of the country and support the continuation of construction programmes . . . and defend the industrialization programme” (ibid). By supporting a modern and industrial economy, they hoped to remedy many of Iran’s ills. Although the Kargozaran were not successful in driving supporters of the conservative mercantile elite from the new majles completely,7 they perceived their “relative success in the fifth majles elections” (ibid: 3) to have served as a “source of encouragement for all groups to participate in the presidential elections” (ibid). They praised the election of Khatami and declared that, “hope for the completion of the various political, cultural and economic reforms that had been ceased or left half-finished in the previous period has now been revived” (ibid). However, alongside his decision to reward these Kargozaran for their loyalty and support, Khatami placed 13 ministries in the hands of his own reformist supporters, including Hosayn Namazi at the Ministry of Economic and Financial Affairs, Eshaq Jahangiri at the Ministry of Mines and Metals, and Mohammad Shari‘atmadari at the Ministry of Commerce. Of course, these new ministers all had technocratic tendencies and considerable high-level administrative experience. As such, they had an economic outlook that was not dissimilar to that of their pragmatist colleagues. Nevertheless, they were determined that social justice and the use of state subsidies to help the poor and needy should not be ignored or even minimized. Recognizing the need for growth Coming into office in 1997, Khatami’s government had to face the harsh reality of an ailing economy. Specifically, the various economic problems from which the country was suffering at this time were overshadowed by falling oil revenues. As can be seen in Table 5.1, crude oil prices dropped significantly in 1998, caused largely by the shocks of the Asian currency crisis and the Russian debt crisis. Given that oil production also dropped at this time, the revenues acquired by the Khatami administration from the sale of this important resource were insufficient to deal effectively with the various challenges created by the existence of a serious budget deficit, rising unemployment alongside a growing population, a weakening currency, and a flight of capital investment.8 Table 5.1 Oil exports and prices, 1996–1998 Year

Oil exports (million barrels per day)

Oil prices (US dollars per barrel at constant 2009 prices)

1996 1997 1998

2.44 2.34 2.30

28.26 25.52 16.74

Source: BP (2010) and Central Bank of the Islamic Republic of Iran (2010).

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In response to these difficulties, contrasting solutions were put forward by each of the two main economic trends in government. On the one hand, there was the group represented by the head of the Planning and Budget Organization, Mohammad Ali Najafi, which favored a mixed economy and tended to make the same recommendations as the Central Bank’s Mohsen Nurbakhsh, a loyal member of the Kargozaran party. But there was also an opposing trend, represented by Hosayn Namazi at the Ministry of Economic and Financial Affairs, which continued to favor a largely state-controlled economy and supported only a restricted development of the private sector.9 Consequently, it proved difficult for Khatami to decide on a suitable economic remedy that would neither emulate the state-controlled economy of the war years nor follow the economic liberalization of the Hashemi-Rafsanjani period. After lengthy deliberation, Khatami decided to follow a path that was clearly influenced by the PBO’s recommendations. The Economic Rehabilitation Plan (Tarh-e Samandehi-ye Eqtesadi) that the president announced in the summer of 1999 placed emphasis on the supremacy of social justice, but at the same time it recognized the urgent need to create more employment opportunities, increase competitiveness in the economy, secure resources for further domestic investment, and even attract foreign investment from nonIranians as well as from Iranians living abroad (Resalat 12 Mordad 1377/ August 3, 1998). As shown in Table 5.2, net foreign investment inflows to Iran remained very low in spite of the upturn that was experienced following the cessation of the Iran–Iraq war, and so the attraction of investment from abroad was considered to remain a serious challenge for the Islamic Republic. Indeed, although some elements in the Ministry of Economic and Financial Affairs continued to oppose the use of foreign investment, many of Khatami’s supporters had come to the conclusion that the attraction of foreign technology and know-how was vital to the rehabilitation of the economy, so long as Table 5.2 Inflows of foreign direct investment (FDI) to Iran, 1989–1999 Year

In millions of US dollars (at current prices and exchange rates)

As a percentage of GDP (%)

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

–19.4 –362.0 22.6 8.5 207.6 0.3 8.8 20.5 43.0 37.6 15.6

–0.02 –0.40 0.02 0.01 0.19 0.00 0.01 0.02 0.04 0.04 0.01

Source: United Nations Conference on Trade and Development (2010).

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“a delicate balance between independence and growth” (Asr-e Ma 23 Bahman 1376/February 12, 1998) could be assured. Article 33 of the Economic Rehabilitation Plan dealt explicitly with the issue of foreign investment, stating that foreign investment, both direct and in the form of buy-back contracts and project financing, should be seen as something that will benefit the country’s economy (Sobh-e Emruz 12 Mehr 1378/October 14, 1999). However, due to the existence of a variety of decision-making centers in the Islamic Republic, the implementation of any specific policies aimed at realizing the rehabilitation plan’s stated aims proved problematic in practice. Nevertheless, following majles approval of the Third Five-Year Plan, a clearer approach to managing the economy was thought to have finally been achieved. While it had previously been required that the government’s development plans should follow the objectives set down by Khamene‘i and then undergo rigorous scrutiny by the majles, a new procedure was conceived for the formulation of the Third Five-Year Plan. First, the Khatami government presented to Khamene‘i a list of the key goals that were to be pursued in the plan, rather than the other way round. Second, once Khamene‘i had received the Expediency Council’s assessment of these targets and given them his approval, the government worked in tandem with the majles to formulate the plan’s general guidelines. Finally, the government alone was left to draw up the Third Five-Year Plan’s precise sectoral and regional policies on a yearby-year basis, to be considered by the majles alongside the annual budget proposals (Majles Debates 24 Shahrivar 1378/ September 15, 1999). The end result of this new approach was a development plan that suffered from far fewer inconsistencies than had been the case with the preceding plans, as there was no longer such a variety of competing interests involved in its composition. With greater autonomy given to the government to decide upon specific policies each year, the new plan was more flexible to changing conditions than had previously been the case. However, Khamene‘i’s May 1999 announcement of the Third Five-Year Plan’s main objectives confirmed that the Khatami government would not steer the country’s economy far from the original revolutionary ideals, thereby indicating the continued influence of the supreme leader and other appointed bodies over the policy-making process. Again, the protection of social justice was placed at the top of the list of priorities, and the strengthening of “revolutionary values” in the face of a “cultural invasion” from abroad was also emphasized (Salam 2 Khordad 1378/May 23, 1999). In addition, the “close observance of national interests and of the articles of the constitution, and avoidance of foreign domination in the attraction of foreign resources” (ibid) was included as an aim. Therefore, even though the economic targets of the plan were relatively ambitious—an annual economic growth rate of 6 percent, the creation of 765,000 new jobs each year, a reduction of inflation, and an increase in state and private sector investment by 5 percent and 8.5 percent respectively (Majles Debates 24 Shahrivar 1378/September 15,

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1999)—the cautious attitude toward foreign capital inflows that had prevailed in the Second Five-Year Plan was maintained. On presenting the government’s bill for the Third Five-Year Plan to the majles, Khatami referred again to his policy of ensuring social justice alongside economic growth. He argued that, “economic growth and economic development is not desirable without the attainment of similar growth and development in political, social and cultural arenas. However, political development without attention to economic development will also lead to . . . an unnecessary competition between poverty and freedom” (ibid). The continued resistance to any further expansion of Iran’s use of foreign capital was thus in keeping with Khatami’s more general view that moderate and gradual developments needed to be taken side-by-side in the economic and the political realms. For now, it was enough to maintain the same approach toward foreign investment as had been adopted by the previous government. Thus, when the Third Five-Year Plan was passed by the majles on 20 November 1999 (Azad 30 Aban 1378/November 21, 1999), its restrictions on foreign debts and undertakings were the same as those that had been included in the previous plan. Specifically, it gave permission to the government to take out or guarantee foreign financial facilities in its annual budgets, on the condition that annual repayments of foreign debts and undertakings should not exceed 30 percent of the government’s foreign exchange income (Third Five-Year Plan: Article 85). It also stated that, “in the use of foreign facilities, priority will be given to long-term facilities” (ibid). Furthermore, as in the Second Five-Year Plan, the total value of all debts and undertakings in the final year of the plan was not allowed to exceed US$25 billion. Finally, all projects using foreign finance had to be justifiable in technological, economical, and financial terms, and any contracts worth more than US$1 million had to be announced in the national press (ibid). Other than the Khatami government’s own stance and the influence exerted over it by the supreme leader, the views of the deputies of the fifth majles also contributed to the formulation of another development plan that placed limits on the Islamic Republic’s use of foreign capital. Many of these deputies held the same concerns about foreign cultural invasion and external domination of the domestic economy as those that had been raised by the fourth majles in its discussions of the previous plan. Consequently, although Mohammad Baqer Nawbakht (spokesman of the majles committee investigating the plan) confirmed that the current limits on foreign undertakings would be maintained over the next five years, this did not satisfy all parties. For example, deputy Esma‘il Dusti made harsh criticisms of the Third Five-Year Plan’s “severe reliance on foreign resources and investment . . . without paying attention to the unsuccessful experiences of the previous two plans” (Majles Debates 19 Aban 1378/November 10, 1999). In addition to such comments, which revealed the extent of concern in the majles about the potentially negative impact of the government’s continued use of foreign capital, announcements made by the conservative Guardian

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Council also served to slow down any move toward an increase of foreign investment. The head of the Guardian Council, Ayatollah Ahmad Jannati, had warned foreigners against seeking to interfere in Iranian domestic affairs. He said that if they were interested in establishing business relations with Iran, they could only do so if these relations were “equal and just” (Resalat 3 Mordad 1377/July 25, 1998). As had been the case throughout the Musavi premiership, the Guardian Council proved to be an overwhelmingly powerful conservative mercantile force, determined to stand in the way of whatever the opposing branches of state hoped to achieve. Consequently, when the Khatami government passed a new mining law that gave foreigners permission to invest in Iranian mines and metals (Salam 1 Khordad 1378/May 22, 1999), an area where their participation had previously been prohibited, the message was far from clear. On the one hand, warnings against foreign investment were being issued; on the other, invitations were being proffered. And all the time, the Khatami government continued to speak of the need to avoid foreign domination of the domestic arena at all costs. It was only after the election of a majority of reformist deputies into the sixth majles that the government gained the support of an additional force in promoting its new approach toward foreign investment. Elections for this majles took place on February 18, 2000, and as had been the case with Khatami’s election to the presidency on May 23, 1997, voters turned out in strong support of candidates affiliated to the various groups of the Second of Khordad Front. In spite of various attempts on the part of the Guardian Council to delay ratification of the election results (The New York Times May 21, 2000), the new majles convened on May 27, 2000 with up to 70 percent of the deputies sympathetic to Khatami’s administration (The New York Times May 28, 2000). Having been to a large extent at loggerheads with a predominantly mercantile parliament for the previous three years, now the government was presented with a rare opportunity to work with a majles that shared its own reformist outlook in both cultural and economic affairs. Many observers therefore anticipated that great strides would be made toward further reform over the coming years. However, what the outcome of the parliamentary elections would mean for the future of economic policy in Iran was not immediately apparent. In the run-up to the elections, the monthly Eqtesad-e Iran [Iran Economics] compared and contrasted the positions of the main political groupings on the topic of foreign investment. While the leading reformist group, the Islamic Iran Participation Front (Jebhe-ye Mosharekat-e Iran-e Eslami, or Mosharekat), declared itself to be fully supportive of foreign investment in the Iranian economy, other reformists took a more cautious stance. Mohammad Salamati, now head of the Organization of the Mujahedin of the Islamic Revolution (SMEE), reiterated his view that, “the use of foreign investment threatens the economic independence of the country and it should only be

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allowed if there is not enough investment for development projects or if we had sufficient provisions to implement stringent controls on foreign investment” (Eqtesad-e Iran Bahman 1378/January–February 2000). Even the Kargozaran favored only conditional support of foreign investment, with a spokesperson for the party noting that, “if we go beyond a certain line, we will give up control of the economy, politics and culture of our country” (ibid). So, while some members of Khatami’s cabinet had expressed a willingness to make use of foreign resources in their support for the new mining law, many of their reformist supporters remained more apprehensive in this regard. It was not necessarily the case, therefore, that the reformist sixth majles would be prepared to work with Khatami’s government to promote foreign investment any more than the mercantile fifth majles had done before it. However, as they were supporters and not opponents of the government, it was possible that these reformist deputies might gradually change their views and come to tolerate the economic policies put forward by Khatami’s pragmatist ministers. Indeed, even some sections of the conservative mercantile elite now accepted that certain benefits could be secured through an influx of foreign investment, thereby proving that economic outlooks were by no means fixed. The mercantile Islamic Society of Engineers (Jame‘eh-ye Eslami-ye Mohandesin, or Mohandesin), for example, had fought against the government’s proposals to increase foreign borrowing in the Third Five-Year Plan, but now it declared conditional support for foreign investment in Iran (ibid). The Mo‘talefeh similarly accepted the principle that, “we should use foreign investment as much as is necessary and with the approval of parliament, of course on the condition that the fundamental independence of the country is protected” (ibid). Consequently, it was possible that the reformists in the sixth majles might also relax their stance on foreign investment over time, although appointed bodies such as the Guardian Council would of course retain the power to resist their attempts at reform.

A new law on foreign investment The Law for the Attraction and Protection of Foreign Investment (LAPFI) had been introduced in November 1955, not long after the CIA-organized coup removed the nationalist Mohammad Mosaddeq from his post of prime minister and reinstalled Mohammad Reza Shah Pahlavi to the throne. While initial preparations for the LAPFI had been made during Mosaddeq’s premiership, ensuring that provisions were included in the law to protect the country from economic exploitation by outside forces, it was finalized at a time when Western influence over Iran was by no means inconsiderable. Therefore, it was perhaps surprising that any post-revolutionary group should want to revise this existing document, which already gave to foreigners the same rights and privileges as those enjoyed by domestic investors in Iranian industry, mining, agriculture, and transport, and award these foreign investors with even

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greater benefits.10 The 1955 law remained in force under the Islamic Republic, and yet many pragmatists and reformists were increasingly of the opinion that it was necessary to promote increased inflows of foreign capital through a more favorable foreign investment law. As the Guardian Council could not be persuaded to clarify Article 81 in such a way that foreign investment in Iran might be facilitated, steps were taken to amend the LAPFI instead. However, this was not the first instance of such steps being taken in Iran’s post-revolutionary history. As early as 1994, Mohsen Nurbakhsh’s replacement as minister of economic and financial affairs, Morteza Mohammad-Khan, had stated his government’s policy of attracting foreign investment. Stressing that, “in reality, there is no barrier to foreign investment in Iran” (Resalat 15 Tir 1373/July 6, 1994), Mohammad-Khan had indicated the strength of the Hashemi-Rafsanjani government’s desire to reassure foreigners of the country’s suitability for investment. He went on to announce that, “in order to present greater facilities to investors” (ibid), a new plan for attracting foreign investment had recently been presented to cabinet with a view to replacing the 1955 LAPFI.11 Of course, in 1994 the dominant view of foreign investment in both the majles and the Guardian Council was one of opposition, especially considering the foreign debt crisis that was perceived to have resulted from the country’s first five-year development plan. Consequently, when faced with so many other issues to discuss and pieces of legislation to consider, this bill was largely disregarded. Proposals to revise the LAPFI were thus shelved, not to emerge again until six years later, following the election of a majority of reformist deputies. The steps that were taken toward adapting the Islamic Republic’s legal framework on foreign investment during the period of the sixth majles will be examined below. The lengthy process of revising the 1955 Law for the Attraction and Protection of Foreign Investment, which was finally passed in May 2002 as the Foreign Investment Promotion and Protection Act (FIPPA), will receive particular attention. It will be seen that while the majority of deputies in the majles supported the government’s bill to update this law, some groups voiced concerns that it might jeopardize the country’s independence and leave the economy open to possible domination by foreign interests in the future. In particular, it will be highlighted how the powerful position of the Guardian Council enabled mercantile interests to shape economic policy in spite of their apparent decline at this time. Finally, the manner in which the debates within and among different branches of the state played out over the question of foreign investment will serve as an illustration of the complexity and uncertainty of the country’s evolving economic policies. Growing calls for change Since most of those affiliated with the Second of Khordad Front came from a largely statist background, which was not typically associated with openness to the outside world, it is pertinent to begin this discussion of the revised

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foreign investment law by considering the process by which these statiststurned-reformists came to endorse a more relaxed stance on foreign investment. Of course, some reformists already counted themselves among the group of pragmatists and technocrats that had supported Hashemi-Rafsanjani’s presidency, and it was to be expected that they would seek to open up the country to foreign investment during the Khatami period. However, it was surprising that so many former statists chose to support their newly acquired allies in this particular project, especially after such a short time in the new majles. The fact that they did so has generally been put down to the idea that responsibility forces everyone to confront reality.12 Specifically, it is often argued that, as they faced serious economic problems and tough societal demands, the reformists had no option but to compromise their ideal of a self-sufficient and independent economy, and consider foreign investment at this time. However, they were also encouraged to increase the economic participation of foreigners and Iranians alike by their belief that this would complement the increased political participation that they were keen to achieve. Even before the election of the sixth majles, the pragmatic-minded of Iran’s economic and political actors had started to think quite seriously about the need for foreign investment. Articles in the press increasingly discussed foreign investment as a possible solution to the country’s economic ills, and Eqtesad-e Iran led the way by devoting an entire special issue to the matter (Eqtesad-e Iran Azar 1378/November–December 1999). This monthly magazine, which represented industrial and entrepreneurial interests that stood to benefit from an increased inflow of capital from abroad, called for the state’s position on foreign investment to be more clearly defined, and for foreign policy brought in line with economic policy in such a way that the government might enjoy greater bargaining power when negotiating with foreigners for new investment deals in the future. It argued that the more Iran distances itself from the rest of the world, and the less the domestic economy is able to answer the needs of its own investors, the more the country will be obliged to “lay out the red carpet for foreign investors” (ibid). At the same time, various government research centers had begun to examine in depth the status of foreign investment in Iran, considering the various reasons for its absence in the recent past. At the end of the fifth majles’s term, the Majlis Research Center carried out several assessments of the approach to foreign investment pursued in the first and second five-year development plans.13 One of these noted that while, “in the not so distant past, foreign investment was seen as a form of imperialist domination, . . . now the positive aspects have been understood” (Majlis Research Center Ordibehesht 1378/April–May 1999). It listed both the benefits and the disadvantages of foreign investment, but overall it argued that at least investment from abroad was preferable to borrowing from abroad. The report concluded that although the attraction of domestic investment should be the top priority, the laws relating to foreign investment needed to be made more transparent so that

120 Iran’s struggle for economic independence capital from abroad might be used where local investment was lacking. The general view propounded by all Majlis Research Center reports was that as long as it was carried out in a fair and just manner that assured Iran’s national interests, then investment from abroad was tolerable. In particular, it was acknowledged that insufficient oil revenues had left the government with very little choice but to consider taking steps toward encouraging foreign investors to participate more extensively in the country’s industrial and development projects. Foreign investment would be a good way to inject the much-needed foreign exchange into the economy, which could be used to supplement domestic investments. Furthermore, it would serve to instil a spirit of competitiveness that might help Iranian industrial goods to sell more widely in the global market; it would result in a transfer of technology and know-how; and it would create new employment opportunities for the mass of jobless Iranians (Majles va Pezhuhesh Mehr–Aban 1378/September– November 1999). In order to secure this vital investment, certain changes to the framework of laws relating to foreign investment had to be implemented. Ideally, Article 81 of the constitution should be clarified.14 But if this proved too difficult, they said that the LAPFI ought to be revised instead, so that the conditions and restrictions applied to foreign investors in Iran could be further clarified. The main weakness of the 1955 LAPFI was considered to be its lack of transparency (Entekhab 22 Ordibehesht 1378/May 12, 1999). For example, the basic key terms of the law—such as foreign investment, foreign investor, and investment plan—were not clearly defined (Zonuz 1379/2000–2001: 264). Nor was it made clear whether or not foreign investors could give credit or other kinds of financial assistance to Iranian companies, instead of taking on a specified percentage of shares in an Iranian company, and still be protected by the provisions of the LAPFI (ibid: 265). Additionally, there were ambiguities related to the time period within which the initial investment was required to be brought into the country once a contract had been signed (ibid: 269). Considering these problems, many were increasingly calling for particular changes that might clarify the LAPFI. However, as will be seen by examining the discussions that were held on the subject of the proposed new law below, not all members of the Iranian political elite were in support of the reformist attempts to amend the law. Debating the majles proposals In the summer of 2000, the majles economics committee presented its proposal to introduce a plan for the attraction and protection of foreign investment. Muhammad Shahi-Arablu, the deputy head of this committee, introduced the proposal by drawing attention to the fact that the Third Five-Year Plan had called for the realization of an economic growth rate of at least 6 percent and the creation of 765,000 jobs each year, and as such he suggested that further economic reforms would be needed to meet these goals (Majles Debates

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2 Shahrivar 1379/August 23, 2000). In particular, he warned that, “if we don’t reach [these targets], we can be certain that we will be confronted with difficulties at home . . . and problems of national security” (ibid). For Shahi-Arablu and the other reformist supporters of a new foreign investment law, taking steps to encourage the entry of foreign investors into the Iranian economic arena would not only boost economic growth and provide employment for jobless Iranians; it would also reduce the risk of social disorder and political crisis that might result from a continuation of the country’s current economic problems. At the same time, of course, a revised foreign investment law might support the processes of privatization and economic liberalization that were favored by reformists and their supporters. However, there were several majles deputies who contested his argument. Mohammad Mir-Mohammadi, who sat on the planning and budget committee, stood out as one of the most vocal opponents to the proposed course of action. He argued that the proposal under discussion could never be a panacea for all of Iran’s economic ills. Furthermore, he cautioned his colleagues about the potential dangers of pursuing increased foreign investment, pointing to the negative experience of Brazil in particular. He suggested that an influx of foreign investment into Iran would lead to indebtedness, not the creation of employment. Nevertheless, he conceded that if the correct safety nets were put in place, some benefits might be secured. He noted that foreign dominance in the sense of foreign occupation was no longer a risk for Iran; instead, foreign domination took the form of the consumption of foreign goods and the brain drain of young people. Therefore, he argued that, “it is more damaging . . . for our youth to seek employment elsewhere than for us to accept foreign investment” (ibid). In so doing, he indicated that opposition to the plan would be focused on the precise details rather than on the general idea of foreign investment itself. Throughout the majles debates of the plan for a new foreign investment law, which was put forward by the economics committee in April 2001, most concerns voiced were in fact related only to certain aspects of the proposals being made. Again, Mohammad Mir-Mohammadi featured prominently. He emphasized the prohibition of the granting of concessions in Article 81 of the constitution, suggesting that any disregard for this backbone of the Islamic Republic would lead to foreign domination. In accordance with this view, he opposed the proposal to provide a precise definition of the term concession in the new law. He argued that this would be tantamount to altering a constitutional decree, and recommended that the organization in charge of considering applications for foreign investment should evaluate projects’ compatibility with the constitution on a case-by-case basis instead (Majles Debates 25 Ordibehesht 1380/May 15, 2001). However, the majority of majles deputies took little heed of his comments, and went on to vote in favor of defining a concession as anything that is granted to a foreigner without also being available to domestic parties. As such, foreign investment would not

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be in contravention of Article 81 of the constitution, and any ambiguities about this matter that might have existed before were sought to be removed. Nevertheless, Mir-Mohammadi remained worried lest the new law facilitate the inflow of foreign investment into the country at the expense of domestic investment. He asked, “at what cost are we willing to attract foreign investment?” (ibid), and insisted that the majles ought to help domestic investors before taking steps to aid investment from abroad. In a similar vein, Hasan Sobhani stressed that foreigners should not enjoy any benefits that are denied to Iranians. Nevertheless, despite of the various objections raised by Sobhani, Mir-Mohammadi and others, the majles passed the economics committee’s proposed plan for a new LAPFI with very few changes on May 16, 2001. Afterwards, Sobhani complained in an interview with the author that any attempt to alter the plan had been interpreted as no less than a direct attack on the government and the Second of Khordad movement. Therefore, he maintained that there had been little chance of success for those deputies hoping to amend the plan and bring it more in line with what they perceived as the country’s national interests. Indeed, while some members of the majles had remained skeptical of the purported benefits of this proposed plan, the reformist majority had paid little heed to their concerns. It was with a strong belief in the need for foreign investment, brought about largely by their conviction that foreign investment would bring significant benefits to industrialists and entrepreneurs in the private sector, that this majority had voted in favor of the new legislation. However, there were many more outside of the majles who were interested in slowing down the apparently unrelenting movement toward reform. For example, while Ahmad Maydari, a member of the majles economics committee and a vocal defender of the new foreign investment plan that he himself had helped to devise, insisted that, “a country can have relations with foreigners and still retain its own authority in full” (Hamshahri 2 Tir 1380/June 23, 2001), the statist former minister of economic and financial affairs, Mohammad Javad Iravani, strongly disagreed. Iravani recommended that the government should first evaluate the extent to which foreign investment would actually answer the country’s needs before proceeding with its current plans. Furthermore, he advised against exaggerating the future benefits of foreign investment, and warned that economics remains a “tool of domination” (ibid). Strong objections to the majles-approved plan for a foreign investment law came from conservative mercantile elites and statist revivalists alike. Not only were these two groups strategically opposed to the reformists and everything they did, but also many of them insisted that the new foreign investment law would have a damaging effect on the domestic economy, including by extension their interests within it. The Guardian Council voiced the concerns of these counter-reformist groupings most forcefully, and with greatest effect. In June 2001, it ruled that several points of this plan to attract and protect foreign investment were incompatible with the country’s constitution, and therefore could not be passed into law (Hambastegi 26 Azar 1380/

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December 17, 2001). According to this appointed body of Iran’s semiauthoritarian state, the plan would lead to foreign domination and the penetration of foreigners in the Iranian economy; it afforded Iranians living abroad benefits that were denied to Iranians at home, and supported foreign investors at the expense of domestic investors; it facilitated the removal of the country’s foreign currency by non-Iranians; and it weakened a “correct and self-sufficient economy” (Abrar-e Eqtesadi 26 Khordad 1380/June 16, 2001) by handing over concessions and monopolies to foreigners. Such a view was supported in several of the counter-reformist newspapers. Kayhan, for example, focused on the difficulties faced by domestic investors, and argued that efforts should have been made to support Iran’s own budding private sector before turning to foreigners in the hope that they might solve the country’s various economic problems (Kayhan 9 Khordad 1380/May 30, 2001). It also pointed to the fact that investors are not philanthropists, and maintained that the hoped-for technological advances would probably never be transferred to Iran from abroad (Kayhan 24 Azar 1380/December 15, 2001). Similarly, Jomhuri-ye Eslami discussed the economic dependency, plunder of natural resources, flight of foreign exchange, cultural damage, and growth of consumerism that had resulted from Iran’s previous experiences of foreign investment (Jomhuri-ye Eslami 3 Ordibehesht 1381/April 23, 2002). It also considered the possible security threats that could arise if foreign spies and political agitators took on the guise of businessman interested in investing in Iran. Unsurprisingly, many reformists were quick to defend the plan against such opposition. Deputy Ali Zafarpur, who was also a member of the majles committee for industries and mines, showed his frustration with the Guardian Council’s decision to dismiss the plan when he claimed that this body remained attached to a “mentality of 100 years ago” (Abrar-e Eqtesadi 26 Khordad 1380/June 16, 2001). However, an interesting feature of the debates over the LAPFI proposal was that the particular stance adopted by each of the participants was not necessarily dependent on their factional affiliation. On the contrary, there were some self-professed reformists, pragmatists, and industrialists who declined to defend the economics committee’s proposal, and other conservative mercantile elites who were supportive of it. For example, Musa Ghani-Nezhad, a prominent economist and supporter of the Kargozaran, argued that a replacement for the LAPFI would be unlikely to solve the country’s problems of unemployment and low economic growth, as without a secure and safe environment for domestic business, no amount of money from abroad would be able to help the Iranian economy (Entekhab 15 Azar 1380/December 6, 2001). On the other side, Ali-Naqi Khamushi, affiliated to the mercantile Mo‘talefeh grouping and the head of Iran’s Chamber of Commerce, Industries and Mines (ICCIM), an organization that is directed primarily toward the promotion of the traditional private sector’s trade (but not investment) links with the outside world, conceded that “in order to strengthen its unstable economy, Iran has no option but to attract foreign investment”

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(Resalat 6 Azar 1378/November 27, 1999). Nevertheless, while there were some exceptions such as these, most reformists did tend to support the proposed law, and many conservative mercantile elites opposed it. In light of this, with respect to the question of foreign investment at least, it was possible to place the Guardian Council, as a representative of the conservative mercantile elites and statist revivalists, in direct opposition to the predominantly reformist majles. But even though they were confronted with such vocal opposition from a range of forces seeking to protect their particular interpretation of Iranian economic independence as well as their own material interests in mercantile and state-run industrial activities, the reformist groups in the majles refused to give up after the initial setback of the Guardian Council’s negative ruling. On the contrary, they simply went back to the drawing board and prepared a slightly revised proposal for presentation to the Guardian Council.15 As Ali Hashemi, head of the Kargozaran faction in the majles, noted, if the majles were to alter the plan in full accordance with the Guardian Council’s criticisms, the essence of what they had been trying to achieve with this law would be lost entirely (Hamshahri 26 Khordad 1380/June 16, 2001). However, the Guardian Council was similarly determined to hold firm to its original evaluation, and therefore it was not possible for a compromise agreement to be reached. Even though numerous meetings were held between various representatives of the Guardian Council and the economics committee of the majles in an effort to reach consensus (Iran 28 Azar 1380/December 19, 2001), the Guardian Council rejected the LAPFI plan a total of three times. In fact, it rejected the second version of the plan that was submitted by the majles in November 2001 with even more criticisms than it had made of the first. During this round of evaluation, it made the argument that the plan did not include any safety nets to deal with the possibility that foreign investors in Iran might be acting as spies or as representatives of the Israeli government. Defenders of the plan responded that this second dismissal simply showed that the Guardian Council was determined to oppose any kind of foreign investment with no real justification. According to them, the attempt to present the majles plan as unconstitutional was unfounded. Specifically, they insisted that all the appropriate safety nets were in place, especially given that any potential investors would be obliged to undergo full governmental inspection in order to receive the necessary approval (Khorasan 19 Azar 1380/December 10, 2001). In the end, the majles proposal was sent to the Expediency Council, so that this arbitrating body could make a final decision on whether or not the new plan served the national interest. On May 25, 2002, to the delight of the reformists, the plan was approved and entered into legislation as the Foreign Investment Promotion and Protection Act (FIPPA). Given that the Expediency Council was chaired by Hashemi-Rafsanjani, who was sympathetic to the reformists’ aim of increasing foreign investment within Iran, it was not surprising that this body should have made such a decision on this particular

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bill. Furthermore, given the existing climate of economic difficulties, it made sense for the Expediency Council to support this policy aimed at the promotion of economic growth, since it perceived the achievement of such a goal to be in the national interest. However, since the third version of the proposed legislation that the majles sent to the Expediency Council for review had already been modified in response to the Guardian Council’s various critiques, some reformists were disappointed with the outcome, arguing that the final piece of legislation failed to clarify all of the ambiguities of the previous law (Eqtesad-e Iran Mordad 1381/August–September 2002). Two years of debate over this law had highlighted the fact that foreign investment continued to be a highly sensitive and contentious issue of debate in the Islamic Republic. In spite of the considerable shift that had taken place in the economic outlook of the members of the statist camp who emerged as reformists with President Khatami’s election, even these supporters of the FIPPA had to present foreign investment as something that would serve the interests of the nation. Specifically, they emphasized its ability to transfer modern technology to the industrial sector, increase productive output, and reduce unemployment. The opponents of the proposed law, on the other hand, perceived it as a serious threat to the independence of the Iranian economy, society, and even culture. Their revolutionary outlook and economic interests combined in such a way that foreign investment was seen to have the potential to undermine the position of those domestic groups that currently enjoyed a prominent position in the country’s political economy. In the end, even though the nonelected Expediency Council had come to the support of the reformists by approving the new legislation, the Guardian Council remained an equally if not more powerful appointed force within the Islamic Republic, intent on defending its own interpretation of economic independence.

Concluding remarks The election of Mohammad Khatami to the presidency of the Islamic Republic illustrated just how unpredictable Iranian politics could be. Following the unexpected victory of the Second of Khordad Front, commentators recognized the heterogeneity of this umbrella association, and they appreciated that subsequent policies in Iran were unlikely to proceed in a straightforward manner toward Thermidor. For example, in late 1997, The New York Times noted that: the coalition that supported Mr. Khatami was so broad as to be contradictory, and that makes it hard to predict in what direction change may come . . . [it] brought together old leftists, with their advocacy of centrally planned economies; merchants from Teheran’s bazaar, with their deep roots in Iran’s existing system; technocrats, who want greater freedom for Iran’s small but emerging private sector, and many people who in the

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Furthermore, given the contradictions within Khatami himself, the question of how he would overcome potential ambiguities in actual policies remained unanswered for some time (Salehi-Isfahani 1999: 35). In this situation, it can be argued that the multidimensional legacy of the Iranian Revolution of 1979 continued to be as important as ever. There had been high hopes in some quarters that Iran’s burgeoning process of economic liberalization, which had been derailed toward the end of HashemiRafsanjani’s presidency, would be set back on course under the Khatami administration. But in the event, policy-makers carried on respecting their revolutionary history while also looking to protect their own particular needs into the future, and in the process they took Iran down a new and somewhat unexpected path. It is precisely because the state is not a coherent and unified entity that the country’s approach to foreign investment remained so complex and nuanced throughout the Khatami period. From 1997 onward, the groups enjoying considerable influence over the formation of economic policy in Iran’s elected bodies were either mercantile elites turned pragmatist, or statist elites turned reformist, and it was out of a combination of their contrasting views and ideals that policies were decided at this time. However, at all times these elected “semi-oppositions” had to contend with the push toward counterreform that was coming from some of the influential appointed bodies of Iran’s semi-authoritarian state. Hashemi-Rafsanjani had redefined the goals of the Revolution, casting economic independence as equivalent to industrial production, and consequently he lost the support of many other political elites in the Islamic Republic. Learning from this experience, the reformists sought a less divisive approach. By situating themselves in a middle ground between the extreme statism of 1980s and the pragmatic industrialism of the early 1990s, the members of the Second of Khordad Front hoped to avoid much of the mercantile and statist criticism that had plagued the Hashemi-Rafsanjani years. However, it did not take long before they were confronted with opposition on both sides, from the conservative mercantile elites as well as from the statist revivalists, who were now growing in strength. First of all, reformist optimism was undermined by counter-reformist attacks on the press, students, and intellectuals alike.16 Then, after the world-altering events of September 11, 2001, any hope for a dialogue among civilizations seemed remote. Although there were some signs of cooperation between the United States and Iran over the Afghanistan question during the final months of 2001, the Bush administration grew increasingly hostile toward Iran from early 2002 onward. In particular, the designation of the Islamic Republic of Iran as part of an “axis of evil” in President Bush’s 2002 State of the Union Address made any significant shift in Iran’s foreign policy unlikely, as this

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American position reinforced anti-American views within Iran’s appointed bodies even further. In this environment, it seemed unlikely that many foreign investors would be encouraged to come to Iran, even with the attraction of a new foreign investment law. In spite of its consolidated efforts to pursue a middle ground, and open up the Iranian economy to the outside world while at the same time protecting the revolutionary goals of social justice and independence, the Khatami government was confronted with just as many obstacles to realizing its multidimensional and multifaceted agenda as had been the case for the Musavi and Hashemi-Rafsanjani governments before it. There were just too many opposing groups, all claiming to be equally legitimate in their interpretation of the country’s revolutionary goals, which made it impossible for any single group to push through its own preferred approach uncontested. For example, even when the Second of Khordad government was bolstered by a Second of Khordad majles, it still had to deal with a vocal minority of statist revivalists in that majles in addition to the conservative mercantile opposition of the influential Guardian Council. This was comparable to the situation that had prevailed during the Hashemi-Rafsanjani presidency, when an apparent dominance of the mercantile camp had nevertheless been accompanied by the fracturing of opinions within this camp, seen across all three institutions. The continued input of such a broad range of politico-economic players, all intent on influencing the formation and implementation of each and every new policy, meant that Iran’s struggle for economic independence seemed destined to fluctuate indefinitely within the bounds established by the interests of the semi-authoritarian state. In the next chapter, attention will be given to the various counter-reformist reactions that were made to the actions of Khatami’s administration from 2002 onward. Given that they enjoyed the support of the Guardian Council as well as other non-elected bodies such as the IRGC, the ability of the counter-reformists to scupper the efforts of the reformists was not inconsiderable.

6

Resurrecting the Revolution

Today we as a developing nation are confronted by the machine and technology. But, out of irresoluteness we have submitted to the dictum “whatever happens is for the best.” What must we do? Will we constantly remain as we have been, merely consumers? Or will we have to close our doors to the machine and technology and retreat into the depths of ancient customs and religious rites? Or is there a third path? (Al-e Ahmad 1982: 55)

Jalal Al-e Ahmad’s 1962 questioning of the West’s growing influence over Iranian social and economic life, a development which he argued had caused the country to become afflicted with the unfortunate disease of gharbzadegi, had served as a wake-up call for many intellectuals and political activists within the country. With gharbzadegi, Al-e Ahmad had brought to the people of Iran a simple and accessible route into the revolutionary discourse of nativism and Third Worldism. It was this discourse that had been central to the successful rallying of widespread support for the removal not only of Mohammad Reza Shah himself, but also of the forms of Western support perceived to be backing up his regime. However, this discourse had not been uniform in content. There was general agreement that Iran should not remain a nation of mere consumers, and the majority accepted that it was not desirable for Iran to reject technology and modernity altogether. However, as for the precise direction of the third path that was to be followed, various points of view were put forward. The persistence of this multitude of perspectives on how to cure gharbzadegi throughout the post-revolutionary period meant that finding a way back to the Revolution’s essence in later years would be immensely difficult. In particular, a distinct blend of Shi‘i social justice and leftist antiimperialism-cum-nationalism had informed the outlook of the new regime that took power in Tehran after the fall of the Pahlavi monarchy in 1979. Different elements of this blend had been emphasized in the economic policies of each of the key post-revolutionary phases in increasingly nuanced ways: the premiership of Mir-Hosayn Musavi had seen a predominantly statist economic approach; the presidency of Akbar Hashemi-Rafsanjani had featured a curious

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blend of mercantile and pragmatist tendencies; and the presidency of Mohammad Khatami had been characterized by the views of an even more diverse mix of pragmatists and statists-turned-reformists. During each of these key phases, however, all new economic policies had been justified in terms of their loyalty to the original goals and ideals of the Revolution of 1979. All groups wanted to be able to show that they were protecting the survival of the Islamic Republic as a whole, even when they might have been more interested in protecting their own specific group concerns. Each of these rival factions was trying to identify a suitable third path, “to get the genie of mechanization back into its bottle, to make it conform to our will . . . [with] an economy which is appropriate for the manufacture and operation of the machine; that is, an independent economy” (ibid: 56). Nevertheless, there were some who believed that the gradual move away from the original statist stance of the immediate post-revolutionary period was damaging the independence and survival of the Islamic Republic. For these groups, it was necessary to resurrect the Revolution by reviving its statist elements, or else risk complete failure of all that it had set out to achieve. From 1979 through to his death 10 years later, Ayatollah Khomeini had often come down on the side of the statist camp, supporting the establishment of a strong public sector as well as the pursuit of self-sufficiency. Although the mercantile camp had enjoyed a considerable voice and influence during this period, the overwhelming belief that a broadly statist stance was most suited to the exigencies of war had meant that the dominant position throughout the first decade of the Islamic Republic emphasized the demands of the former rather than the latter grouping. In the eyes of those members of the statist elite who were subsequently barred from running for the fourth majles by Hashemi-Rafsanjani and his mercantile allies in the Guardian Council, therefore, post-Khomeini Iran soon became a place where the original ideals of the Revolution were increasingly sidelined. For them, the new policies of economic reconstruction that were introduced under Hashemi-Rafsanjani had led merely to an increase in rent-seeking activities alongside a strengthening of the traditional bazaar as a replacement for the Western-tied capitalists of the Pahlavi regime. This was justified at the time as an appropriate third path via which Iran could avoid Western exploitation; but for many statists, it was quite simply not sufficiently “revolutionary.” In a similar vein, even the reformist approach to economic policy, an approach that sought to identify a middle ground through which this third path might effectively be forged, ended up receiving criticism from statist revivalist quarters. Under Khatami’s leadership, the government and the majles had worked together to implement a move toward reform that promised to resolve the country’s economic problems in a fair and equitable manner. By emphasizing the primacy of social justice, the Khatami administration was keen to respect the original goals of the Revolution while at the same time promoting material gains for the people of Iran.

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But again, given the multidimensional nature of the proposed cure for gharbzadegi, this strategy too could be labelled as insufficiently “revolutionary.” The positive response to Khatami’s dialogue among civilizations that was witnessed across the country and beyond, alongside the Expediency Council’s decision to approve a new foreign investment law in spite of opposition from the Guardian Council, had led some to believe that the reformistpragmatist approach to dealing with the outside world would be maintained for many years to come. However, for those members of the statist elite who had not transformed themselves into reformists, this compromise approach presented too much of a compromise on the Revolution itself. Furthermore, given that many in the conservative mercantile elite shared with the statist revivalists serious concerns about the apparently pro-Western and “un-revolutionary” direction being taken by the Khatami government, there gradually emerged a strange alliance of counter-reformist forces in the Islamic Republic. While these two camps were by no means natural partners, and although they did not agree on all issues, it will be shown in this chapter that they did share an opposition to reform, believing it to be moving the Islamic Republic in an unwanted direction that risked endangering the regime’s very survival. It was therefore possible that, just as opposition groups had managed to put a stop to Hashemi-Rafsanjani’s economic policies with the argument that they were compromising the Revolution’s core values, so too could they scupper Khatami’s move toward reform. In this chapter, the attempts made by these groups to resurrect the Revolution will be examined. First, attention will be drawn to the initial responses that they made to the various reformist economic policies being proposed and implemented during Khatami’s second term as president. Second, the counterreformist policies that these opposition groups managed to introduce once they gained a majority in the seventh majles will be discussed. In particular, having first explained how it was that conservative mercantile elites and statist revivalists came to work together at this time, the bold way in which they reversed certain key contracts that the sixth majles had signed with foreign investors will be examined. In so doing, the chapter will illustrate just how unpredictable the Iranian debate over foreign investment was throughout the post-revolutionary period, and how increasingly complex were the factions involved in this debate.

Initial responses to reformist policies The broad guidelines of the Third Five-Year Plan had been formulated in 1999 by the Khatami government in tandem with the fifth majles, but its specific policies were finalized each year by the sixth majles alongside the annual budget. This meant that although a conservative mercantile economic outlook had played an important role in deciding the Islamic Republic’s general approach toward the use of foreign funds from 2000 onward, a reformistpragmatist outlook influenced the manner in which economic policy was

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actually implemented during this period. However, the extent to which the government would be able to justify a continuation of its reformist policies largely depended on how well they were perceived to be reaching their self-proclaimed targets. Khatami’s government had cited the country’s low economic growth rates as well as the lack of domestic employment opportunities when defending its call for more open economic relations with the outside world and an increased use of foreign investment. But would it be able to point to an improvement in these two areas by the time that elections were held for the seventh majles, in order to possibly hold on to a reformist majority? In support of the reformist-pragmatist approach, the Management and Planning Organization’s (MPO) supervision report of the Third Five-Year Plan argued that advanced science and technology are vital for economic and social growth (Management and Planning Organization 1384/2005–2006). As there were insufficient resources for research and development within the country, the report recommended that more foreign investment should be attracted in order to obtain new technology. In particular, although it acknowledged that positive steps had been taken toward this end in the course of the third plan, the report hoped that more would be done in the future: “It is expected that this movement [toward an increase in foreign investment] will receive more emphasis in future years, alongside a reduction in the country’s economic risk and an expansion of economic relations with other countries” (ibid: 253). Successor of a body that had always tended toward a pragmatic economic outlook (the PBO), the MPO showed itself to be in full support of the reformist policies being pursued by the Khatami government. However, with this report confirming an unemployment rate of 10.3 percent, reduced by less than 4 percent since the start of the Third Five-Year Plan, the reformists had to work hard to minimize the critiques that would inevitably be voiced by their opponents. The various responses that were made to the reformist approach to engaging with the world economy will be examined in the following discussion. First of all, the new foreign investment law will be evaluated. Then, attention will be given to the debate that ensued when the pragmatist-reformist camp proposed a new strategy for a further opening-up of the economy in order to aid the development of Iranian industry. Finally, it will be shown how a compromise position vis-à-vis global capitalism was sought between reformists and counter-reformists, with particular reference to the Fourth Five-Year Plan, before moving on to an examination of how and why it was that these divisions between the two sides had emerged in the first place. Foreign investment after FIPPA Following the Expediency Council’s approval of the Foreign Investment Promotion and Protection Act (FIPPA) in May 2002, those who had supported this new law anticipated that the flow of foreign investment into Iran would

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increase markedly over the coming years. To their delight, the number of foreign companies approaching the Organization for Investment, Economic and Technical Assistance (OIETAI) at the Ministry of Economic and Financial Affairs to apply for an investment permit went up after 2002. As can be seen in Table 6.1, the number of projects for which licenses were issued, as well as the total value of projects approved in each year, increased significantly after 2001. These investments were to be made in diverse projects, ranging from textile and ceramic production to spare parts and automobile manufacturing, as well as in a number of activities related to the mining and petrochemical industries.1 Indeed, various improvements have been introduced to the new legislation with a view to attracting a larger volume of foreign investment. Notably, the investment licensing application and approval process has been streamlined, so that any foreign investor seeking the benefits provided by FIPPA simply needs to apply directly to the OIETAI for an investment license. A final decision on the application is to be made within a maximum period of 45 days, to ensure that the foreign investor gets a prompt response in writing (OIETAI September 2005: Article 6). Furthermore, while the 1955 LAPFI required capital to be privately owned without any foreign government participation, it is now possible for foreign state-owned enterprises to invest in Iran (ibid: Article 4). Another attractive feature of the new law is that profits derived from the foreign investment can be repatriated to the investor’s home country, although this can only take place after certain taxes and dues have been paid and permission has been obtained from the minister of economic and financial affairs (ibid: Article 14). In addition, the 2002 foreign investment law confirms that no limit is placed on the percentage of shares that can be held by the foreign investor, meaning that potential investors are not affected by any restrictions that could be imposed according to certain interpretations of Article 81 of the constitution. Specifically, it states that, in the case of FDI, “There is no restriction on the percentage of foreign shareholding” (ibid: Article 4). Equally, as long the foreign investment “does not entail grant of concession by the Government to Foreign Investors . . . [whereby] concession means special rights which place Foreign Investors in a monopolistic position” (ibid: Article 2b), it will be able to enjoy the privileges of FIPPA. Table 6.1 Foreign investment permits issued by OIETAI, 2001–2004 Year

Number of projects

Value of foreign investment (in millions of US dollars at current prices)

1380/2001–2002 1381/2002–2003 1382/2003–2004

7 28 40

0.028 0.613 1.369

Source: OIETAI date (Aban 1384/October–November 2005)

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Finally, the FIPPA recognizes and protects not only foreign direct investment (FDI), but also other types of project finance such as buy-back contracts and Build-Operate-Transfer (BOT) schemes, thereby broadening the range of economic activities in which foreigners are able to invest with the permission and protection of the Iranian government (ibid: Article 3). This inclusion of buy-back contracts within the terms of the FIPPA is significant, as it offers an additional reassurance for any international oil companies hoping to invest in the Iranian petrochemicals sector. Given the estimated US$70 billion that the NIOC claims it needs in order to modernize the country’s oil infrastructure over the next 10 years (Howard 2006: 31), and given that international oil companies cannot invest in Iran other than by means of these buy-backs, any additional incentive that can be made available to the foreign investor is likely to meet with the approval of the NIOC. It has been argued that Iran will find it hard to make the necessary improvements to its oil fields without the attraction of foreign finance and technology. Indeed, even Hojjatollah Ghanimifard, the NIOC’s undersecretary for international affairs who in 2001 published a book reviewing and criticizing the West’s “dominance over Iranian trade” (Ghanimifard 1380/2001–2002), recognized the need to secure foreign capital through buy-back contracts for further investment in the Iranian oil industry at this time (Eqtesad-e Iran Esfand 1382/February–March 2004). Nevertheless, in spite of the legal protection offered by the FIPPA to potential oil investors, the NIOC has not achieved the high levels of foreign investment that it seeks (Howard 2006: 30–36). This can partly be attributed to the fact that, although it has opened up many of the doors that were closed under the LAPFI, this new law has not been able to eradicate all of Iran’s legal restrictions on foreign investment. Most importantly for foreign investors, the ownership of real estate in the name of the foreign investor continues to be prohibited (OIETAI September 2005: Article 2), and disputes over foreign investment are still largely limited to domestic courts (ibid: Article 19). The first restriction is most problematic for those foreign investors hoping to put their money into any kind of activity that might require long-term access to land in Iran. While they can have land purchased in the name of a registered Iranian company instead, the additional workload involved in doing this may deter some potential investors. The second restriction can also be discouraging, even though the FIPPA introduced a new clause that allows for the settlement of some disputes outside of Iranian domestic courts, because the law still does not give equal access to international courts for all foreign investors. Only those investors whose governments have entered into Bilateral Investment Treaties (BITs) with Iran have the opportunity to refer their dispute to an international tribunal, and so it is unlikely that those without a BIT would be attracted by the new legislation. In some respects, the FIPPA can even be described as more restrictive than its predecessor. While the 1955 law had required that only those foreign investments that are “for development, rehabilitation, and productive activities

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in industry, mining, agriculture and transport” (Rezaei 1378/1999–2000) would be able to enjoy the facilities of the LAPFI, the 2002 law sets down more demanding criteria for the admission of foreign investment. In addition to the above requirements carried over from the previous law, the FIPPA states that foreign investment must: “Bring about economic growth, upgrade technology, enhance the quality of products, increase employment opportunities and exports,” and it must not “pose any threat to the national security and public interests . . . cause damage to the environment . . . disrupt the country’s economy . . . [or] jeopardize the production by local investments” (OIETAI September 2005: Article 2). However, it is not clear how the Foreign Investment Board, which evaluates all applications for foreign investment, is supposed to ascertain whether or not a particular proposal meets these requirements in practice. Furthermore, this task is rendered particularly difficult by the fact that the law does not state precisely how many of these requirements are to be met by the foreign investor. In short, it can be seen that the FIPPA has disappointed on two fronts: not only does it fail to provide sufficient incentives for foreign investors, but also it fails to secure the necessary benefits for those Iranians who are seeking foreign investment. Nevertheless, it is imperative to recognize that even if the 2002 foreign investment law was not perceived to have these weaknesses, there would still be a number of barriers discouraging foreign investors from bringing their capital into Iran. First, with so much of the Iranian economy placed under state control by Article 44 of the 1979 constitution, there are whole sectors of the economy in which non-state investment (including foreign investment) is simply not an option. Even though the Third Five-Year Plan set goals for increased privatization of state-owned enterprises, factional debate about the extent of state and private sector involvement in Iran’s economy has persisted. In particular, at the time when FIPPA was approved, it was still not at all clear in which sectors foreign investment would be welcomed. Second, there are other aspects of the Iranian legal environment that could serve as potential disincentives for foreign investors, such as the country’s labor law, which makes it difficult for employers to lay off their workers in over-staffed enterprises. Finally, the broader context of the post-revolutionary regime, in which concerns about foreign exploitation and the protection of national interests have remained, must not be ignored. With many prominent political players in the Islamic Republic holding steadfast to the view that the economy should be protected from the perceived risks of global capitalism, the FIPPA alone could never be enough to make the Islamic Republic more attractive to foreign investors. Specifically, given that rival groups with different vested interests in the post-revolutionary system interpret the Islamic Republic’s historical legacy in contrasting ways, there is always the chance that policies will be re-interpreted and even negated depending on which group has more influence

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at any particular time. The high likelihood of such an eventuality has contributed to the lack of foreign capital inflows into Iran. For this reason, and because of the additional barrier to foreign investment presented by the imposition of US and international sanctions, the Islamic Republic’s ability to attract increased FDI inflows since 2002 has been somewhat disappointing. Hassan Hakimian observes that over the course of the 2000–2004 period, Iran’s annual FDI inflows amounted to “less than 3 percent of all FDI inflows into the MENA region at large . . . in sharp contrast with Turkey, for instance, which has a similar population size but succeeded in attracting six-fold the volume of FDI for Iran” (Hakimian 2008: 28). Furthermore, looking to other economies in the region, Table 6.2 shows that inflows of FDI to Iran as a percentage of GDP were far lower on average than those achieved by both Jordan and the United Arab Emirates (UAE) during 2000–2004. Nevertheless, in spite of the fact that it was almost impossible to bring about the kind of environment needed for greater inflows of foreign investment, Khatami’s advisers and policy-makers continued to prioritize the need for economic liberalization. They put considerable emphasis on the importance of clear and transparent laws for the attraction of both foreign investment and new technology from abroad, which they maintained would, in turn, help to solve the country’s economic problems. In particular, to improve Iran’s reputation among foreign investors, a reduction in the amount of economic control being exercised by the state was considered to be highly desirable (Resalat 21 Bahman 1378/February 10, 2000). If the scope of activities open to the country’s private sector were broadened, there would be greater opportunity for foreign investors to get involved in the Iranian economy. An additional advantage of this approach was that, with the help of investment and technology from abroad, Iranian companies would themselves be more likely to grow and expand too. In other words, privatization and foreign investment could work hand-in-hand to resolve the country’s economic problems. Highlighting the close relationship between these two policies, Mohsen Rezai (secretary of the Expediency Council) noted that while “30 to 40 percent of Table 6.2 Inflows of FDI to Iran, Jordan, and the UAE, 2000–2004, in millions of US dollars (at current prices and exchange rates) and as percentage of GDP Year

2000 2001 2002 2003 2004

Iran

Jordan

UAE

US$

%

US$

%

US$

%

194 1,085 3,657 2,698 2,863

0.2 1.0 2.7 2.0 1.8

913 274 238 547 937

10.8 3.1 2.5 5.4 8.2

–506 1,184 1,314 4,256 10,004

–0.7 1.7 1.8 4.9 9.5

Source: United Nations Conference on Trade and Development (2010).

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the capacity of domestic investment is currently unused” (Siyasat-e Ruz 8 Khordad 1381/May 29, 2002), foreign investment could and should be directed toward strengthening the role of private sector investment within the country. Economic advisers at the MPO recommended a similar course of action, welcoming the government’s plans both for increasing privatization and for establishing closer ties to the global economy in their supervision report on the Third Five-Year Plan (Management and Planning Organization 1384/2005–2006). Ever since its inclusion in the First Five-Year Plan, the goal of privatization had indeed preoccupied Iran’s economic policy makers. Of course, the Khatami administration differed from Hashemi-Rafsanjani’s government in the sense that it placed greater emphasis on the need for social justice and an equitable distribution of capital from the state to the people. But even so, the overall economic approach of the reformists was comparable to that of the pragmatists, as they also sought to strengthen and support the country’s nascent private sector. A whole section of the Third Five-Year Plan was devoted to the reorganization and rationalization of state-owned enterprises in all areas except those relating to the petroleum industry, dealing specifically with the transfer of shares from state-owned enterprises to the private sector, and the promotion of economic competition in the country through the removal of “unnecessary” monopolies (Third Five-Year Plan: Articles 4–35). Even though it soon became apparent that the government was failing to meet its own privatization targets (Management and Planning Organization 1384/2005– 2006: 524), there was optimism that any remaining hurdles would be overcome in the near future. In particular, the MPO suggested that if all involved parties (government, state-owned enterprises and the public) were able to work together and create a favorable environment for privatization, success might be achieved (ibid: 550). In May 2005, when Ayatollah Khamene‘i announced a series of new policies that effectively overturned the previous interpretation of Article 44 of the constitution,2 it looked like this favorable environment might be achieved at last. Under the guidance of the supreme leader, many reformists believed that the nation would be united in support of economic reform, privatization in particular. Article 44 had placed a large proportion of the country’s economic activities under the control of the state, and as such it had constituted a serious barrier to the privatization process. But this barrier was now, to a great extent,3 removed with Khamene‘i’s declaration that the government would henceforth be, “obliged to relinquish any activity, including continuation and operation of previous activities that are covered under Article 44, and cede them (at least 20 percent annually) to the private and cooperative sectors by the end of the Fourth Five-Year Development Plan” (Khamene‘i May 22, 2005). Nevertheless, the persistence of competing views about the country’s economic development during this period, as well as the existence of other

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structural constraints to successful privatization, suggested that implementing these Article 44 policies would be far from straightforward. In particular, there was considerable potential for opposition to be raised against the process of privatization from counter-reformist quarters. For the mercantile elites, privatization was supported as long as it facilitated an increase in their own control over trade and commerce, but as soon as it appeared that the reformist-pragmatist front was intent on reducing mercantile elite as well as state control over the economy, resistance was sure to be expressed. Statist revivalists also had cause to oppose these policies, as the survival of bonyads and other state-affiliated business enterprises purportedly involved in the protection of revolutionary ideals would be threatened by the growth of an independent private sector. Both of these groups were able to cite various convincing reasons for why a pursuit of neo-liberal economic policies was not in the national interest of the Islamic Republic. In short, arguing that a loss of economic control on the part of those who were most interested in protecting and preserving the Revolution’s legacy would open up the gates for renewed foreign exploitation, both the conservative mercantile camp and the statist revivalist factions maintained that it was not desirable for drastic changes to be made to the country’s economic system. Consequently, although the Khatami administration hoped to introduce further economic reforms that would enable a strengthening of Iran’s industrial development, these groups would be sure to voice strong opposition to any such reforms. Competing proposals for industrial development In 2000, the predominantly reformist majles and the mercantile Guardian Council had agreed with each other on the need to merge the Ministry of Mines and Metals and the Ministry of Industries into the Ministry for Industries and Mines, and one of the key articles of the law establishing this new ministry called for Iran to formulate a coherent strategy for its industrial development.4 As such, it could be seen that two rival groupings were in general agreement with each other that an industrial strategy of some kind was needed for the future economic development of the country. However, as the law set down no specific guidelines regarding the preferred content of such a strategy, disagreements soon broke out over the question of how this development should actually take place. These disagreements serve as a useful illustration of the ways in which those who hoped to reform the Iranian economy were constantly questioned and challenged by their opponents, complicating the road toward liberalization at every turn. The authors of the strategy argued that only by accepting both privatization and globalization would Iran be able to realize its hopes for economic development. However, by adopting a language that was even more “pragmatist” than that which had been employed by Hashemi-Rafsanjani after the end of the Iran–Iraq war, they appeared to be abandoning the revolutionary

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discourse of economic independence. Of course, they were experts specifically employed by the government to propose an economic strategy of industrial development, so it was perhaps understandable that they should limit themselves to a broadly economistic vocabulary. However, given the undeniable interrelationship of politics and economics, their disregard for the political concerns of the post-revolutionary state caused problems for them. Their emphasis on economic “rationality” and the pursuit of “modernity” was interpreted by some as a sign of their ties to the West, and their lack of attention to key revolutionary ideals, such as economic independence, raised alarm bells in certain quarters. In short, they were vulnerable to an attack from those who saw themselves as the protectors of the Revolution. Given that they enjoyed the support of Khatami’s government, an attack on them was tantamount to an attack on the entire Second of Khordad movement. Justifying the recommendations made in the strategy for industrial development, the head of the research group, Mas‘ud Nili, argued that, “with the development of industry . . . governments have been able to secure more taxes, and they have used these to extend health services, improve education, secure better order and safety, and offer public services” (Kholaseh-ye Motale‘at-e Tarh-e Estratezhi-ye Tawse‘eh-ye San‘ati-ye Keshvar: 13). Furthermore, he pointed out that such improvements in government provisions have usually led to the formation of new social relations, and eventually to “democracy (mardomsalari) and the rule of the people over their own political destiny” (ibid). In order for Iran to reach a similar outcome, this academic and former director of the PBO’s macroeconomic bureau suggested that it would be necessary for the role of the state in the national economy to be modified. No longer was it acceptable for states to play an active role in the development of industry, as they had done in the 1950s and 1960s. Instead, it had become far more important for them to simply provide the necessary legal and institutional framework in which “a functioning market and greater interaction with the outside world” (ibid: 15) could pave the way for social, economic, and political development. The proposed strategy for Iran’s industrial development, therefore, encouraged both “the development of the private sector” (ibid: 388) and “the establishment of relations with international markets” (ibid: 387). It was by these means that the economy of Iran would be able to “secure its share of the world’s resources” (ibid), thereby enabling the government to take the necessary steps toward reducing poverty and improving the standard of living for ordinary Iranians. With this goal in mind, the attraction of foreign investment was highlighted as a particularly important aspect of the strategy for industrial development. This is because it was with investment from abroad that the necessary financial resources could be secured most easily. In addition, new technology and knowledge could be transferred to Iran’s nascent private sector, improved management skills could be learned, and a wider market for sales could be opened up to all economic sectors in the country (ibid: 392). The state was still expected to play an active role in directing

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foreign investment, to ensure that this was used in the country’s interests, but nevertheless it was maintained that, “experience shows that few developing countries have been able to extend their . . . capabilities by limiting foreign investment” (ibid: 393). With such an emphasis on the need for liberalization and engagement with the outside world, the authors of this industrial development strategy were advocating a fundamental change in the country’s economic and political outlook. However, while they called for the government to shift its emphasis “from looking inwards to looking outwards, from state industry to private sector industry, . . . from bureaucratic control to the rule of market mechanisms” (ibid: 16), it did not follow that they foresaw an entirely negligible role for the state. On the contrary, they suggested that the state should actively protect property rights, formulate appropriate policies, and provide economic stability (ibid: 14), because a positive environment had to be secured if industry were ever to flourish in Iran. Nevertheless, in spite of the strategy’s acceptance of the need for cooperation between public and private sectors, there were still many prominent groups in the country who perceived it to have gone a step too far. In particular, even where the strategy recognized to some degree the environment in which these changes were expected to take place, it largely ignored the mercantile interests of many within the Islamic Republic as well as the Revolution’s historical and ideational legacy, not to mention the concerns of those who stood to lose from any democratization of the Iranian political sphere. Of all the negative responses to the industrial development strategy, the most prominent came in the form of a 23-page letter that a group of 10 Tehranbased academics, led by Ahmad Tavakolli, wrote to President Khatami in October 2003.5 This letter pointed to the reduction of the state’s economic role and the seeming acceptance of unequal relations with the outside world as particularly unfavorable aspects of the proposed strategy. Such criticisms were justified with reference to the country’s Twenty-Year Outlook, which had just been approved by the majles in August of that year.6 All future bills, plans, and budgets, and indeed most other activities that fell under the remit of the government, would have to meet the aims and objectives of this document. Therefore, if the industrial development strategy were found to contradict any of the outlook’s key points, it would be almost impossible for it to be approved and implemented. As the Twenty-Year Outlook aspired for Iran to become “developed, in proportion to its own cultural, geographical and historical circumstances, and with reliance on moral principles and Islamic, national and revolutionary values” (Sanad-e Cheshmandaz-e Jomhuri-ye Eslami-ye Iran Dar Ofq-e 1404 Hejri Shamsi), critics were able to argue that the industrial development strategy was in need of revision. In particular, the authors of the October 2003 letter to President Khatami stated that if a development strategy does not secure independence and social justice for the people of Iran, then it should not be accepted (Jahani-sazi: Yek Hoshdar va Hasht Rahkar: 4). They referred to the fact that the Twenty-Year

140 Iran’s struggle for economic independence Outlook called for an appropriate development that respected the particular needs and interests of the nation, prioritized social justice and independence, and established relations with the rest of world only on the basis of honor and wisdom (ibid: 4). In this regard, the key problem that they identified was one of globalization, and indeed they had chosen as a title for their letter “Globalization: One warning and eight solutions.” Their contempt for globalization was made clear by their use of the negative term jahani-sazi (literally “making global”) instead of the more neutral jahani-shodan (literally “becoming global”) to describe this process. They argued that the industrial development strategy proposed by Nili and his team of researchers had unconditionally accepted the globalizing ambitions of Western imperial powers, and was following a neo-liberal approach in such a way that it could be seen “they clearly accept . . . America’s efforts to dominate” (ibid: 8) the rest of the world. Using the argument that the process of globalization threatened to damage Iranian society through its introduction of Western values of individualism, and to harm the Iranian economy through its imposition of the will of multinational corporations (ibid: 9), the authors of this anti-globalization missive tried to show that the positive predictions made in the industrial development strategy were simply unrealistic. They suggested that, “in reality, the global economy is in the hands of monopolizing multinational corporations, most of which are tied to the big industrialized countries” (ibid: 12). They maintained that although these big industrialized countries are the “messengers of the ideology of liberalization . . . in practice they are dishonest” (ibid: 13). Pointing to the Argentinean debt crisis of November 2001 to illustrate their point, they depicted foreign capital as dangerous and destabilizing. Furthermore, they argued that it was only those countries whose governments maintained full control over their own financial and investment markets, such as China, India, and Malaysia, that were able to recover quickly from global economic crises (ibid: 18). Therefore, instead of following the recommendations of the industrial development strategy, these academics proposed an alternative path to achieving Iran’s 20-year goals, one that would not give in to the forces of globalization. Central to this alternative path was the idea that the Iranian government should play an active role in ensuring that the negative aspects of jahani-sazi were avoided and instead the positive features of jahani-shodan secured in the interests of the Islamic Republic. They recognized that “no country can be self-sufficient in securing all of its needs . . . there is no contradiction between being independent and having relations with the outside world” (ibid: 20). However, they also maintained that, “domestic production and trade must be organized such that the national economy is protected from foreign aggression” (ibid). According to them, only with the government driving economic development would social justice be achieved and poverty eradicated. Yet this did not mean that they denied any role for the private

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sector. On the contrary, although they maintained that, “on no condition should we wash our hands of protectionist policies” (ibid: 21), they did concede that, “we need a new stance that depends on active relations with the private sector” (ibid). Under the guidance of the government, limited domestic private sector investment was to be used to increase production and employment, and foreign investment was only to be sought as a final option, after all domestic investment had been exploited. In short, it can be seen that while the authors of the industrial development strategy had been in favor of forging a “new role” (Kholaseh-ye Motale‘at-e Tarh-e Estratezhi-ye Tawse‘eh-ye San‘ati-ye Keshvar: 371) for the government with respect to economic policy, the proposals that they put forward were attacked as both neo-liberal and pro-Western by the authors of the October 2003 letter. What the first group saw as an acceptable middle path that avoided the downfalls of both an étatist and a laissez-faire approach, the second group saw as dangerous and unwise. Where the first group encouraged the government to build up its capability for membership of the World Trade Organization (WTO), the second group argued that it was not necessary for Iran to join this body, as the country could surely increase its exports via other channels. Finally, where the first group suggested that Iran’s economic policy was unsuccessful because of its continued adherence to views that had first emerged in the 1950s and 1960s, according to which the private sector is seen simply as exploiter of the poor and ally of foreign powers, the second group appeared to support this supposedly “outdated” approach. What is particularly interesting about this final observation is that several of the academics who put their name to this anti-globalization letter had previously supported the stance of the mercantile elites, and were known for their preference for a reduction in state control over the economy. For example, Ahmad Tavakolli had been removed from cabinet in 1982 because of his opposition to Prime Minister Musavi’s encouragement of state control over the country’s resources, and yet now he was calling for such tendencies toward economic centralization to be restored. This shift in approach was justified with the argument that while it had been necessary to privatize and open up the economy to facilitate an economic boost after the downturn of the immediate post-revolutionary and war years, Hashemi-Rafsanjani and Khatami had both gone too far by allowing their economic policies to “fall under the influence of foreign powers” (interview with author, December 12, 2005). For Tavakolli, it seemed that external factors were being increasingly prioritized over domestic needs, and Iranian mercantile interests were being insufficiently protected from outside competition. Consequently, this prominent conservative supporter of the bazaar elites had joined forces with statist revivalists, publicizing the October 2003 letter with a view to defending “revolutionary values” in the face of “foreign ideologies” (ibid). Thus, the debate over the country’s industrialization strategy was significant not only because it accentuated the divide between Iran’s main opposing

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camps, pitching reformist and pragmatist against conservative mercantile and statist revivalist factions, but also because it highlighted the shifts that had taken place within each of these particular economic groupings over the previous few years. Indeed, keeping in mind that these changes in outlook were constantly occurring on all sides, the differences separating factions should not be stressed so much that any possibilities for a cross-fertilization of ideas between them ends up being ignored. In this regard, it is important to note that it was often as a result of precisely this kind of discussion that shifts in viewpoint were made possible. For example, Nili conceded in his response to the anti-globalization letter that globalization could indeed be seen as a threat, accepting that, “the process of liberalizing current industrial structures does need protectionist policies so that domestic industry can be prepared for international competition” (Nili 16 Azar 1382/December 7, 2003: 5). Similarly, his opponents agreed with him that there was a need for the state to adopt a “new stance” (Jahani-sazi: Yek Hoshdar va Hasht Rahkar: 21) and work alongside the private sector instead of against it. In search of a compromise The key participants in the debate over the best strategy for Iran’s industrial development had each made contrasting proposals regarding the future direction of the country’s economy. On one side there had been a confident belief in the logic of the global capitalist economy; and on the other there had been a deep-rooted suspicion of it and all that it represented. Given that individuals on both sides of the debate were obliged at the very least to pay lip service to the Islamic Republic’s revolutionary legacy of anti-imperialism, however, it was impossible to embrace global capitalism unconditionally. Yet the need for economic growth in the country could not be ignored altogether. Instead, revolutionary goals and economic needs had to be reconciled in a thoughtful and careful manner. Since both sides in the industrial development debate had agreed that globalization was an important phenomenon with positive as well as negative aspects, perhaps there would be a possibility of reconciliation after all. Even though one side made use of an economistic language, and the other preferred to adopt revolutionary symbols and imagery, it was interesting to see whether the two could come to some sort of compromise, where acceptance of and protection from the global economy were combined. In his book Iran and Globalisation: Challenges and Solutions, HashemiRafsanjani supporter Mahmood Sariolghalam advised that those in favor of opening the country up to the world economy should make an effort to consider the historical events that had informed the standpoint of their opponents (Sariolghalam 1384/2005–2006). This professor of International Relations at Tehran’s Shahid Beheshti University argued that, as “the victory of the revolution in Iran was the result of one-hundred and fifty years of

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political struggle, the focal characteristic of which was anti-foreign and anti-Western, . . . one cannot expect the managers of the revolution . . . to be internationalist” (ibid: 109). An outward-looking economic approach was simply not compatible with the revolutionary political stance that had been established alongside the birth of the Islamic Republic in 1979. Furthermore, Sariolghalam argued that the aims of capitalism do not conform with the philosophy of Islamic economics, and because of this, “the Islamic Republic of Iran, with its own peculiar system, has not been able to accept the [capitalist] global economic system” (ibid: 102). Finally, he suggested that the process of globalization was not really compatible with the aim of economic independence (ibid: 106). Therefore, if it wanted to maintain its economic independence, Iran had no choice but to reject globalization. Nevertheless, the author suggested that there were strong arguments to be made in favor of globalization. While it was highly unlikely that any decision on Iran’s part to sign up to the process of globalization would alter the fact that most of the world’s economic production and foreign investment takes place among already industrialized countries, Sariolghalam maintained that, for Iran, “growth and development and economic competitiveness will not be possible without cooperation with the big economic powers” (ibid: 107). In order to justify his stance in terms of the Islamic Republic’s revolutionary ideals, he stressed that, “the maintenance of political independence needs national wealth” (ibid: 113). Without economic growth, the Islamic Republic would not be able to preserve its identity and strengthen itself for the future. Furthermore, as the economic and the political were interconnected in the new global system, Iran could not simply choose to enter into economic relations with the West while concurrently engaging in a political and ideological struggle against it. That so many of Iran’s decision-makers advocated this kind of dual policy was, for Sariolghalam, one of the great paradoxes of the Islamic Republic. This paradox had to be solved for development to be realized. However, the paradox that Sariolghalam sought to overcome was present in his own work. Indeed, the arguments presented in this book are interesting and worthy of detailed examination precisely because they highlight the difficulties inherent in resolving the Islamic Republic’s debate over the globalization issue. The need to achieve a balance between economic growth and political independence was a pressing one that reformists and counterreformists alike recognized. But Sariolghalam sought to resolve the tension between the two goals by simply abandoning one of them. He hoped that the next generation of young Iranians, for whom the idea of relations with the outside world did not present any serious problems, would be able to select and implement the latter path for development with some success. However, he ignored the fact that many of these young Iranians would inevitably get incorporated into the elite structures of the Islamic Republic, thereby becoming interested in maintaining the anti-globalization status quo to assure their own new-found economic and political privileges. Furthermore, having himself

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emphasized the anti-Western nature of Iran’s revolutionary movement and the importance of that struggle to the Islamic Republic’s future, he was hardly helping to forge an environment conducive to reconciliation with the outside world. Indeed, for the time being, many in Iran’s political elite remained concerned about the threats that would be posed to them by increased foreign involvement in Iran’s domestic affairs, and they were able to exploit the continued resonance of the revolutionary aim of economic independence in the public imagination to support their position. Consequently, those reformists and pragmatists hoping to establish closer ties with the West were obliged to take this situation into account when planning the country’s Fourth Five-Year Plan. Even though they saw the establishment of economic relations with the West as an “elixir . . . that has been able to break the poverty trap and open up the path of growth” (Nili 1383/2004–2005: 108), they needed to take measures to protect their country against the possible downfalls of any rapprochement as well. Before the Khatami government presented its proposals for the Fourth Five-Year Plan to the majles in January 2004, it had been criticized by some of its own reformist supporters for having failed thus far to reach an agreement on the question of how the country should handle its encounter with globalization. While other developing countries, such as South Korea, China, and Brazil, had already reaped many benefits from their entrance into the international economic arena, Mohammad Mehdi Behkish commented that Iran was left far behind, “caught up in discussions of the benefits and disadvantages of accepting competition” (Behkish 1382/2003–2004: 19). With the approval of the Fourth Five-Year Plan in September 2004, a development plan that addressed this question head-on was at last passed into law, and it seemed that concrete action was finally being taken to signal Iran’s acceptance of the new global order. However, it is important to note that since the development plan was also committed from the beginning to the realization of social justice and the strengthening of young people’s identity in accordance with the aims of the Islamic Revolution (Siyasat-ha-ye Koli-ye Barnameh-ye Chaharom-e Tawse‘eh-ye Jomhuri-ye Eslami), the establishment of closer relations with the outside world would only be realizable if these other policies were also assured. Nevertheless, the fact that the second chapter of the Fourth Five-Year Plan was entitled “Proactive Interaction with the Global Economy” indicates that the reformists were largely successful in pushing through their agenda for the country’s future economic development. In none of the previous three development plans had the topic of economic relations with the outside world received such explicit attention. In this fourth plan, the government was assigned various responsibilities specifically intended to “increase the country’s share in international trade . . . to promote competitiveness of the country’s exportable goods in the international market, and to proliferate application of technology in the economy” (Fourth Five-Year Plan: Article

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33). In addition to expressing this interest to increase Iran’s presence on the global arena, the plan also showed a willingness to accept greater foreign involvement in Iran’s domestic economy. It called, for example, for the “development of effective international cooperation in the area of research and technology” (ibid: Article 46). Furthermore, whereas the Third Five-Year Plan had specified that the country’s debts and foreign obligations should not exceed US$25 billion in the last year of the plan, this amount was increased for the first time since the Revolution to US$30 billion in the Fourth FiveYear Plan (ibid: Article 13). Nevertheless, the influence of the counter-reformist camp was also evident in the text of this development plan. The government continued to be charged with the responsibility of propagating across its territory “the spirit of defending the national interests, and opposing cruelty and domination” (ibid: 119). Furthermore, as the February 2004 parliamentary elections had resulted in the establishment of a predominantly counter-reformist seventh majles, the law of the Fourth Five-Year Plan ended up being significantly amended by predominantly inward-looking representatives. Commencing their four-year term on May 27, 2004, these members of the seventh majles were intent on making sure that nothing that might be perceived as endangering the ideals of the 1979 Revolution and the survival of the Islamic Republic was put into practice. In this task, they were assisted by the Guardian Council, which continued to espouse the anti-foreign stance that it had taken in reaction to the efforts of the previous majles to introduce a revised foreign investment law. Therefore, while the version of the Fourth Five-Year Plan that was passed into law on September 1, 2004 did favor greater links with the outside world, it was unlikely that the new majles would be keen to implement all of its plans for economic integration.

The reversal of reform From the moment the Foreign Investment Promotion and Protection Act (FIPPA) was approved by the Expediency Council in 2002, the rumblings of discontent with the direction that the Islamic Republic was taking under the leadership of President Khatami became more and more audible. In particular, at a time when it seemed that Khatami and his reformist supporters were moving further away from their previous attachment to the discourse of economic independence and social justice in favor of a more purely economistic approach to economic affairs, they were confronted with an increasingly emboldened opposition. Less than a decade earlier, Hashemi-Rafsanjani’s attempt to redefine the goals of the Revolution, whereby increased production was presented as an ideal route toward economic independence, had aroused widespread concern. Resistance to this redefinition of the revolutionary goals had largely been caused by the perception that rampant corruption was going hand in hand with the anticipated great leap toward reconstruction and development. Now,

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it seemed that Khatami’s administration, in which many had placed all their hopes for a return to the country’s original revolutionary commitments, was going down an even less desirable pragmatic path. Corruption had not been eradicated, but instead seemed to be just as endemic as ever. The Petropars episode, in which the chairman of this semi-private oil company, an offshoot of the NIOC, was indicted on corruption charges and forced to resign from his chairmanship in 2001, highlighted the extent of public unease about the problem of a misuse of power by officials (Kayhan 5 Mehr 1380/September 27, 2001). Even worse, that this particular official had been Behzad Nabavi, former statist champion and reformist deputy in the sixth majles, was hugely damaging for the overall advancement of the Second of Khordad Front. Arguing that the reformists were moving the country away from the principles of the Revolution, disparate groups, who would previously have not even considered cooperating with each other, suddenly found that they had something in common, and they worked together to reverse the undesirable aspects of reform. Conservative mercantile elites and statist revivalists alike maintained that détente with the West was not necessarily in Iran’s national interests. With the United States under George W. Bush increasingly hardening its position toward Iran, it seemed unlikely that the dialogue-seeking reformist movement could survive much longer. Consequently, the possibilities for compromise between those favoring and those opposing a greater openingup to the outside world were even more remote. Instead, the time was ripe for another fluctuation in Iran’s economic policies. Indeed, with the seventh majles dominated by a majority of counter-reformists who were keen to join forces with their allies in the influential Guardian Council, the reformist government was faced with a somewhat insurmountable challenge to its authority, and a new direction was commenced. In the remainder of this chapter, the composition of the counter-reformist alliance, as well as the way in which it rose to influence during the elections for the seventh majles, will be examined. Then, the process of “deliberalization” that was subsequently pursued by the various counter-reformist forces will be discussed in some depth. In particular, the discussion will focus on the steps that were taken by these opponents of reform to introduce a bold shift in Iran’s foreign investment policy, a shift that was sure to limit further inflows of foreign capital and damage the Islamic Republic’s investment reputation on the global scene for some time to come. The rise of the counter-reformists Back in 1992, the Guardian Council had rejected about a third of all candidates hoping to run in the fourth majles elections, apparently with a view to ensuring victory for the mercantile and pragmatist supporters of President HashemiRafsanjani. As a result of this action, those who held a statist outlook were removed from nearly all positions of political influence in the country, and

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the new group that took over as the dominant force in both government and majles was able to reverse many of the statist policies that had been the norm up to that point. In a similar manner, the Guardian Council again took the bold step of preventing a large number of reformist candidates from taking part in the 2004 elections for the seventh majles. This time around, of course, it was not an identical case of mercantile elite replacing statist elite, for the composition and outlook of the country’s various factions had shifted over the previous 12 years. But nevertheless, given that it appeared the reform movement was now in serious danger of being reversed by the same means as those that had eradicated the influence of the statist approach in 1992, parallels could be drawn between the two events. In January 2004, just over a month before the Islamic Republic’s seventh parliamentary elections were due to take place, the Guardian Council announced the disqualification of 2,380 out of the 8,146 candidates who had put their names forward for consideration (Ettela‘at International January 12, 2004). This number represented nearly 30 percent of all those hoping to run in the elections, and as most of these were either reformist deputies already sitting in the sixth majles or else political activists affiliated in some way to the Second of Khordad Movement, the decision was interpreted by many as a direct attack on reform itself. Even though the Guardian Council had justified its decision to bar these candidates with the argument that they supported “antirevolutionary” groupings, had a lack of belief in the constitution and the foundations of Islamic government, or else suffered from various aspects of moral or financial corruption (ibid), most reformists rejected these allegations. Seeking to calm the situation, President Khatami and majles speaker Mehdi Karrubi initially spoke of their hope that many of these disqualified candidates would be reinstated through legal channels in due course. But others took a more aggressive stance, and throughout the pre-election period, tensions between reformists and counter-reformists increased. Such tensions were highlighted by the decision of a group of around 80 deputies serving in the sixth majles to organize a sit-in within the building of the Iranian parliament. Led by the president’s younger brother and deputy speaker of the sixth majles, Mohammad Reza Khatami, these deputies spent 26 days demonstrating their opposition to the Guardian Council’s ban, demanding that all those who had been “illegally” barred from the elections should be allowed to run (Iran 15 Bahman 1382/February 4, 2004). While many of their opponents in the counter-reformist camp supported the ruling of the Guardian Council, calling for the formation of a less “radical” majles (Ettela‘at International January 7, 2004) that might pay greater respect to the original values of the Revolution, the reformists asked why anyone should think that a freely-elected parliament would end up being more radical than a restricted one. Hosayn Mar‘ashi, of the pragmatist Kargozaran party, pointed out that, “in the sixth majles, we were unable to even increase or decrease the budget of many government bodies, so in what ways were we radical?” (Ettela‘at International January 19, 2004). Nevertheless, in spite of these

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protestations, the Guardian Council upheld its decision, eventually allowing only 214 of those who had originally been disqualified to run in the elections (Iran 18 Bahman 1382/February 7, 2004). With so many reformists banned from putting their names on the ballot paper, and many others boycotting the February 20 elections in a show of solidarity with these excluded candidates, it came as very little surprise when representatives of the counter-reformist camp emerged victorious after the votes were counted. But the election’s winners did not put their success down to the marginalization of their rivals and the subsequent low turn-out of voters (the Interior Ministry reported that only 50.57 percent of the electorate participated in the elections on February 20, 2004, and non-official estimates put the participation rate even lower than this). Instead, they said it was because of their promise to bring about a fair and just socio-economic development for the Iranian people that they had received the majority of votes. Resalat newspaper described the election results as “a victory of moderation over extremism, reason over folly, and efficiency over fruitless slogans” (cited in Ettela‘at International February 23, 2004). Similarly, Jam-e Jam wrote that, “instead of creating futile political struggles . . ., [the new majles] will focus on serving the people, meeting their social and economic needs in particular” (ibid). But who were these counter-reformists? From where had they come? And how was it that both mercantile sympathizers and statist revivalists could be found among their number? As for the statist revivalists, they had been quietly growing in strength ever since 1996, when the Society for the Defense of Revolutionary Values (Jam‘iyyat-e Defa‘ az Arzesh-ha-ye Enqelabi) was set up in response to the pragmatist Kargozaran party.7 Although this particular society’s candidate for the 1997 presidential elections, Mohammad Mohammadi Rayshahri, lost out to Khatami and relegated the statist revivalists to the background of Iranian politics for a time,8 the group as a whole did gain prominence as a serious political force during the local elections of 2003. From 1997 onward, by continuing to articulate of the types of anti-capitalist and pro-poor slogans that had emerged in the 1960s and 1970s, they acquired a significant following among the urban working classes in particular. As Mohammad Quchani argued in his 2005 categorization of the Islamic Republic’s “new age” political groups,9 just as those who had suffered under the modernization policies of the Pahlavi period had lent support to the Islamic Revolution, so the statist revivalists, whom Quchani referred to as “fundamentalists” and “revolutionary conservatives” (Siyasatnameh-ye Sharq 12 Shahrivar 1384/September 3, 2005), were convinced that those who had suffered from the modernization policies of Hashemi-Rafsanjani and Khatami would support their “new Islamic revolution” (ibid). In this way, by reviving the values of the revolutionary period, they achieved considerable success in the 2003 local elections. As for the conservative mercantile elites, many of these had become increasingly alarmed at Khatami’s apparent disregard for the state-connected

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members of the bazaar, concerned that his administration was promoting the creation of a Western-style economy rather than protecting fundamental mercantile interests in the face of foreign competition. The economic policies that had been pursued throughout the Khatami period encouraged the growth of the Iranian private sector, but over time, and since a major proportion of this sector was actually tied up within the Iranian state itself, there were many who worried that any continuation of a reformist economic approach would leave them at risk of losing the multiple benefits that came from their state connections. Instead of pursuing an Eastern European model of economic change that went hand in hand with political change, encouraging glasnost as well as perestroika, the mercantile elites were keen for the Islamic Republic to emulate the “China model.”10 According to this preferred model, economic change would take place in the absence of political reform, and any acceptance of foreign capital into the country would be based on the condition that it serve commercial and security interests, not threaten them. Of course, the two groups were, to a large extent, rather strange bedfellows. The mercantile camp did not seek either isolationism or confrontation on the international arena, and nor did it favor a return to the populist-statist economy of the early- to mid-1980s. Yet many members of the statist revivalist camp were not averse to either of these goals being taken on as a serious policy option. So, there was always a risk that cracks in the alliance would develop over time. But for the moment, they did share an aversion to what they perceived as Western cultural contamination and degradation, two diseases that they believed would afflict the country should its economy be opened up to the outside world any more than had already been permitted. Both conservative mercantile elites and statist revivalists feared that a continuation of reformist economic policies would put their own position within the Islamic Republic at risk. Furthermore, they were in broad agreement on many cultural and social issues, and they both strongly backed political conservatism. As such, the conservative mercantile elites and the statist revivalist factions, which had both been largely excluded from the sixth majles, were now able to exploit the influences that they enjoyed in many of the regime’s appointed institutions, in the Islamic Revolutionary Guard Corps (IRGC), the Guardian Council and the Hawzeh. Although there were clearly divisions and subdivisions within this broad coalition of counter-reformists, the most dominant group at the time of the 2004 majles elections was the revivalist Islamic Iran Developers Council (E‘telaf-e Abadgaran-e Iran-e Eslami, or Abadgaran). Others had also been active, such as the Helpers of the Party of God (Ansar-e Hezbollah), the Islamic Revolution Devotees Society (Jam‘iyyat-e Isargaran-e Enqelab-e Eslami, known simply as Isargaran), and of course the Society for the Defense of Revolutionary Values (Jam‘iyyat-e Defa‘ az Arzesh-ha-ye Enqelabi). But under the leadership of the Abadgaran, they promised to develop for the people of Iran a renewed, and truly revolutionary, Islamic Republic. As they all perceived reformist economic policies as having been a threat to the realization of that goal, they began to

150 Iran’s struggle for economic independence defend their own understanding of what was best immediately after the 2004 elections. However, while the Abadgaran and other counter-reformists suggested that their victory highlighted the complete failure of the reform movement, many reformists held on to the hope that their approach to economic and social policy would continue to be followed even after they had been removed from the political arena themselves. Since they had not been beaten in a free and fair competition, they suggested that the results of these elections could not possibly be perceived as a defeat for their camp. Furthermore, the very fact that many of the slogans used by the Abadgaran during their electoral campaign were similar to those being voiced by the reformists was surely a sign that reform was at last consolidated. Behzad Nabavi, who had himself been excluded from running in the elections, argued that the Abadgaran’s support for issues such as the legalization of satellite dishes, alongside their promises to not interfere in the private affairs of Iranian citizens more generally, indicated just how much their whole outlook no longer “made sense” to the average Iranian. He said it was because of this that “they have become forced to conceal themselves under disguises that ensure their own viewpoints are not revealed to the people” (Ettela‘at International March 3, 2004). Apparently validating this suggestion that the new majles would not move to reverse the reform that had been introduced by its predecessor, various members of the Abadgaran group confirmed that they were not interested in opposing the Khatami administration’s policies. For example, Tavakolli explained that he did not want “political quarrels [between the government and the parliament] to increase the difficulties of the people” (Ettela‘at International February 23, 2004). However, not long after the seventh majles was inaugurated, the counter-reformists embarked on a series of actions that seemed to contradict the spirit of this promise. In particular, just when the reformists were congratulating themselves on the FIPPA’s success in attracting increased foreign investment, the deputies of the seventh majles introduced a bill that would require the government to obtain parliamentary permits before signing contracts with foreign investors. As this bill was to act retroactively, giving the majles the power to block even those contracts that had already been signed, it seemed to be aimed directly at reversing reform. In what follows, the bill and its implications will be examined, with a view to highlighting the extent to which the reformist government and the counter-reformist majles were positioned in opposition to each other at this time. Blocking foreign investment It was in September 2004, just four months after the inauguration of the seventh majles, that this new piece of legislation relating to foreign investment was put forward for urgent discussion. In just eight days, not only did the majority of majles deputies vote in favor of this proposal, but also the Guardian Council

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gave its approval and officially passed it into law. By acting on the matter in such haste, the statist revivalist and conservative mercantile elites that dominated these two institutions revealed just how eager they were to put their own stamp on the country’s future economic policies. Furthermore, by presenting their law as an amendment to certain articles of the Third FiveYear Plan, a plan that would come to an end in less than six months, these groups showed the extent to which they opposed the various liberalization policies that had been adopted by the reformist-pragmatist camp over the previous four years. Finally, by taking this step just as President Khatami was about to depart for a state visit to Turkey, they indicated a specific desire to block the two foreign investment contracts that Khatami would discuss while on this trip, arguing that these would put the nation’s security at risk. Ahmad Tavakolli, who was one of the key backers of the proposed law, confirmed that, “the main targets are the [government’s] contracts with Turkcell and TAV” (Reuters September 22, 2004). These two contracts with Turkish consortia had been signed by the Khatami government with a view to allowing major investments to be made in the country’s telecommunication and transportation sectors, as prescribed in Articles 124 and 130 of the Third Five-Year Plan.11 The first contract, with the Turkish mobile telephone group Turkcell I˙letis¸im Hizmetleri A.S¸. (Turkcell), was to develop a second mobile telephone network in Iran as a private-sector alternative to the state-owned Iran Mobile company, which had proven unable to deal with the Iranian population’s rapidly growing demand for mobile phone communications (Hamshahri 7 Mehr 1383/ September 28, 2004). The second contract, with the Turkish-Austrian group Tepe-Akfen-Vie (TAV), was for the construction and servicing of Tehran’s new Imam Khomeini International Airport, a contract that had already been informally canceled by the expulsion of TAV by the statist revivalist IRGC only hours after the airport’s opening ceremony in May 2004 (Ettela‘at International February 3, 2004). Now, with their controversial bill of September 2004, the deputies of the seventh majles sought to remove from the Third Five-Year Plan those articles that had encouraged these investments in the first place, and to stop such contracts from being pursued in the future. The first version of this bill, introduced to the majles on September 20, 2004, called for the government to obtain a majles permit before entering into any contracts that would give the foreign partner a share of over 49 percent, or that were related to air transportation or communications matters (Iran 30 Shahrivar 1383/September 20, 2004). Therefore, the proposed law was initially aimed not only at the TAV and Turkcell contracts, but also at all major foreign investment deals that had been made by the government since March 20, 2004. Its harshness could be seen in the fact that only a three-month grace period was allowed for the government to get the approval needed to continue with any pre-existing agreements. However, once the majles deputies entered into their second round of more detailed discussions, the law became narrowed down to apply to only these two investments from Turkish companies.

152 Iran’s struggle for economic independence This decision to restrict the reach of the proposed regulations for government contracts with foreign investors suggested that even though the statist revivalists and conservative mercantile elites who dominated the majles were opposed to many reformist policies of economic liberalization, they did not necessarily share a desire to enforce strict restrictions on all foreign investment as such: those investments considered to present no threat to the Islamic Republic’s security and survival were viewed favorably. The proposal to apply the new law to TAV and Turkcell only was put forward by a small group of deputies, led by Gholam-Reza Mesbahi Moqaddam, Mohammad-Reza Bahonar, and Ahmad Tavakolli. The group made use of a detailed report from the Majlis Research Center, which Tavakolli himself headed, to justify their call for restrictions to be imposed on these particular contracts. The report argued that while the contract with Turkcell might well be able to provide foreigners with huge financial gain, it would be of no benefit to Iran (Iran 2 Mehr 1383/September 23, 2004). In fact, it was portrayed as a wholly undesirable agreement, leaving Iran’s sensitive communications network vulnerable to outside control and even foreign espionage (Iran 4 Mehr 1383/September 25, 2004). As for the TAV contract, the Majlis Research Center report alleged that one of this consortium’s member groups, Akfen, was headed by Turkish army generals, and was even reputed to have Israeli representatives. To allow such a company to service one of the country’s international airports would be to endanger national security (ibid). That this version of the bill was approved straight away, on the very day that it was proposed by the Tavakolli group, suggests that the majority of majles deputies were wholly convinced by these security-based arguments. The speaker of the majles, Gholam-Ali Haddad-Adel, praised his deputies for passing the revised law. He was confident that the decision to require majles approval of the two Turkish contracts would reduce corruption, and thereby increase foreign investment levels. He commented that, “economists know that foreign investors are more interested in countries that have greater legal discipline and less financial corruption” (Jomhuri-ye Eslami 6 Mehr 1383/ September 27, 2004). Furthermore, in response to the accusation put forward by the government spokesman, Abdollah Ramazanzadeh, that the majles had passed this piece of legislation simply because it wanted to “paralyze government and isolate the country on the political and the economic level” (Iran 4 Mehr 1383/September 25, 2004), Haddad-Adel maintained that there had been widespread concern about the TAV and Turkcell contracts well before the inauguration of the seventh majles. Indeed, a bill calling for the majles to oversee all foreign contracts worth more than US$20 million had been passed by the reformist sixth majles in November 2002, indicating that even the reformists had been interested in preventing the exploitation of Iranian resources by foreign companies. Nevertheless, those who opposed the legislation of the seventh majles argued that having the power to supervise foreign contracts, as was provided in the 2002 bill, was very different from being able to specify the actual terms and

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provisions of these contracts, as was being endorsed now. But the supporters of the new legislation maintained that an increase in parliamentary control over these Turkish contracts was in fact vital for the protection of national interests. For them, there had been no alternative but to pass the law. However, there was significant opposition to the bill outside of the majles. While Haddad-Adel stressed that this law did not necessarily set out to cancel the two Turkish contracts, but rather to secure only positive results (Iran 6 Mehr 1383/September 27, 2004), most reformists were convinced that it would have many negative consequences. Haydar Mostakhdemin Hosayni, the undersecretary for parliamentary affairs at the Ministry for Economic and Financial Affairs, commented that, “among the effects that this plan will have on the economy of the country . . ., one can point to the creation of a lack of confidence in the country’s laws and regulations” (Iran 1 Mehr 1383/ September 22, 2004). He worried that, “this matter will . . . damage the overall esteem in which the government . . . is held at the international level” (ibid). Furthermore, Hamid Reza Baradaran Shorakka (president of the MPO) was concerned that the law would slow down economic growth and reduce the opportunities for employment creation in the country (Iran 2 Mehr 1383/ September 23, 2004). Finally, Mehdi Karrubi (chair of the MRM and former majles speaker) complained that, “one of the great achievements of the . . . sixth majles was the passing of the law for foreign investment . . . but now . . . it is possible that this valuable law . . . will become ineffective” (ibid). With so many concerns about the negative implications of restricting foreign investment in this way, and in the belief that it was unconstitutional for the majles to intervene so directly in the government’s affairs, the reformists hoped that the Guardian Council would vote against the proposed bill. President Khatami himself commented that, “the recent plan of the majles is without precedent in the history of the revolution . . . ultimately it represents a negation of the constitution, or in other words the interference of the legislature in the executive . . . I hope that the Guardian Council will investigate this issue with care and attention” (Jomhuri-ye Eslami 2 Mehr 1383/September 23, 2004). However, the day after it was passed by the majles, the Guardian Council gave its full approval to the bill and passed it into law without amendment. In so doing, this non-elected body reaffirmed its support for those majles deputies whose election it had facilitated with the disqualification of so many reformist candidates back in February 2004. Consequently, it was clear that the semi-authoritarian nature of the Islamic Republic had contributed to the growth in influence of the counter-reformist camp. But the extent to which the outcome of this legal decision would actually shape future economic policies in practice was yet to be seen. The fate of the Turkish contracts In immediate response to the Guardian Council’s decision to approve the September 2004 ruling on foreign contracts, a TAV spokesman threatened

154 Iran’s struggle for economic independence that if his company were forced to leave Iran at this late stage, the Iranian government would have to pay a fine of around US$15 million (Iran 8 Mehr 1383/September 29, 2004). This did not change the eventual outcome of TAV workers being removed from Iran’s new airport, but it indicated the frustration of this important foreign investor in the face of recent developments in the Islamic Republic. Similarly, Ahmad Mo‘tamedi (Iran’s minister of communications and information technology) warned that, “if implementation of the communications contract with this company is prevented, international courts will charge Iran with heavy fines” (Iran 7 Mehr 1383/September 28, 2004). Although he believed that “the national interest and security issues were taken into consideration” (Iran 8 Mehr 1383/September 29, 2004) when the government originally agreed on this contract, he worried that the “largely incorrect information” (ibid) provided in the Majlis Research Center’s report would lead deputies to call for its annulment. In fear of such an eventuality, the cost of SIM cards shot up overnight, destabilizing the mobile telephone market and thereby increasing the risk of foreign investment even more. Many of the concerns of the reformist camp were on their way to becoming a reality, and divisions between the government and the majles grew even sharper from this point onward. Initially, Ma‘sum Fardis (undersecretary for regulatory affairs at the communications ministry) held on to the hope that the majles might yet be persuaded to confirm the government’s contract with Turkcell. He argued that the domestic private sector was incapable of implementing this project alone. Therefore, if the majles chose to reject Turkish investment and technology, the country’s mobile telephone program would fall at least two years behind schedule, and he suggested that such an outcome was not in the national interest (Iran 7 Mehr 1383/September 28, 2004). However, on January 30, 2005, the majles committee responsible for investigating the Turkcell deal recommended that the level of foreign involvement in this project to develop a second mobile telephone network in Iran should be restricted. Pointing to the “security and economic problems” (Jomhuri-ye Eslami 12 Bahman 1383/January 31, 2005) inherent in the contract, the committee suggested that the Iranian share should be raised to 51 percent, and the foreign share reduced from 70 percent to 49 percent. While they maintained that they were not opposed to foreign investment as such, but instead were acting out of a desire to protect domestic interests (Hamshahri 14 Bahman 1383/February 2, 2005), the members of this committee still received strong opposition from reformists who believed this move to be in contradiction of the national interest. In particular, the government spokesman, Abdollah Ramazanzadeh, warned that the delay this new ruling would add to the completion of the Turkcell deal was sure to result in a budget deficit of 5,000 billion rial (approximately US$500 million) for the country (Ettela‘at International February 2, 2005). A Turkcell representative had announced that if his company’s share in the

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contract were altered in any way, it would have “no option other than to abandon the contract altogether” (Iran 13 Bahman 1383/February 1, 2005). From Turkcell’s point of view, an agreement had already been reached between the two parties, and so it was not acceptable for such fundamental changes to be introduced at this late stage. Nevertheless, when the majles voted in May 2005 to confirm the proposal to reduce Turkcell’s share in the mobile telephone contract, the Turkish company did concede to engage in negotiations over possible new terms of contract. By early September 2005, Turkcell announced that a revised agreement, which met all of the conditions placed by the seventh majles on foreign investment, had at last been secured.12 However, Iranian officials soon denied that any such agreement had been reached, and the fate of this mobile telephone project appeared to be as uncertain as ever. On September 12, 2005, Ebrahim Mahmudzadeh (managing director of the defense ministry’s Iran Electronics Industries (IEI) company) announced the termination of relations with Turkcell (Iran 21 Shahrivar 1384/September 12, 2005). While Turkcell claimed that a final contract had been signed and all funds transferred, Mahmudzadeh, whose company held half the shares in the Iranian side of the proposed mobile telephone consortium, said that this was not the case. According to him, throughout the period of negotiations, Turkcell officials had constantly sought to take on more control of the project than their 49 percent share should have allowed. Furthermore, given that they had failed to transfer the required down payment into the Iranian side’s nominated bank account before the agreed deadline, Mahmudzadeh was confident that “our Turkish friends were not ready to invest in this project” (ibid). He believed that the Turkish company had only announced that the contract had been signed and payment made because this would have caused the price of its own stocks to go up. In short, Turkcell had been removed from the negotiating table because it was not considered to be a desirable partner for this project to develop a second mobile telephone operator in Iran. But the question of who would be found to replace Turkcell at this late stage was an important one. From the point of view of the reformists in particular, it needed to be addressed without delay. As pro-reform economic commentator Mohammad Sadeq Janan-Sefat observed in Sharq newspaper, every day that passed without resolution to this affair was another day in which the state-owned mobile telephone operator continued to enjoy its monopoly of the market. In this situation, instead of the 1.5 million rial (approximately US$150) that was to be charged for each SIM card by the new mobile telephone company once it commenced operations, Iranian consumers had no choice but to pay 5 million rial (approximately US$500) per item. Even worse, due to the existence of a backlog of orders, that amount had to be given several months in advance of receipt of the actual product. It had been largely because of this situation that the reformist government and majles had placed such importance in their Third Five-Year Plan on the development of an alternative mobile telephone operator in the first place. But now that plans for this project

156 Iran’s struggle for economic independence were again interrupted, Janan-Sefat feared that Iran’s consumers would have to continue waiting for prices to come down (Sharq 21 Shahrivar 1384/ September 12, 2005). Furthermore, it was clear that this last-minute cancellation of the Turkcell contract would have serious implications for the country’s standing among foreign investors. As Janan-Sefat pointed out in his Sharq article, “trust is vital to the attraction of foreign investment” (ibid). Given the uncertainty in which the Turkcell deal had been shrouded for the previous 12 months, it was unlikely that Iran would be successful in securing the advanced technology and capital from abroad that it so desperately needed. Therefore, not only did the removal of Turkcell represent a setback for the privatization plans that had been introduced by Khatami’s administration, but also it damaged reformist efforts to attract increased foreign investment. As such, the Turkcell episode highlighted the extent to which the economic outlooks of reformists and counter-reformists were at odds with each other. The support given to the latter group by the supreme leader, Khamene‘i, had meant that, ultimately, counter-reformists were guaranteed success in their mission to protect the national security concerns of the Islamic Republic. Indeed, alongside his Article 44 announcement in May 2005, Khamene‘i had stressed the need to “prevent the interference and dominance of foreigners in the national economy” (Khamene‘i May 22, 2005), thereby providing a justification for those who doubted Turkcell’s intentions. When a replacement to Turkcell was secured in November 2005, this conclusion to what had become one of the most controversial foreign contracts in the Islamic Republic’s history was interpreted in various ways. On the one hand, it was seen as a positive development by those who were eager for a second mobile telephone operator to commence its work in the country and introduce a competitive alternative to the current state-owned Iran Mobile company. Additionally, those who had been concerned about the suitability of Turkcell were pleased that its replacement, a South African telecommunications company by the name of MTN (which had finished as a runner-up in the original bid) was completely willing to submit to the more restrictive terms of contract that had been introduced by the seventh majles. However, on the other hand, there were concerns among some in the reformist camp that this joint venture with MTN did not present a true competitor to Iran Mobile (Hamshahri 7 Mehr 1383/September 28, 2005). This was because, with 51 percent of the partnership shared between the defense ministry’s IEI company and the para-statal revolutionary foundation, Bonyad-e Mostaz‘afan, the new mobile telephone consortium was thought to be too closely tied to the business interests of the Islamic Republic’s ruling elites (ibid). For reformists, such an outcome did not seem to meet either of the two main goals of the Third Five-Year Plan’s policy on telecommunications. This policy had sought to advance the country’s move toward privatization and strengthen the country’s standing in the eyes of foreign investors. But with Turkcell expelled from the country and the proposed competitor to Iran

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Mobile embedded in the vast networks of the Iranian state, foreign investors were discouraged from participating in the Iranian economy, and the country’s telecommunications industry remained in need of further privatization. Could it be argued, therefore, that this change in policy had simply been part of a counter-reformist strategy to undo all that had been introduced by the reformists during the Khatami era? Many members of the reformist camp believed this to be the case. One reformist-pragmatist newspaper summed this view up by arguing that whatever the reformist government wanted, the counter-reformist majles opposed: perceiving both sides to be acting in “a battle . . . that began with the success of the ‘conservatives’ in the majles elections, and . . . grows in strength each day” (Jahan-e San‘at 14 Mordad 1383/August 4, 2004) the Jahan-e San‘at newspaper did not find it surprising that the Turkcell saga ended with a complete reversal of reformist policies. Indeed, following the election of Mahmoud Ahmadinejad as president of the Islamic Republic in June 2005, the alliance between statist revivalists and conservative mercantile elites had at last achieved dominance across the government, the majles, and the Guardian Council, and this had given them the power to put their own stamp on Iran’s economic policies with considerable ease. However, it does not necessarily follow that this camp’s preferred policies were motivated simply by a desire to oppose whatever had come before them. On the contrary, arguments could be found to support the position that had been adopted by the counter-reformists in terms of national security, and not only factional interests. From this point of view, the move to block the TAV and Turkcell contracts had not been inspired by a desire to block all foreign investment as such, but rather with a view to restricting only those investments that threatened to damage their own vested interests and impinge on the country’s national security as they saw it. The fact that the Iranian partners in the mobile operator licence had been happy to work with MTN, a South African company, indicated that they would tolerate certain foreign partners as long as they did not feel that this partnership would threaten their vested interests within the system of the Islamic Republic. Nevertheless, many reformists were disconcerted by their observation that the supporters of counter-reform seemed to have gained considerable material benefits by blocking the TAV and Turkcell deals. Under the original mobile telephone contract that had been signed by the Khatami administration, the Iranian partners had been entitled to only a 30 percent share of the consortium between them, but now they had the chance to take ownership of 51 percent of the stocks. The Turkcell contract was reputed to have been Iran’s biggest foreign investment deal since the 1979 Revolution, and these companies were seen to have benefited enormously from this episode by acquiring for themselves an increase in profits. Similarly, in the case of the TAV contract, it was suggested that the IRGC enjoyed significant material gain when it expelled foreigners from work on the Imam Khomeini International Airport and replaced them with domestic workers.

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Whether opposition to these two Turkish contracts was due to profit motives, concern for national security, or simply a desire to ensure that the prestige of attracting large sums of foreign investment did not go to Khatami and his reformist supporters, it was clear that the counter-reformist camp had been successful in effecting a bold shift in Iran’s economic policy. With the implicit backing of Khamene‘i and the Guardian Council, various groups affiliated to the statist revivalists had allied with those mercantile elites who had abandoned their previous attachment to the pragmatist movement initiated by Hashemi-Rafsanjani in the early 1990s, and together they had presented a powerful force for change. With the argument that they were seeking to protect the country from economic exploitation and security threats, these counter-reformists had prevented two major foreign investment deals from going through in their original shape and form. Given Ahmadinjed’s victory at the polls in June 2005, it was likely that they would be able to influence foreign investment policy even further in the future.

Concluding remarks Elected primarily for his promise of a future where the ideals of Iran’s 1979 Revolution would never be forgotten, Mahmoud Ahmadinejad was a man who represented all that the counter-reformists had been hoping to achieve. In contrast to the Khatami administration, which had apparently been creeping toward a greater acceptance of foreign capital and open relations with the outside world, Ahmadinejad’s government pledged to resurrect the spirit of the Revolution in such a way that all international relations would be carried out on Iranian terms and in Iranian interests.13 In particular, building on the idea that Iran needed to “go back to basics” and develop along the lines that were set down by Ayatollah Khomeini, Ahmadinejad made the resolution of domestic problems his top priority. Instead of looking abroad for a miracle cure, he preferred to focus on what could be done at home. In this way, his election signaled the triumph of the revivalist trend that had been growing in the country ever since the 2003 elections. With supporters of this trend now in government as well as in the majles, it seemed that the initial populiststatist tendencies of the Revolution were back to stay. However, while Ahmadinejad declared that his election victory marked the arrival of a “new Islamic revolution,” suggesting that the Revolution of 1979 had come full circle and was now returning to its roots, it is important to note that there were nevertheless some important differences between 1979 and 2005. In particular, the “newness” of the revivalist movement should be emphasized. Of course, the counter-reformists did seek to resurrect the ideals of the Revolution where their predecessors had attempted to either redefine or reform them, but this “resurrection” was actually a process whereby various aspects of the multidimensional revolutionary discourse were blended in a rather novel way.

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Although the same emphasis on independence, social justice, and protection of the downtrodden (mostaz‘afan) that had been made during the 1970s did make a noticeable re-appearance after 2003, the types of policies now deemed acceptable were of a significantly different nature from those that had been endorsed in the immediate post-revolutionary period. Since it is so difficult for the decisions of today to avoid being influenced in some way by a complex accumulation of various past experiences, the statist revivalists took on certain elements of the developments that had taken place throughout the HashemiRafsanjani and Khatami periods just as much as they harked back to the Khomeini years. Under the influence of a statist revivalist majority in the seventh majles, the Fourth Five-Year Plan allowed for increased foreign involvement in the Iranian economy, and a South African company was awarded a contract to help develop Iran’s second mobile telephone network: Musavi-style isolationism this was not. Statist revivalists, along with conservative mercantile elites, clearly disapproved of certain types of foreign investment, deeming some to be “un-revolutionary,” but they were not in favor of a blanket rejection of all foreign investment. Rather, just as the reformists had sought to achieve integration with the global economy while continuing to respect the key revolutionary goals, so the counter-reformists stressed a respect for revolutionary goals while at the same time recognizing the need for some integration with the global economy. Furthermore, it has been shown in this chapter that the counter-reformist effort to resurrect the Revolution was not a straightforward return to the statist approach of the immediate revolutionary and post-revolutionary periods. While the strength of the discourse of economic independence had led to the adoption of a broadly leftist attitude toward economic affairs by the new state, statist and mercantile elites had operated in clear opposition to each other. The former had emphasized the need for a strong, Islamic state to control the national economy, and the latter had called for the mercantile elite to be afforded some level of influence over the running of the economy. Neither of them wanted the creation of a Western-style capitalist economy with close links to the outside world, but they competed against each other for influence throughout the war period and beyond. However, with the formation of a counter-reformist alliance in response to the liberalizing policies of both Hashemi-Rafsanjani and Khatami, the two groups could be seen to have come together for the first time. This was a new development for the Islamic Republic, one that was not simply a direct return to the situation of the original revolutionary period. Finally, given that the supporters of Hashemi-Rafsanjani and Khatami had also been keen to present their preferred policies as loyal to the original goals of the Revolution, it should be recognized that the members of the counterreformist camp were not alone in using this argument to justify their actions. When the pragmatists and the reformists had promoted a further opening-up of the Islamic Republic to foreign capital, they had always done so by reasoning that this would help the Islamic Republic to protect itself and its

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revolutionary ideals against the multiple threats of the contemporary world. However, the reformists’ increasing use of an apparently “neo-liberal” language to explain their recommendations for the Iranian economy meant that their commitment to defending Iranian national interests had become increasingly questionable, leaving them vulnerable to attack from the Islamic Republic’s powerful appointed bodies that were charged with protecting the survival of the semi-authoritarian regime. As such, the triumph of Ahmadinejad and the counter-reformists was not so much a return to the ideals of the Revolution; instead, it represented the emergence of a new interpretation of how those ideals should be articulated and pursued in order to ensure the Islamic Republic’s continued existence. But having presented themselves as the only ones capable of capturing the benefits being offered by the forces of economic globalization while at the same time protecting the Iranian state against globalization’s perceived threats, the elites of the Ahmadinejad administration now had to prove that they were capable of achieving this goal in practice. The next chapter will explore the challenges that these counter-reformists came up against in the course of their own struggle for economic independence.

7

Negotiating the path of counter-reform

The prevailing order of contemporary global interaction is such that certain powers equate themselves with the international community, and consider their decisions superseding that of over 180 countries. They consider themselves the masters and rulers of the entire world and other nations as only second class in the world order. (Ahmadinejad September 19, 2006)

Since coming into office as president of the Islamic Republic of Iran, Mahmoud Ahmadinejad has become well known for his resistance to the contemporary global order. Speaking out against what he considers the unfair dominance of a small number of countries over the rest of the world, he claims to be seeking to gain increased influence and prestige for those states that have apparently been marginalized by the existing system of international relations, including especially Iran. In his September 2006 address to the General Assembly of the United Nations, Ahmadinejad made it clear that he thought the five permanent members of the UN Security Council held a disproportionate amount of power in the international arena. He seems to see no reason why every member of the United Nations should not have the right of veto, and his opposition to the well-established structures of this international body has been reflected in his approach to Iran’s relations with the outside world more generally. Building on Khomeini’s original call for Iranians to unite in a revolutionary struggle against oppression, Ahmadinejad has sought not only to rid Iran of unwanted Western influence, but also to exert Iranian influence over the West wherever possible. For Ahmadinejad and his supporters, the pragmatist tendencies of the Hashemi-Rafsanjani administration and the reformist approach of the Khatami government had combined to create 16 years of movement away from the values of the 1979 Revolution. Starting with Hashemi-Rafsanjani’s emphasis on the need for rapprochement with the outside world in the name of postwar reconstruction, and reaching a climax with the voluntary suspension of Iran’s nuclear enrichment activities that was made by the Supreme Council for National Security under Khatami’s presidency in November 2004,1 pragmatists and reformists were seen to have inflicted considerable damage

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the revolutionary interests of the Islamic Republic. Accordingly, rather than call for a dialogue among civilizations as Khatami had done before him, Ahmadinejad took up the presidency with the intention to promote Iranian national honor by adopting a more confrontational approach to international diplomacy. In his eyes, by humbly requesting the world’s superpowers to engage in dialogue, Khatami had placed the Islamic Republic in a position of subservience and weakness, and now it was time for the tables to be turned. Broadly speaking, although the reformists had made use of Iran’s revolutionary discourse and claimed allegiance to the legacy of Ayatollah Khomeini, counter-reformists had feared that their proposed policies would endanger the very survival of the post-revolutionary regime if allowed to continue and expand for much longer. As long as they operated as semi-opposition groups, engaging in partial criticism while abstaining from any fundamental challenge to the regime, Khatami’s reformists had been tolerated by their rivals in the state’s powerful appointed bodies. Yet by holding back from overt criticism of the system in this way, the reformist camp had itself grown ever weaker in the face of persistent opposition from counter-reformists who were better able to impose their own interpretation of the revolutionary discourse. Consequently, reformists were easily replaced in both the parliament and the presidency with other factions whose overall mentality was closer to that of the Islamic Republic’s key appointed elites. The deputies of the seventh majles and Iran’s new president now appeared to be in broad agreement with each other, and together they intended to support the supreme leader to defend a common interpretation of Iran’s revolutionary ideals. In seeking to revive the values of the Revolution as he interpreted them and renew the struggle to achieve economic independence, therefore, Ahmadinejad was confident that he would enjoy widespread support from both elected and non-elected institutions. This confidence was supported by the fact that, throughout Khatami’s presidency, appointed bodies in various areas of the Iranian state had been involved in activities aimed specifically at containing the reformist project in accordance with conservative mercantile and statist revivalist preferences. In addition to the rulings made by the Guardian Council to frustrate and restrict the reformists’ new foreign investment act, as well as its support for the subsequent legislation limiting the extent of TAV and Turkcell’s investment in the Iranian economy, there were many other instances of counter-reformist obstruction of reformist plans (Takeyh 2006: 54). Beginning as early as 1999 with the banning of reformist newspaper Salam by the Special Court for the Clergy and the violent suppression by several counter-reformist groups (including the IRGC) of the student riots that followed in response to that ruling, the period of Khatami’s presidency also saw the arrest and trial of a number of prominent reformists as well as the attempted assassination of key reformist strategist, Sa‘id Hajjarian, in March 2000. Additionally, the Guardian Council had delayed ratification of the sixth majles election results for more than three months until May 2000, and over

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the course of this parliament’s term, it was even supported by the Expediency Council in blocking a number of parliamentary bills.2 In light of this, and keeping in mind that all these obstacles placed in the way of the reformist camp would have been endorsed by the supreme leader himself, it seemed natural for the new president to believe that these powerful institutions would be willing and able to join the majles in assisting him in his subsequent movement to replace such attempts at reform with a concerted strategy of counter-reform, aimed at preserving the Islamic Republic itself. But even with the Islamic Republic’s elected and non-elected bodies enjoying broad consensus, how easy would it be for them to work toward their shared goal of economic independence in practice? The potential for Ahmadinejad to influence policy in his own vision would undoubtedly be much greater than it had been for Khatami, given the extent of support he enjoyed in various quarters, including most notably the conservative mercantile Guardian Council and the statist revivalist IRGC. Nevertheless, it was impossible to ignore the fact that Ahmadinejad was backed by two camps that held two very different economic outlooks, even though they both shared a strong opposition to the perceived dangers of global capitalism. As such, there was still plenty of room for disagreement and debate. This chapter will provide an overview of the economic policies introduced during the Ahmadinejad presidency, discussing also the reactions that were made to these policies in various quarters of the Islamic Republic. Furthermore, the chapter will explore the impact of international sanctions on Iran’s struggle for economic independence at this time. It is important to consider sanctions here because the ruling elite’s interpretation of the country’s revolutionary ideals would be shaped not only by internal reactions to specific policies, but also by the external context in which Iran found itself. Before moving on to this discussion of domestic and international reactions to policies introduced in Iran since 2005, however, the chapter will examine in some depth the emergence and development of Ahmadinejad’s counter-reformist approach to handling the presidency. Given that it has had such a significant impact on Iran’s political economy in recent years, it is important to begin with a review of the roots and motivations of the Ahmadinejad phenomenon in general.

The Ahmadinejad phenomenon Before being elected to the presidency in June 2005, Mahmoud Ahmadinejad had given some indication of how he would manage this executive office if offered the chance to occupy it. As mayor of Tehran, a post to which he had been elected by the Tehran city council as soon as it was taken over by individuals affiliated to the statist revivalist Abadgaran coalition in 2003, he had quickly shown himself to be committed to reversing the movement away from revolutionary and Islamic values that was thought to be taking place under the reformist Khatami government. He took steps to remind Tehran’s population of the sacrifices that had been made for them by the IRGC during

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the Iran–Iraq war, most notably by burying the newly-discovered remains of dead soldiers in Tehran’s parks and university grounds.3 He also installed water tanks to revive pious mourners participating in religious processions on the streets of Tehran, and he gave handouts to religious groups (hey‘ats) across the city with money taken from the municipal budget (Naji 2008: 51–52). In so doing, Ahmadinejad revealed not only the more traditional nature of his religious and social outlook, but also his penchant for populist economic measures of the type that would come to feature so prominently during his time as president. With the benefit of hindsight, therefore, it can be seen that there were various signs hinting at the populist, nationalist, and revolutionary policies that Ahmadinejad would be likely to favor as president. However, in advance of the summer of 2005, he was not believed to be a serious contender for the presidency by most Iranians, and as such his track record was scarcely scrutinized in the public arena. Considering the weakened status of the reformist movement, it was not unanticipated that a member of the counterreformist camp should rise to the presidency, but that this candidate should be Ahmadinejad was far from everyone’s mind. So how did Ahmadinejad succeed in the 2005 presidential elections and go on to make such an impact on the future direction of the Islamic Republic? In what follows, a response to this question will be attempted: first, the events leading to Ahmadinejad’s election will be outlined, and then the economic approach he adopted at the start of his first term will be examined. The 2005 presidential election As has already been mentioned, given that they achieved overwhelming success in the local council elections of 2003 and then went on to win a majority of parliamentary seats in the majles elections of the following year, it was clear from an early stage that conditions were ripe for the counterreformists to take hold of the presidency in 2005. In particular, the apparent unity of the counter-reformists suggested that they were strong contenders to replace Khatami. While the reformists were increasingly divided among themselves, no longer enjoying the cohesion of the Second of Khordad Front that had led them to victory back in 1997, the various conservative mercantile and statist revivalist forces that were opposed to reform now stressed their union by referring to themselves as osulgarayan. Literally meaning “principleoriented” or “principlist,” this term was meant to indicate that they alone were committed to managing the country according to the original principles of the Revolution. By adopting this label, the various counter-reformist groupings were thus seeking to take sole ownership of Khomeini’s legacy and thereby undermine the legitimacy of the reformist groups. As such, in spite of the fact that the principlists were made up of a broad range of mercantile and statist factions, and even though they were unable to agree on a single candidate to put forward for the presidential elections in

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2005 because of these divisions, their chances of success nevertheless remained strong. The effectiveness of their broad claim to loyalty to the “true” principles of the Revolution had created an environment in Iran that ensured that the new president would have to present himself as a principlist of some description, and so the chances of reformist success appeared to be very slim at this time. Indeed, in light of the experiences of the previous eight years, many of those who had voted for reformist candidates in the past were now disillusioned with the entire reformist movement, and some were even calling for a boycott of the 2005 presidential election. It was considered that the reformist attempt to strengthen the pluralist dimensions of the Islamic Republic had resulted in failure, and the chances of any future success looked slim because counterreformist, principlist forces exploiting the Iranian state’s authoritarian tendencies were bound to retain the upper hand. Consequently, a vote for reform was viewed in some quarters as a vote wasted. For others, a continuation of reform was still desired, but growing disagreements and wrangling among the various reformist coalitions made it much less likely that they would achieve success with a single candidate. The reformist support base in the electorate thus became increasingly divided, and on top of this, many voters turned away from the reformist movement altogether because of its failure to address their socio-economic grievances.4 In the lead-up to the 2005 election, however, none of the principlist candidates looked any more likely to win the presidency than their reformist rivals. Instead, most of the attention was focused firmly on Hashemi-Rafsanjani, who was placed ahead of all the other candidates in many national polls (Naji 2008: 61–62). This former president and chairman of the Expediency Council increasingly presented himself as a “moderate” candidate, promising to pursue a pragmatist strategy of improving relations with the West while still protecting the authoritarian interests of the Islamic Republic. His candidacy was particularly attractive to many in the conservative mercantile elite, who hoped that Hashemi-Rafsanjani would support their economic interests, but it was also supported by a considerable proportion of disenchanted reformist voters who believed he would be able to bring them the prosperity and stability they had been expecting throughout the Khatami period. Nevertheless, in spite of widespread acceptance that he was the best choice available, Hashemi-Rafsanjani is said to have lacked the backing of Khamene‘i (Takeyh 2009: 233). While Hashemi-Rafsanjani was not a reformist, he was not a principlist either, and his personal ambitions appeared to threaten Khamenei’s position at the top of the post-revolutionary regime. Instead, Mohammad-Baqer Qalibaf, who had been commander of the air force of the IRGC and then chief of the country’s police force until April 2005 when he announced his candidacy for the presidency, initially looked like a strong runner against Hashemi-Rafsanjani who would be more acceptable to the supreme leader and the electorate alike. Making a concerted effort to win the support of Iran’s younger voters, Qalibaf discarded his military

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uniform in favor of a white suit and Ray-Ban sunglasses, and in return for his promise of strengthening the presidency and resolving foreign policy issues, he received the endorsement of the reformist Sharq newspaper among others (Gheissari and Sanandaji 2009: 291). However, Qalibaf’s new, modern image was not viewed positively by all, and many of his former supporters in the IRGC distanced themselves from him as he apparently abandoned the core values of the Islamic Republic. His movement away from Islam and Iran’s revolutionary ideals increased further still when he claimed that he would govern in the style of Reza Khan, the founder of the Pahlavi dynasty who had taken power through a military coup and had subsequently restricted the influence of the ‘ulama (Naji 2008: 75–76). This alienated Qalibaf from much of his key support base, and made his chances of being elected president very slim indeed. With Qalibaf placing poorly in the pre-election polls, Hashemi-Rafsanjani thus remained the clear favorite in spite of the lack of “establishment” support he enjoyed outside of his own JRM grouping. Mehdi Karrubi (former speaker of the majles) followed in second place as the only reformist candidate who seemed to have any real chance of winning a significant number of votes, ranking high above the other two reformist hopefuls, Mohsen Mehralizadeh and Mostafa Mo‘in. Indeed, he enjoyed a higher position in the polls than his closest rival, the conservative mercantile Ali Larijani, who was the preferred candidate of Ali Akbar Nateq-Nuri’s Coordinating Council of the Forces of the Revolution (Shawra-ye Hamahangi-ye Niruha-ye Enqelab), an influential principlist organization. However, given that the reformist flame was thought to have well and truly died by now, Karrubi’s chances of success were not rated very highly, and most bets were placed on a Hashemi-Rafsanjani victory. Ahmadinejad lingered near the bottom of the polls throughout, receiving little electoral attention up until very late in the campaigning period. It was therefore an enormous surprise to everyone when Hashemi-Rafsanjani was followed so closely by Ahmadinejad in the first round of voting on June 17, 2005. While Hashemi-Rafsanjani gained 21.01 percent of the votes, Ahmadinejad was not far behind with 19.48 percent.5 So unexpected and so sudden was Ahmadinejad’s emergence that Karrubi, who had come in third place with 17.28 percent of the vote, losing to Ahmadinejad by a relatively small margin of around 600,000 votes, complained of corruption and vote rigging (Karrubi 29 Khordad 1384/June 19, 2005), and in so doing he was joined by fellow reformist Mo‘in. Qalibaf and Hashemi-Rafsanjani also protested the result, with the latter even threatening to withdraw from the second round of voting altogether. However, in the end Hashemi-Rafsanjani agreed to remain in the race, thereby ensuring that the electoral process would proceed smoothly on to the next stage: since no candidate had won more than 50 percent of the popular vote, it was necessary to progress to a second round run-off—the first time that this had happened in the history of Iran’s postrevolutionary regime.

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Following the second round of voting, which was held on June 24, 2005, Ahmadinejad emerged victorious with 61.69 percent of the vote, comfortably beating Hashemi-Rafsanjani’s 35.93 percent. In this manner, out of the blue, Ahmadinejad became president of the Islamic Republic of Iran. His ascendance and the transformation of Iranian politics that it represented had begun. How had he managed to emerge to this prominent position so suddenly? Whether or not there were any irregularities in the first round, it has been suggested that Khamene‘i transferred his support from Qalibaf to Ahmadinejad just days before polling day. The supporters of Ahmadinejad in the IRGC’s mobilization force, the Basij, were subsequently encouraged to campaign for their favored candidate, and the Revolutionary Guards themselves were also requested to vote for the only candidate who promised to protect revolutionary values and preserve the post-revolutionary system of Islamic government (in other words, Ahmadinejad).6 Thanks to this active participation of the IRGC and the Basij, Ahmadinejad sprung into second place from relative obscurity on June 17. However, it would be incorrect to consider that his success was made possible by these means alone, as the popular support he attracted cannot be denied. Indeed, Ahmadinejad’s populist slogans, including especially his promise to deliver Iran’s oil wealth to the people’s dinner tables, proved to be very effective in attracting support from those voters who felt they were still struggling to improve their lot. In urban as well as rural communities, Ahmadinejad won the vote of many of those who felt that the promised benefits of post-war reconstruction and reform had passed them by (Siyasatnameh-ye Sharq Shahrivar 1384/August–September 2005). Of course, by no means did Ahmadinejad win the vote of all of the country’s neglected and “downtrodden” constituencies. In fact, he performed particularly badly in the province of Ardabil, where voters were more familiar with him as he had been governor general there from 1993 until 1997. Nevertheless, he did prove to be more attractive than Hashemi-Rafsanjani for a large proportion of the electorate. Since Hashemi-Rafsanjani was associated in many Iranians’ minds with the post-war experience of economic mismanagement, Ahmadinejad was able to rise to the presidency with broad support for his promise of a revival of all that the 1979 Revolution had stood for. A new and largely unknown character on the national political scene, Ahmadinejad had quickly captured the electorate’s attention by emphasizing the need to promote social justice, human progress, and Islamic values, three important areas that he claimed had been neglected throughout the previous 16 years of pragmatism and reform. In the first round of voting, he had benefited from widespread disillusionment with the weak and divided reform movement. Then, in the second round, the fact that he was such an unknown quantity had worked very much to his advantage. Many voters preferred to give this new face a chance, rather than opt for four years of another HashemiRafsanjani presidency. Further strengthening Ahmadinejad’s position against Hashemi-Rafsanjani had been the last-minute mobilization of the IRGC and the Basij, and of course the implicit backing of Khamene‘i himself.

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While those who voted for Ahmadinejad believed that the new president would be the man to resolve the plethora of socio-economic problems facing them, his supporters in the appointed bodies of the ruling elite were hopeful that he would be able to protect the revolutionary heritage and defend the interests of the regime. In his first year as president, then, Ahmadinejad had to take immediate steps to deliver on these expectations. Specifically, he had to show that he could contain his policies within the parameters that had been set down at the time of the Islamic Republic’s establishment in 1979, in accordance with revolutionary principles, and at the same time, work toward improving the economic situation of ordinary Iranians. Adopting a populist approach, he quickly took steps to reshape the economic landscape of the country, vowing to end corruption and ensure the provision of social justice for all. However, as will be highlighted below, given that his supporters included both statist revivalists and conservative mercantile elites, it was not going to be easy to keep them all on his side. Principlist economics, Ahmadinejad-style Within the first few months of his presidency, it became evident that Ahmadinejad could not completely ignore the considerable section of the broadly principlist majles that was keen to protect conservative mercantile interests. Consequently, the new economic strategy adopted after 2005 was never allowed to be dominated purely by Ahmadinejad’s own vision. Indeed, indications of resistance to the new president’s attempts to reshape the way in which domestic affairs would be handled after the end of the period of reform emerged early on in his first term, and this resistance was directed toward economic as well as political affairs. Most notably, Ahmadinejad’s nominations for his cabinet ministers soon became the subject of enormous debate and contention. While there had been need for considerable negotiation over appointees to cabinet posts during both the Hashemi-Rafsanjani and the Khatami presidencies, never before had the negotiations been so long-lasting, nor so dramatic. Given that Ahmadinejad was himself a principlist, many observers were very surprised to see the principlist majles opposing his nominations so persistently (Sharq 3 Azar 1384/November 24, 2005). Yet, in spite of their common commitment to the principles of the Revolution, many majles deputies were evidently opposed to Ahmadinejad’s ambitions for the advancement of his own political allies. Specifically, Ahmadinejad’s initial four nominees for the ministers of oil, cooperatives, welfare, and education were rejected by the majles because they were “unknown” (Sharq 14 Aban 1384/November 5, 2005), and because they were considered to “lack the necessary expertise and capability to run these ministries” (ibid). These nominees were viewed with suspicion precisely because they were the new president’s friends and acquaintances from when he was governor general of Ardabil province and then mayor of Tehran, as well as from his time at the Iran University of Science and Technology in

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Tehran (International Crisis Group February 6, 2007: 3–5). And while Ahmadinejad’s second nominees for the cooperatives, welfare, and education positions were approved by the majles in early November, struggles over the oil nominee continued beyond the three-month deadline that is suggested by Article 135 of the constitution.7 Ahmadinejad’s second nominee, Sadeq Mahsuli, was resisted because of his background in the IRGC, and the third proposed candidate, Mohsen Tasalloti, soon became the subject of a smear campaign by majles deputies who were unhappy that they had not been consulted on the fate of this highly important position (Sharq 3 Azar 1384/November 24, 2005). Eventually, on December 11, 2005, Ahmadinejad’s suggestion that the post be given to the acting oil minister, Kazem Vaziri-Hamaneh, received the necessary approval and over three months of uncertainty and stagnation finally came to an end (Sharq 22 Azar 1384/ December 13, 2005). The appointment of Vaziri-Hamaneh as minister of oil was a powerful symbol of the strength of the majles, reminding Ahmadinejad of the fact that any Iranian president must not only acquire but also retain at least some parliamentary support if he wishes to successfully impose his own vision for the country. By resisting Ahmadinejad’s own preferred nominees, the majles had managed to introduce as oil minister a technocrat who brought with him considerable experience from within the oil industry, someone who was not simply chosen because of his personal political loyalty to Ahmadinejad. Having served as deputy oil minister under Khatami’s administration, VaziriHamaneh was considered to represent a degree of continuity within Iran’s oil industry from the reformist period through to the new government, and as such it was made clear that Ahmadinejad’s attempt at personnel changes would not be as wide reaching as he had hoped. Furthermore, Ahmadinejad’s decision to appoint Davud Danesh-Ja‘fari as his minister of economic and financial affairs was interpreted by many as a sign that the new government might end up supporting a continuation of relative pragmatism in the economic arena even if it did choose to implement a more radical shift away from the types of policies that Khatami had pursued in the cultural and religious sphere, as well as in the realm of foreign affairs. As a member of both the majles economics committee and the Expediency Council, Danesh-Ja‘fari had gained experience in policy-making through his involvement in the preparation of the Twenty-Year Outlook, and he was generally viewed as a supporter of economic privatization and liberalization (Iran 12 Mordad 1384/August 3, 2005). The fact that Ahmadinejad had selected him as a first choice for the position was therefore seen as an encouraging sign by many members of the conservative mercantile elite in the principlist camp. While these principlists did not support a continuation of all the policies that had been introduced during the Khatami period, they did hope to reduce government intervention in the economic arena in order to open up space for domestic investors and businessmen, and they thought Danesh-Ja‘fari would support them in doing so.

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On top of this, when the new head of the MPO, Farhad Rahbar, announced his government’s willingness to support the attraction of foreign investment according to the terms of the Fourth Five-Year Plan, there was a sense of relief among reformists who had been concerned that their efforts to open up of the Iranian economy to the outside world would be completely reversed by the Ahmadinejad administration (Donya-ye Eqtesad 8 Aban 1384/ October 30, 2005). Their hopes of continued liberalization were raised even more when the director general for macroeconomic affairs at the MPO, Mohammad Kordbacheh, confirmed that Iran was aiming to attract US$23 billion of foreign capital by 2010 for use in strategic projects, in line with plans that had originally been proposed by the Khatami government but which had only recently been approved by the Expediency Council following repeated Guardian Council resistance over the previous year (Donya-ye Eqtesad 22 Aban 1384/November 13, 2005). However, even though a number of individuals appearing to favor liberalization of the economy held positions in the new government, Ahmadinejad’s own understanding of the revolutionary values that he hoped to revive continued to be an important driver of economic policy. The conservative mercantile president of the majles economics committee, Mohammad ShahiArablu, maintained that principlists of all persuasions in government and parliament would work together to achieve a common vision of economic liberalization (Iran 10 Azar 1384/December 1, 2005), but in practice it was evident that Ahmadinejad was intent on imposing his own statist revivalist vision. Specifically, in opposition to the dominant view of the conservative mercantile elite, Ahmadinejad had enormous faith in the ability of government intervention to reduce social inequalities as long as it was carried out by trusted individuals with the appropriate revolutionary credentials. Furthermore, in accordance with his belief in the need to stand up to the West and resist all forms of perceived international domination, Ahmadinejad adopted a more strongly rejectionist position against the forces of economic globalization than many of the conservative mercantile principlists. The rejectionist views of the new president were made clear when he criticized the situation that had been created by 16 years of reform. Ahmadinejad observed that, “because of the passivity of foreign policy, the public have been made to think that if we want to attract foreign investment, we must give concessions” (Mardomsalari 29 Khordad 1385/June 19, 2006). For him, the government’s role was instead to make it clear that, “if you are going to sign a contract [with a foreign investor] . . . you must set conditions” (ibid). Similarly, even his supposedly “moderate” oil minister, VaziriHamaneh, said that he did not look favorably upon buy-back contracts. He maintained that, “these contracts are not approved by the system [of the Islamic Republic]” (Sharq 14 Azar 1384/December 5, 2005), thereby indicating that he would not blindly support all foreign investments in the oil industry without first carefully considering the available options.

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Overall, the economic model favored by the Ahmadinejad administration was presented as one based on the pursuit of justice and the protection of Islamic values. As such, foreign investment was not opposed per se, because as long as capital flowing into the country from abroad promised to help the support of Iran’s poor and “downtrodden” communities, it was deemed acceptable. Indeed, no occasion ever arose where a member of Ahmadinejad’s government explicitly argued against the need for any kind of foreign investment. Yet, at the same time, there was strong disapproval of the Western model of development that was believed to have been pursued during both the Hashemi-Rafsanjani and the Khatami presidencies, and a more discriminating attitude toward foreign investment was encouraged in light of this moralizing, rejectionist stance. To a large extent, Ahmadinejad was able to remain confident of his ability to deliver on his election promise to bring the country’s oil wealth to the people’s dinner tables and redress socio-economic grievances even without the support of investment from abroad precisely because the oil wealth of the country was so vast at this time. As the price of crude oil began to soar after 2005, the income acquired by the Iranian state from oil exports was much greater than it had been during Khatami’s second term (see Table 7.1). Consequently, foreign finance was not considered to be an economically sensible option: Danesh-Ja‘fari argued that it would be irrational to borrow from abroad at a high rate of interest when sufficient funds were available domestically. Furthermore, in this environment where the state had enough foreign exchange reserves to invest in Iranian industrial projects itself, although foreign investment was considered to be desirable in those cases where it brought with it a transfer of knowledge and technology, Danesh-Ja‘fari suggested that there was no need to seek to attract investment from abroad if these important benefits were not secured along with the transfer of funds (Sharq 18 Esfand 1384/March 9, 2006).

Table 7.1 Oil exports and prices, 2001–2009 Year

Oil exports (million barrels per day)

Oil prices (US dollars per barrel at constant 2009 prices)

2001 2002 2003 2004 2005 2006 2007 2008 2009

2.21 2.02 2.40 2.55 2.60 2.43 2.48 2.06 1.98

29.61 29.84 33.62 43.46 59.89 69.32 74.90 96.91 61.67

Source: BP (2010) and Central Bank of the Islamic Republic of Iran (2010).

172 Iran’s struggle for economic independence With the financial means to engage in a range of ambitious projects around the country, the Ahmadinejad administration did not hold back in its drive to deliver on electoral promises. Whereas Khatami’s government had desperately sought increased levels of foreign investment to facilitate the realization of its economic programs, under Ahmadinejad, Iran could stand proud and respond to domestic needs without having to beg for help from abroad. Traveling to all 30 provinces of the country, even holding cabinet meetings away from Tehran in some of these far-flung towns (Arjomand 2009: 130), Ahmadinejad attracted popular support by simply providing his supplicants with whatever they wanted. According to Jahangir Amuzegar, in order to finance these handouts, the annual current and development budgets increased by more than 10 percent in real terms each year from 2005 to 2007 (Amuzegar 2008: 53–54). Furthermore, the Oil Stabilization Fund (established in 2000 by Khatami’s government with a view to reducing the negative impact of oil price fluctuations) was repeatedly dipped into in order to fund Ahmadinejad’s populist economic policies.8 One key economic policy, of which Ahmadinejad himself was particularly proud, was the Imam Reza Love Fund. Aimed at “establishing social support for young people and improving the economic and social conditions of the provinces” (Jomhuri-ye Eslami 13 Mehr 1384/October 5, 2005), the government bill for the Imam Reza Love Fund was submitted to the majles for consideration in October 2005. It was anticipated that the fund would begin by providing loans to help young people pay for their weddings, but more responsibilities were to be added to its remit over time. In its initial bill, the government suggested that 30 percent of Iran’s foreign exchange reserves should be taken for the purpose of establishing this important fund. However, there was widespread opposition to this proposal among majles deputies. Critics of the plan wanted not only to amend the source of the fund, but also to ensure that its activities would be monitored by appropriate government bodies. There was a concern that without close supervision, the fund’s considerable monies might be diverted away from the intended recipients (Sharq 23 Aban 1384/November 14, 2005). Nevertheless, a significantly amended version of the government proposal was passed by the majles, indicating the level of support that Ahmadinejad’s government continued to enjoy in spite of disagreements over specific details of policy plans. While the majles had given the go-ahead to Ahmadinejad’s program for a distribution of the nation’s wealth toward young people in need of financial assistance, it had done so somewhat reluctantly. As had been the case on previous occasions, indicated initially by the opposition that was voiced in response to several of his nominations for the cabinet, and further suggested by the uneasiness that was expressed when the government presented its proposals for the 2006–2007 budget in January 2006 (International Crisis Group February 6, 2007: 8), the majles had once again chosen not to enthusiastically embrace Ahmadinejad’s vision for the revival of a revolutionary economy in Iran. On the contrary, it had exhibited a generally cautious attitude.

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But in the face of this parliamentary resistance, Ahmadinejad was not willing to alter his plans for the country’s future. Instead, he forged ahead regardless, establishing the Imam Reza Love Fund in its original format, pooling money from a number of inactive government funds to do so (Naji 2008: 226). This trend toward consolidating economic power in his own sphere of influence was taken one step further when Ahmadinejad dissolved the MPO in July 2007 (BBC Persian July 10, 2007), choosing to rely instead on a small group of trusted advisors for planning and budgetary issues. Ahmadinejad was a self-professed principlist, and his determination to shape the Iranian economy according to his own vision of the Islamic Republic’s core principles was highlighted by this bold step to dissolve the MPO. With tighter personal control over the distribution of the country’s oil wealth, he would now be better able to support the implementation of those policies that he felt would bring about social justice and equality. Since he would feel little need to beg for support from any foreign investors imposing undesirable conditions in order to finance his desired projects, he could at last bring the Islamic Republic one step closer to economic independence. However, given that a broad spectrum of principlists across the country’s various appointed and elected bodies had declined to give his proposals their wholehearted support, it was never going to be possible for Ahmadinejad to determine all economic policies single-handedly. Even though his election as president had to a large extent represented the dominance of counter-reformist forces over all branches of the Iranian post-revolutionary state, the significant differences that existed among all of these opponents of reform were clear from the start of his presidency. Contrary to some expectations, there continued to be a diversity of opinion in Iran’s political elite after 2005. Principlist hegemony did not result in the eradication of differences and disagreement. Consequently, it was not long before objections to Ahmadinejad’s handling of the economy became even more pronounced, placing pressure on the counter-reformist alliance dominating all branches of the state and bringing under question the president’s ability to realize the Islamic Republic’s independence.

Counter-reform under stress In his study of the speeches and writings of Ayatollah Khamene‘i, Karim Sadjadpour draws attention to the fact that, decades after the victory of the 1979 Revolution, the current supreme leader of the Islamic Republic remains strongly attached to his ideal of an Iran that is both economically and politically independent (Sadjadpour 2008: 11). Ahmadinejad shares this vision, and it was with the goal of realizing both economic and political independence for Iran that he spent his first months in office committed to using the country’s oil income for domestic spending and investment projects while also speaking out against the injustices that he believed to have been perpetrated by certain powers in the global arena.

174 Iran’s struggle for economic independence Populist economic projects such as the Imam Reza Love Fund provided a good indication of the extent of Ahmadinejad’s desire to redress the people’s socio-economic problems without any need for additional assistance from abroad, and his unambiguous anti-American stance along with his well-publicized opposition to the state of Israel highlighted just how much his ambitions for Iran’s political independence differed from those of both Hashemi-Rafsanjani and Khatami. Where the previous two presidents had sought out rapprochement and dialogue, Ahmadinejad favored a more confrontational relationship with the West. The adoption of an assertive position vis-à-vis the outside world was broadly popular with the other members of the principlist camp. Given that the charismatic father of the Islamic Republic, Ayatollah Khomeini, had himself called for the Revolution to be exported throughout the region and beyond, spreading the message of anti-imperialist resistance across Iran’s borders and thereby weakening the global hegemony of the United States, Ahmadinejad was able to present his posturing on the international scene as consistent with Khomeini’s original revolutionary vision. Principlists who had been angered by Khatami’s apparent subservience at the feet of Western powers soon became reassured that, at last, the Islamic Republic was returning to its roots, defending revolutionary ideals with confidence. But it was not long before some of these principlists began to feel that Ahmadinejad was taking the country’s foreign policy to extremes, unnecessarily putting the national interest at risk with his talk of Holocaust denial in particular. In addition to the disquiet that they had already begun to express in response to many of Ahmadinejad’s populist economic policies, they were also concerned about the damage that might be inflicted on the Iranian economy as a result of this foreign policy adventurism. Consequently, sizeable cracks in the counter-reformist camp soon became apparent. The remainder of this chapter will examine the nature of these splits, beginning with a discussion of the growing opposition to Ahmadinejad’s economic policies and concluding with a consideration of how international sanctions have affected domestic support for Ahmadinejad’s approach to the struggle for economic independence. Splits in the counter-reformist alliance For those who benefited directly from the handouts being offered by Ahmadinejad, the new administration’s drive for social justice was of course enormously popular, especially during the first year when certain social groups felt a great sense of optimism about the possibilities that the future might hold in store. However, as time went by, these beneficiaries of the president’s largesse began to find that, due to persistent high inflation, the cash being handed down to them was quickly decreasing in value. Consequently, it was not long before disappointment set in, and even those who had initially held back from any criticism of Ahmadinejad’s economic strategy felt compelled to speak out.

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By the end of 2006, not only was inflation causing the cost of everyday necessities to rise further out of people’s reach, but also income inequalities across the country were growing, and the government’s attempts to create more jobs for the masses of unemployed Iranians were not proving to be very successful.9 Furthermore, Tehran’s stock exchange index declined (Naji 2008: 230), and many domestic investors transferred their capital from stocks to property, thereby pushing up even higher the already inflated housing prices. Overall, the increase in oil revenues appeared to present more of a curse than a blessing, and various problems plagued all sectors of the economy. Academics sitting outside the circles of power were among the first to ring the alarm bells in opposition to what they saw as Ahmadinejad’s reckless handling of the national economy. In June 2006, the seriousness of their concerns was made clear to the general public when an open letter to Ahmadinejad, signed by 50 prominent economists, was published in the national press. In this letter, the academics argued that the current government’s interventionist policies presumed that oil prices would remain high forever, and they warned of dark days to come when prices fell, as inevitably they would (E‘temad-e Melli 25 Khordad 1385/June 15, 2006). Many of these economists had been ministers, advisers, and planners under previous governments, but since the changeover of government in 2005 they had been confined to their university departments, and for some time they had been drawing attention to the perceived deficiencies in Ahmadinejad’s economic approach. As early as October 2005, Mohammad Sattari-Far, who had been president of the MPO under the reformists, pointed out in an interview with Sharq newspaper that the government seemed to be ignoring the Fourth Five-Year Plan, and he cautioned that this would result in serious problems for the country in the near future (Sharq 24 Mehr 1384/October 16, 2005). Others also worried about government overspending and the risks of inflation (Sharq 14 Azar 1384/December 5, 2005), but none of them succeeded in attracting any significant attention until publication of the June 2006 letter. However, the response that the authors of these warnings received from supporters of the government was far from encouraging. Elias Naderan, a principlist deputy in the seventh majles who would develop a more critical position vis-à-vis Ahmadinejad’s economic program over the coming years, defended the government against the June 2006 attack with great enthusiasm. Naderan claimed that the economists’ criticisms were not based on any scientific reasoning, but were instead part of a “political agenda” (Sharq 21 Tir 1385/July 12, 2006) aimed at undermining the national government. Ahmadinejad himself chose to disregard the message of the June 2006 letter, indicating his clear rejection of the economic reasoning on which its authors had based their analysis. Consequently, the economic problems that had alarmed these academics in the first place did not recede, and one year later a second letter was penned. The June 2007 letter, signed by 57 economists, criticized the “rushed and unscientific decisions” (Donya-ye Eqtesad 22 Khordad 1386/June 12, 2007)

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of the government and pointed to a number of problems that had resulted from its actions. One of the authors’ key concerns related to the lack of foreign investment being made in the Iranian economy, and they urged for more effort to be put into the development of “constructive relations with the outside world” (ibid), something which they saw as being unavoidable in “today’s globalized world” (ibid). While the recommendations of these economists were perhaps ignored precisely because they appeared to demand a return to the reformist and pragmatist policies that were viewed so negatively by most principlists, it was much harder for Ahmadinejad to disregard similar critiques when they came from one-time supporters of his administration. In the early days of Ahmadinejad’s presidency, the conservative mercantile Habibollah Asgarawladi had called for principlists of all persuasions to “come together and work with one another” (Sharq 5 Azar 1384/November 2, 2005) in support of the new government, but as the president continued somewhat stubbornly in his efforts to dictate the direction of economic and foreign policy, it became increasingly difficult to maintain harmony among all principlists, even though they continued to share a broad opposition to reform. The divisions that emerged within the principlist camp did not fall along a clear line separating mercantile elites from statist revivalists, but instead they built up as various individuals clarified their position as either supporters or opponents of Ahmadinejad himself. The fact that Mohammad-Reza Bahonar and Ahmad Jannati, both members of the conservative mercantile elite, were included among Ahmadinejad’s most influential backers in the seventh majles and the Guardian Council respectively is a good indicator of the extent to which boundaries became blurred in this process of principlist fractionalization. On the other side of the divide, Ali Akbar Nateq-Nuri, Ali Larijani, Mohsen Rezai, and Mohammad-Baqer Qalibaf led those principlists who were increasingly critical of Ahmadinejad’s statist revivalist policies. Following the December 2006 local council elections, when it became clear that much principlist loyalty to the president was waning, Qalibaf was elected as mayor of Tehran. In this important position, Qalibaf was able to gain the support of those members of the mercantile conservative elite who had drifted away from the president due to his repeated attacks on their activities in his wide-reaching anti-corruption campaign. In this environment of growing criticism, it looked like splits in the counter-reformist alliance might have serious implications for Ahmadinejad’s ability to continue with his preferred policies. Signs of tension within the president’s own government emerged during 2007 and 2008, when numerous ministers and other senior officials who had been appointed by Ahmadinejad either resigned or were pushed out of their posts. In opposition to Ahmadinejad’s insistence that banking interest rates should be reduced below the rate of inflation, Ebrahim Shaybani resigned as governor of the Central Bank in August 2007 (MEED August 31, 2007). In the same month, Vaziri-Hamaneh stepped down from his position as head of

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the oil ministry, and Ali-Reza Tahmasebi left his post as minister of industries and mines, indicating growing levels of disquiet within the cabinet at the president’s handling of economic affairs (Donya-ye Eqtesad 17 Farvardin 1387/April 5, 2008). Then, in April 2008, Danesh-Ja‘fari joined these former colleagues as he bid farewell to the ministry of economic and financial affairs with a strong criticism of Ahmadinejad’s role in the worsening condition of Iran’s economy. By November 2008, having replaced a total of 10 ministers, the president had made far more changes to his cabinet than any other in the history of the Islamic Republic. This led some critics to argue that it would soon be necessary for the majles to provide a vote of confidence for Ahmadinejad’s entire cabinet, especially if any further ministerial changes were made (Sharvand-e Emruz 12 Aban 1387/November 2, 2008). In the event, Ahmadinejad’s government managed to survive until the June 2009 presidential elections without being damaged by a vote of no-confidence from the majles. However, the eighth majles, which had begun its four-year term on May 27, 2008, proved to be far more critical of the president than its predecessor had been. While the seventh majles had struggled against Ahmadinejad on many issues, first deputy speaker Mohammad-Reza Bahonar had been broadly effective in his lobbying on behalf of government interests within the legislative branch. Consequently, the seventh majles had often given government the benefit of the doubt, providing it with enough space to pursue many of its ambitious plans (Donya-ye Eqtesad Salnameh-ye 1387/March 2008). But by the time that campaigning for the eighth majles elections began, it was clear that support for Ahmadinejad was on the decline. Ahmadinejad supporters worked hard to put forward a single list of principlist candidates for these elections under the banner of the United Principlist Front (Jebheh-ye Mottahed-e Osulgarayan), but not all of the individuals on this list were particularly strong backers of the president. Furthermore, it was not long before Larijani, Qalibaf, and Rezai put together an alternative list, under the heading of the Comprehensive Principlist Coalition (E‘telaf-e Faragir-e Osulgarayan), thereby confirming the rift between the two sides of the principlist camp (Hamshahri, 15 Farvardin 1387/April 5, 2008). With the announcement of the election results, it was made clear that the new majles would include many opponents of Ahmadinejad even though principlists won an overall majority of seats.10 In particular, when Ali Larijani was elected as new speaker of the majles, these opponents gained a very forceful voice within parliament, thereby allowing this institution to become an important site of semi-opposition to the Iranian government. Commenting that “previous governments had good policies in areas relating to inflation and industry, [but] these policies have been changed” (Shahrvand-e Emruz 14 Mehr 1387/October 5, 2008), Larijani made his dissatisfaction with Ahmadinejad’s handling of the economy clear for all to see. From this point forward, the two elected bodies of the presidency and the parliament would experience particularly tense relations. Throughout the

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reformist period, appointed bodies such as the Guardian Council had persistently thwarted the government’s attempts to implement its preferred economic policies, but now in the “age of principlism,” the majles was proving to be the main constraint on the Ahmadinejad government. Where before appointed and elected bodies had been pitted against each other, now the battle for influence over economic policy was being waged by mixed groups, with the government tending to rely on the backing of the Guardian Council and the majles often turning to the Expediency Council for support. In this respect at least, Ahmadinejad was proving to be a stronger president than Khatami had ever been: although he could not rely on the extensive majles support that Khatami had enjoyed, he was confident in the knowledge that the Guardian Council was on his side. In addition, he benefited from the unmistakable approval of none other than the supreme leader. During an August 2008 speech, Khamene‘i pointed to the “outstanding characteristics” (Shahrvand-e Emruz 10 Shahrivar 1387/August 31, 2008) of Ahmadinejad’s government, among which he included its commitment to “the revival . . . of the essential features of the revolution” (ibid), as well as its “loyalty to the revolutionary discourse in its dealings with the outside world” (ibid). Furthermore, he praised the government for having brought an end to the “dangerous movement toward gharbzadegi (Westernization) and secularism that regrettably had been in the process of penetrating the country’s administrative branch” (ibid). Finally, while he added that all previous governments of the Islamic Republic have also been supported by the leadership, he insisted that “the characteristics of the current government have meant that it should receive warmer support” (ibid). But even with this expression of warm support, Khamene‘i was not always willing to allow Ahmadinejad complete freedom to do whatever he wished. Indeed, any Iranian president would always be constrained by the limits set down by the supreme leader; and it was suggested early on in his presidency that Ahmadinejad would be no exception to this rule. Specifically, in October 2005, an announcement was published confirming Khamene‘i’s decision to delegate to the Expediency Council his responsibility for supervision over the three branches of government, to ensure that all policies remained in line with the prescriptions of the Fourth Five-Year Plan and the Twenty-Year Outlook (Sharq 8 Aban 1384/October 30, 2005). This decision was interpreted by some as an indication of the supreme leader’s desire to ensure a balance of power between the new government and the Expediency Council, headed by Hashemi-Rafsanjani. In other words, rather than support Ahmadinejad unconditionally, the supreme leader seemed to be interested in mediating between the different factions and institutions in such a way that his own position at the top of the Islamic Republic remained strong and secure. Khamene‘i further illustrated his strength by insisting that Ahmadinejad’s government show some commitment to his goal of promoting privatization in the Iranian economy through a reinterpretation of Article 44 of the constitution. Having announced in May 2005 that the government should

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begin to relinquish its shares in state-owned industries, Khamene‘i appeared keen to ensure that the statist revivalist Ahmadinejad not ignore his wishes. In July 2006, he issued an executive order further clarifying the general policies of Article 44 according to this new interpretation, calling for the government’s role to shift “from direct ownership and management of companies to policymaking, guidance and monitoring” (E‘temad-e Melli 12 Tir 1385/July 3, 2006), in order to empower the private and cooperative sectors such that their products might be “competitive in global markets” (ibid). Overall, Khamene‘i stipulated that the government should give up 80 percent of its shares in a broad range of state-owned companies (General Policies of Article 44 of the Constitution). By continuing to push for further privatization of the Iranian economy, and by effectively removing all constitutional barriers that might have stood in the way of privatization efforts in the past, the supreme leader indicated that he believed an economy less dominated by the state would be better able not only to secure social justice, but also to stand on its own two feet in the global economy. However, while Khamene‘i’s July 2006 communiqué confirmed once and for all that the Iranian private sector should not be viewed as corrupt or untrustworthy, Ahmadinejad appeared to have some reservations about the desirability of selling so many shares in Iranian state companies to private businesses. In light of this, the president sought to modify the supreme leader’s call for privatization, requesting that 50 percent of the available shares be ceded to provincial investment cooperatives and the two lowest-level income groups in society, to ensure that the privatization process would help those most in need, not just big businesses. By making such a request, Ahmadinejad had taken a big risk: if it had been declined, he would have never gone on to be described so favorably by the supreme leader in that 2008 speech. But fortunately for him, the request was accepted (Kargozaran 14 Tir 1385/ July 5, 2006). Even though Khamene‘i did not agree with Ahmadinejad on all issues, he supported his populist plans for Iranian privatization. And so, having already begun the first phase of his project of distributing “justice shares” to the public in February 2006 (Iran Daily February 12, 2006), offering shares in state-owned enterprises to specified groups in four “deprived” provinces,11 Ahmadinejad was now given the go-ahead to continue further with his program of privatization with social justice. From early on in his presidency, Ahmadinejad enjoyed a great deal of support from the supreme leader. Specifically, Khamene‘i had been happy for the president to amend some of the details of his prescribed privatization of the Iranian economy, as at least it seemed that these amendments would help to protect the country’s post-revolutionary economic system from any unwanted consequences of economic liberalization. Under Ahmadinejad’s watch, social justice and Islamic values would not be ignored, and Westernization of the nascent private sector seemed unlikely. With such clear support from the Islamic Republic’s highest authority, Ahmadinejad was much better able to implement his preferred economic policies than his predecessor had

180 Iran’s struggle for economic independence ever been, even in the face of considerable opposition from rival principlists in the majles. Nevertheless, Khamene‘i’s endorsement of Ahmadinejad was not unconditional, and the supreme leader was more than willing to chastise his president if he deemed it necessary. Indeed, by entrusting his supervisory powers over the three branches of government to the Expediency Council, he had demonstrated that he was willing and able to shift the balance of power between different groups, with a view to ensuring the continued protection of the national interest. Furthermore, Khamene‘i did not hold back from reprimanding the Ahmadinejad administration for not implementing the directives of his Article 44 policies quickly enough (Payvand Iran News February 19, 2007). Consequently, as tensions between various principlist factions increased after 2006, it was not clear that the favor of the supreme leader would be enough to guarantee Ahmadinejad complete control over the future direction of Iran’s economic policies. Also, with the added factor of tensions in the international arena, the president’s plans for the Iranian economy ran the risk of unexpected disruption. However, whether or not the Ahmadinejad presidency would be forced to abandon its particular interpretation of the Islamic Republic’s key revolutionary ideals would depend very much on the nature of its response to these growing pressures from the international community. International sanctions and economic independence Having determined to reverse the foreign-policy stance that had been favored by Hashemi-Rafsanjani and Khatami during the previous 16 years of pragmatism and reform, Ahmadinejad revealed his preference for a more confrontational approach to international diplomacy within his first few months in office. In so doing, although he earned himself many admirers on the streets of the Muslim world, he attracted a great deal of censure from statesmen and commentators not only in the United States and Europe, but also across the Middle East. As part of his general strategy of standing up against “global arrogance,” Ahmadinejad adopted an exceptionally hard line on Israel that had the unsurprising effect of intensifying American and Israeli hostility toward the Islamic Republic.12 Within the post-9/11 context and in light of the regional tensions that had been growing ever since George W. Bush’s “axis of evil” speech in 2002, Western audiences now believed that they were entirely justified in their condemnation of Iran, while the Ahmadinejad government in turn became even more concerned about the risks facing Iranian national security. Taking the threat of foreign invasion seriously, Ahmadinejad thus determined to aggressively defend Iranian interests in all dealings with the outside world. The country’s nuclear program soon became the focus of these defensive efforts, for Ahmadinejad was confident that the nuclear issue deserved to enjoy pride of place at the center of the Islamic Republic’s struggle for both political

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181

and economic independence. Building on Iranian nuclear ambitions that have their roots in the pre-revolutionary period, from when the Shah first announced his intention to develop nuclear power in the early 1970s (Kıbarog˘lu 2007), Ahmadinejad was quick to appreciate not only that the development of Iran’s nuclear program presented a valuable opportunity to restore national pride and regional influence, but also that it offered the chance to realize important technological advancements that would help Iran move further along the path toward the revolutionary goal of self-sufficiency. Accordingly, the president’s emphasis on the right to nuclear energy quickly gained widespread popular approval within the country, even among those Iranians who were vocal critics of many of his other policies in the social and economic arenas. However, at the same time as it enjoyed popular support at home, Ahmadinejad’s handling of Iran’s nuclear program raised alarm bells in the international community. In contrast to the Khatami administration, which had been keen to retain cordial relations with the West and had agreed in 2004 to a suspension of nuclear enrichment in negotiations with Britain, France, and Germany (the EU-3), the Ahmadinejad administration indicated a lack of willingness to engage in any such acts of apparent submission. Given that the American government under President Bush had continued to push for a more hard-line approach toward Iran even when Khatami had conceded to Europe’s demands, rejecting the EU-3 deal in 2005, Ahmadinejad and his supporters considered it better to henceforth adopt a more resolute position. From 2006 onward, all advancements in uranium enrichment were proudly announced by the national media, and in 2007, a new 50,000 rial note was issued with an image of electrons orbiting around an atom on the back, sending out a clear message to the world of Iran’s pride in its nuclear program (Arjomand 2009: 200–202). Overall, Iran under Ahmadinejad took a strident approach to nuclear policy, and in the face of continued defiance of the UN Security Council’s demand that Iran end all enrichment-related activities (United Nations July 31, 2006), it was not long before international sanctions were imposed. Resolution 1737, which was adopted unanimously by the UN Security Council in December 2006, called for “blocking the import or export of sensitive nuclear materiel and equipment and freezing the financial assets of persons or entities supporting its proliferation sensitive nuclear activities or the development of nuclear-weapon delivery systems” (United Nations December 23, 2006). The Security Council stressed that there would be further implications for Iran if it failed to comply with the obligations set out in this document, but Ahmadinejad continued to pursue his usual path of resistance. He did so mostly because he did not believe that there was much chance that economic sanctions would develop into military action (Naji 2008: 130), and also because he was not put off by the threat of a little economic difficulty when there was so much national pride and political prestige to gain (Takeyh 2009: 240).

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Consequently, the scope of the UN Security Council sanctions was further widened, first with Resolution 1747 in March 2007, which called for “banning the country’s arms exports and freezing the assets and restricting the travel of additional individuals engaged in the country’s proliferation-sensitive nuclear activities” (United Nations March 24, 2007), then with Resolution 1803 in March 2008 (United Nations March 3, 2008) and again in June 2010 with Resolution 1929 (United Nations June 9, 2010). In addition to these increasingly harsh resolutions, the EU, Canada, and Australia announced the introduction of their own sanctions on Iran’s energy and financial sector in July 2010, bringing their approach toward economic relations with Iran much more in line with the firm position already held by the United States.13 As of September 2010, the UN Security Council resolutions that are in effect ban the sale of most categories of heavy weapons to Iran, they prohibit Iran from investing abroad in uranium mining or any related nuclear technologies, and they call on countries to carry out cargo inspections on Iranian ships to detect and prevent Iran’s acquisition of illicit materials. The resolutions also impose tough rules on financial transactions with Iranian banks, they freeze the assets of over 80 named Iranian persons and entities, including several corporate affiliates of the IRGC, and they call on countries to ban the travel of over 40 specified individuals. While it is of course difficult to determine the impact of these sanctions on the Iranian economy as distinct from the effects of other policies being implemented by the Ahmadinejad administration, the environment of uncertainty that has prevailed since December 2006 seems to have had some serious economic implications for the country (Amuzegar 2008: 52). Indeed, even in August 2006, as tensions surrounding Iran’s nuclear program were just building up, it was reported that most major foreign banks were refusing to take on Iranian debt of more than US$10 million, with damaging consequences for an increasing number of industrial projects around the country (MEED August 18, 2006). Alongside this drop in access to international finance, as the sanctions placed on Iran became more heavy-handed, inflows of foreign direct investment into Iran also declined. Figure 7.1 clearly shows how, following the Khatami administration’s improved record in attracting FDI, there has been a noticeable deterioration in Iran’s FDI inflows, especially as a percentage of GDP, since 2005. Furthermore, looking again to some other economies in the region, Table 7.2 highlights just how much Iran continues to lag behind the more open economies of Jordan and the UAE in terms of the attraction of foreign direct investment. Seeking to avoid any breach of the terms of US and UN sanctions, oil companies such as Total and Shell have decided to either halt their work on major existing projects in Iran’s oil and gas sector, or even pull out altogether (Shahrvand-e Emruz 6 Mordad 1387/July 27, 2008). Even though the negative consequences of this development have to some extent offset by the attraction of new contracts with Brazilian, Chinese, and Venezuelan oil companies,14

Negotiating the path of counter-reform 4

183 4.5

Percentage of GDP Billions of US Dollars, right scale

2009

2007

2005

2003

2001

1999

1997

–0.5 1995

–1 1993

0.5

1991

0

1989

1.5

1987

1

1985

2.5

1983

2

1981

3.5

1979

3

Figure 7.1 Inflows of FDI to Iran, 1979–2009 Source: United Nations Conference on Trade and Development (2010).

Table 7.2 Inflows of FDI to Iran, Jordan, and the UAE, 2005–2009, in millions of US dollars (at current prices and exchange rates) and as percentage of GDP Year

2005 2006 2007 2008 2009

Iran

Jordan

UAE

US$

%

US$

%

US$

%

3,136 1,647 1,670 1,616 3,016

1.6 0.7 0.6 0.5 0.9

1,985 3,544 2,622 2,829 2,385

15.7 23.9 15.4 13.3 10.4

10,900 12,806 14,187 13,700 4,002

7.8 7.5 7.1 4.8 1.6

Source: United Nations Conference on Trade and Development (2010).

the overall reduction in foreign investment remains a cause for concern. Indeed, some oil experts within the country were worried about the impact that the general decline in exploration activity might have on Iran’s long-term oil and gas production (MEED September 25, 2009). In spite of this uncertainty about Iran’s future levels of oil production, Ahmadinejad’s government was able to benefit for the time being from the receipt of impressive oil revenues. Specifically, as was shown in Table 7.1,

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throughout the 2005 to 2009 period, average annual oil prices remained higher than they had been during Khatami’s presidency. Even following the collapse in oil prices that occurred at the end of 2008, the average price of oil in 2009 remained US$61.67 per barrel (in constant 2009 prices). This was considerably higher than the 2004 average of US$43.46 per barrel, which had been the best annual average achieved during any year of Khatami’s two terms. Figure 7.2 further illustrates how Ahmadinejad’s government has received higher oil revenues than any other government throughout the post-revolutionary period to date. To a large extent, these record oil revenues have been able to insulate the Iranian economy from the full force of international sanctions. 110

3.0 Oil prices (US$ per barrel at constant 2009 prices) Oil exports (million barrels per day), right scale

2009

2007

2005

2003

2001

1999

1997

0.5 1995

10 1993

1.0

1991

30

1989

1.5

1987

50

1985

2.0

1983

70

1981

2.5

1979

90

Figure 7.2 Oil exports and prices, 1979–2009 Source: BP (2010) and Central Bank of the Islamic Republic of Iran (2010).

Table 7.3 GDP and GDP growth rate, 2005–2009, in billions of rials at constant prices Year

GDP

Growth rate (%)

2005 2006 2007 2008 2009

423,208 447,961 483,014 493,974 502,978

4.7 5.8 7.8 2.3 1.8

Source: International Monetary Fund (April 2010).

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185

However, even with the advantage of high oil prices and a continuing ability to export over two million barrels of oil per day, the Ahmadinejad administration did not manage to achieve the 8 percent growth rate that was targeted in the Fourth Five-Year Plan. Instead, over the five years of the plan, it realized an average growth rate of 3.5 percent (see Table 7.3). Consequently, Ahmadinejad’s opponents—reformists and principlists alike —continued to have considerable ammunition with which to speak out against his administration’s handling of the economy. But when it came to the issue of the president’s confrontation with the outside world over Iran’s nuclear program, criticism was virtually impossible. For many years, the Supreme Council for National Security had effectively prevented the publication of any questioning of the country’s negotiating position on the nuclear issue. On top of this, having suggested that the nuclear issue should be viewed in the same light as the struggle to nationalize Iranian oil against the forces of British imperialism in the 1950s, Ahmadinejad made it even more difficult for there to be any internal discussion on this matter. With Iran’s nuclear project increasingly seen as an issue of national pride—vital for the protection of both political and economic independence—the government was able to stifle debate in the name of national security.15 Those who continued to oppose Ahmadinejad hoped that the scope for debate would increase again after the presidential election of June 12, 2009: they were optimistic that Ahmadinejad’s main rival, the former prime minister Mir-Hosayn Musavi, would be elected to the presidency and resume the path of reform where Khatami had left off. However, such expectations were proved wrong when, just hours after the closure of polling stations, the Ministry of Interior announced that Musavi had gained only 33.8 percent of the vote, while Ahmadinejad was ensured a second term with 62.6 percent of the vote.16 In response to the electoral dispute that followed, perhaps in the fear that a resurgence of reformism would lead not only to the granting of undesirable concessions to the West, but also to the emergence of a Western-backed “velvet revolution” seeking regime change, the supreme leader entered the fray of factional politics and came down unambiguously on the side of Ahmadinejad.17 Benefiting from Khamene‘i’s strong endorsement of these election results, Ahmadinejad thereafter became even more confident in his efforts to constrain the parameters of debate over his handling of Iran’s relationship with the outside world, deeming any opposition to his government intolerable. Since June 2009, there has been a determined suppression of any and all groups daring to contest the official election results, and even the voices of semi-opposition that had existed beforehand have become largely silenced. In the lead-up to the presidential election, Nateq-Nuri had spoken of a desire to lead a movement for a more moderate principlist candidate, engaging in lengthy discussions with former presidents Khatami and Hashemi-Rafsanjani as well as with former majles speaker Karrubi with the intention of devising a strategy to end Ahmadinejad’s “extremist direction” (Shahrvand-e Emruz

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13 Mordad 1387/August 3, 2008). Similarly, Musavi himself had called for national independence to be protected through the pursuit of global interaction, not through hostility and confrontation (E‘temad-e Melli 4 Esfand 1387/ February 22, 2009). All of these challengers to Ahmadinejad had claimed that their proposals were fully in line with the revolutionary heritage, confident that they would be more successful in realizing the country’s economic independence than he had been, but since the election they have been cast as counter-revolutionaries, traitors, and spies. Overall, the various pressures placed on Iran by the international community have been exploited to justify the government’s clampdown on the domestic opposition. In this tense post-election environment, where the relative unity that was once enjoyed by all principlist forces has fallen under unprecedented strain, the Ahmadinejad government has remained committed to its decidedly antiWestern approach to the revolutionary goal of economic independence. Instead of pushing the Islamic Republic into submission to its demands, international sanctions have thus far been met with sustained Iranian resistance. The country’s ruling elites (including, significantly, Khamene‘i) have argued that the economy’s capacity for self-reliance and self-sufficiency is a hugely valuable asset, protecting the Islamic Republic from much of the damage that could potentially be caused by sanctions, thereby enabling them to continue down their chosen path. Indeed, with a select group of domestic economic entities (of which many are associated to either state or para-statal institutions) taking on an increasing number of industrial projects around the country, claiming to be able to respect and preserve revolutionary values in the process, Ahmadinejad is backed by powerful groups keen to persevere with this model of economic independence. Consequently, even without universal support within the country, and in the face of considerable opposition in the international arena, Ahmadinejad has maintained his favored policies thus far. Nevertheless, economic independence remains a contentious goal in the Islamic Republic of Iran, and it is highly unlikely that this approach will continue to be favored forever.

Concluding remarks Ahmadinejad was initially supported by a broad range of counter-reformists, but it did not take long for cracks in their fragile alliance to emerge. While they were all keen to reverse many of the policies that had been introduced during the eight years of Khatami’s presidency, they did not share much else in common. Specifically, within a year of Ahmadinejad’s first term as president, it became clear that counter-reformists no longer existed as such, because with no reform to oppose, there was nothing holding them together anymore. Even under the common label of principlist, there were many differences separating the various factions of this camp. They had set out to show that they would be able to successfully capture the benefits of

Negotiating the path of counter-reform

187

globalization while protecting the country against its unwanted threats, but before long they realized that there was no consensus on what these benefits and threats actually were. However, by December 2006, as disagreements within the principlist camp became more pronounced, the challenge of disunity was largely resolved: the imposition of UN sanctions offered the government the perfect opportunity to suppress any dissenting voices, leaving it free to pursue its own preferred path. Since then, over the course of the Ahmadinejad period, the bond connecting the various elected and appointed bodies of the Islamic Republic that perceive increased integration with the global economy as a threat to the survival of the Iranian post-revolutionary regime has grown ever stronger. While a number of “moderate” principlists within the majles, as well as like-minded technocrats in the National Iranian Oil Company and elsewhere, suggest that Iranian interests would be better served if a more favorable environment were created for the attraction of foreign capital inflows, ever since Khamene‘i came down so strongly on the side of Ahmadinejad after June 2009, their recommendations have not carried a lot of weight. As the democratic dimensions of the state have become increasingly worn down, the authoritarian elements keen to embrace only certain aspects of economic globalization have gained a great deal of influence. International sanctions have encouraged the view that self-sufficiency is a necessary goal, and they have contributed also to the government’s belief that debate and discussion within the country should be more strictly limited at this time of heightened national security alert. Benefiting from an influential support base that includes not only a range of groups within the IRGC, the intelligence forces, and the judiciary, but also the supreme leader himself, Ahmadinejad has been confident in his pursuit of policies based on a markedly anti-Western interpretation of the revolutionary goal of economic independence. However, although the approach adopted by the Ahmadinejad government has been further emboldened ever since the expansion of Iran’s authoritarian dimensions in June 2009, by no means is it inevitable that Iranian economic nationalism will take on the form of such a confrontational stance vis-à-vis the outside world forever. On the contrary, keeping in mind the ambiguous nature of both Khomeini’s legacy and the post-revolutionary constitution with which all legislation must accord, there is room for further change in future. Indeed, while the various networks of the Islamic Republic currently depend more than ever before on a degree of independence from the global capitalist system to survive, this independence can be understood in many different ways. The space for factional contestation over policy options has been vastly reduced in recent years, but room is still available to the current ruling elites in which they can change direction should circumstances dictate. Whether or not the post-revolutionary struggle for economic independence shifts toward a more open interpretation of Iran’s broadly nationalist economic agenda in the years to come will depend on (1) the nature and impact of future international sanctions, (2) the amount of revenue secured through the sale

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Iran’s struggle for economic independence

of oil and the exigencies that might be created by a reduction in foreign exchange reserves, and (3) the occurrence of any further elite fracture within the networks of Iran’s ruling elites. Given the multidimensional nature of the Iranian post-revolutionary order, there will always be some potential for a further reinterpretation of the revolutionary legacy. However, for as long as the Islamic Republic survives, the need for any and all of these reinterpretations to pay respect to the idea of national independence will remain firmly in place.

Conclusion

For more than three decades, there has been a widespread expectation that the Iranian state must inevitably submit to some kind of global logic and accept that its own interests demand a complete surrender of the revolutionary goal of economic independence. Typical of these calls for the Islamic Republic to turn away from idealism toward realism, Narsi Ghorban has recently advised that, “Iran must sort out its differences with the United States and Europe in order to open the door to a constructive competition from all countries for inward investment, particularly in the oil and gas industries, which is the country’s engine of growth” (Ghorban 2009: 90). The preceding chapters of this book, however, have suggested that the Islamic Republic is unlikely to abandon its revolutionary ambition of economic independence altogether. As with many other post-revolutionary (as well as post-colonial) states established in the twentieth century, the desire to protect against the threat of intrusions from the outside world has been of central importance to the Iranian regime since 1979: having carried out the Revolution to reduce dependency on foreign powers, the will to retain some degree of independence has remained strong ever since, defining the identity and the security of the regime to a large degree. Consequently, there has been no emergence of a Thermidor in Iran, no return to any state of supposed “normalcy.” Indeed, in light of the steps that have been taken under the hegemony of the counter-reformists since 2005, the determination of the country’s appointed elites to resist the forces of globalization and preserve their own political and economic power has been made plain for all to see. Acting in the belief that the survival of the Iranian regime depends to a considerable extent on the perpetuation of revolutionary opposition to external interference in domestic affairs, the top ruling elites of the Islamic Republic have ensured that all policies relating to the inflow of foreign finance and foreign investment remain within strict limits. Inward investment as an engine of growth is not unwanted; on the contrary, since the end of the Iran–Iraq war, it has been sought by all leading political factions. However, conditions continue to be placed on this inward investment in order to avoid jeopardizing either the political or the economic authority of the country’s highest elites. As such, and especially at the current time of international tensions and sanctions,

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Iran’s struggle for economic independence

sorting out Iranian differences with the United States and Europe for the improvement of economic relations is easier said than done. Initially, the persistence of Iran’s anti-imperialist, anti-Western stance was attributed to the fact that the country was at war, an unfortunate affair that was heightening revolutionary fervor and causing the revolutionary experience to persist far longer than expected. Then, with the death of Ayatollah Khomeini, there was great anticipation that a speedy “normalization” of the Revolution would be effected via an increased adoption of “pragmatic” policies under Hashemi-Rafsanjani. But again, events did not play out quite as anticipated, and neither did the Khatami period see a straightforward return to “normalcy.” With the election of Ahmadinejad in 2005, and especially following the disputed election of 2009, any hopes of an Iranian Thermidor (in which the forces of economic globalization would be embraced with enthusiasm) have been laid to rest. However, while revolutionary resistance to imperialism and foreign exploitation has survived and translated into an entrenched resistance to the demands of economic globalization, this resistance has been neither static nor one-dimensional. Specifically, with a diverse set of outlooks represented within the group that emerged to lead the new regime after the 1979 Revolution, a number of different strategies have been proposed for how to engage with the global economic system in such a way that the regime is not harmed by unwanted intrusions from the outside world. Due to the breadth and ambiguity of the ideals of the revolutionary movement, it has been possible for them to be respected even while the Islamic Republic has from time to time repositioned itself vis-à-vis the global economy. As part of the ongoing process of post-revolutionary consolidation, policies of both reform and counter-reform have been pursued, but all of them have remained in line with the overarching aim of economic independence. Even under the unifying leadership of Ayatollah Khomeini, variations in the views of different members of the ruling elite could be detected. Since his death, although debates over economic policy have become increasingly fractured, they have remained within the authoritarian limits of the state that he created.

Fluctuating between reform and counter-reform As this book has illustrated, fluctuations in Iranian economic policy can be seen to have followed the rise and fall of competing factions, all of them seeking to pursue economic growth and development while at the same time protecting the interests of the Islamic Republic. Rather like the original notion of “revolution” itself, according to which historical events are said to take place in cycles, moving from progress to regression and then back to progress again, post-revolutionary politics in Iran have continually fluctuated back and forth alongside the shifting influence of rival interpretations of the multidimensional revolutionary discourse. However, unlike the related idea that revolutions eventually complete a full cycle to return to their initial starting

Conclusion 191 point, rediscovering the same policies as those that had prevailed during the pre-revolutionary period, this shifting process has not tended toward a position that is in any way similar to that of the pre-revolutionary period. Furthermore, the Islamic Republic of Iran has witnessed not a straightforward to-andfro movement between two static viewpoints, but rather a fluid evolution, whereby a wholly new stance is formed at each step of the way, in response to the constant interchange of ideas between all the various sub-groups of the ruling elite. In short, revolutionary goals inherited from the past have been reconciled with the emerging needs of the present in the Islamic Republic of Iran via the pursuit of a range of policy options, each one determined by placing a particular emphasis on some or other aspect of the all-encompassing slogans that had facilitated the creation of the new state in the first place. While there was broad agreement among all revolutionaries that Western exploitation of Iran’s resources had to be ended, there was no detailed strategy setting out exactly how this difficult task should be executed. Consequently, debates have persisted throughout the post-revolutionary period over the question of how best to combine economic growth with the protection of national interests. These debates began right at the start of the post-revolutionary period: as was shown in Chapter 2, both mercantile and statist elites took up positions in the new state, each side benefiting from its own institutional support base. Building on this support, the two broad camps were able to ensure that the new constitution of the Iranian state reflected each of their economic outlooks, and the various articles of the constitution that were outlined in Chapter 3 have continued to inform negotiations over economic policy ever since. Although the possibilities for discussion of Iran’s economic relations with the outside world were considerably limited during the period of war with Iraq, when protectionist measures were broadly supported by both main camps, Chapter 3 indicated that competing interpretations of the revolutionary discourse were nevertheless voiced at this time, providing a hint of the increased factionalism that was to come. Given that the necessities of war encouraged a greater economic role for the state, the statist camp was able to dominate throughout most of the Islamic Republic’s first decade, but with the cessation of the war emerged the first main reforms of the country’s economic approach. When reform came, it did not represent a straightforward transfer of control over economic policies from the statist to the mercantile elites. During the first decade after the Revolution, while statist groupings had dominated the majles and the government, the mercantile camp had exerted influence via the Guardian Council, highlighting the fact that Iran’s system of dual sovereignty would always allow multiple voices to shape policy. Equally, when Akbar Hashemi-Rafsanjani took up the presidency in 1989, by no means did mercantile elites achieve a hegemonic position: the statists retained control of the majles until 1992, and—more significantly—the new government itself was not of a purely mercantile persuasion. At the end of eight years of war

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with Iraq, a pragmatic position had grown out of the mercantile camp, and it was not long before the main points of contention were fought out between mercantile and pragmatist elites, with the statists excluded from the decisionmaking process altogether after 1992. As was discussed in Chapter 4, the pragmatists’ enthusiasm for rapprochement with the outside world was viewed with some trepidation by conservative mercantile elites in the fifth majles (1992–1996), and the support that they received from Khamene‘i and the Guardian Council ensured that Hashemi-Rafsanjani’s pragmatists did not cross the Islamic Republic’s limits of acceptability. Shifts in attitude had taken place among all political factions after 1989, enabling the introduction of new policies pertaining to the use of foreign finance and investment in the first and second five-year development plans, but mercantile elites had hoped to be able to stem the tide of pragmatist-led economic liberalization after the end of Hashemi-Rafsanjani’s presidency. Contrary to their expectations, however, Ali Akbar Nateq-Nuri was unsuccessful in his 1997 bid to replace Hashemi-Rafsanjani as president. Instead, the position was taken up by Mohammad Khatami, an advocate of the need for dialogue among civilizations. The Khatami period witnessed the return to the political arena of many individuals who had been active statists in the war years, and it was not immediately evident that pragmatist policies would survive after 1997. However, further illustrating the ways in which outlooks have kept changing over time, these former statists soon adopted a reformist stance that was supportive of more open policies in both economic and foreign affairs. With a focus on this realignment of factional positions, Chapter 5 showed how these reformists cooperated with pragmatists to build up a strong front in both majles and government, overcoming opposition from the mercantile Guardian Council to introduce a new foreign investment act. Nevertheless, multiple obstacles had faced the reformist-pragmatist alliance throughout the eight years of Khatami’s presidency. Conservative mercantile elites, concerned that the policies being introduced by the Khatami administration posed a threat to the interests of the Islamic Republic, had continually made their presence felt. At the same time as reforms were being implemented, pressures for counter-reform were also exerted. Acting in the belief that the reformists’ interpretation of Iran’s revolutionary ideals was so far removed from their own that these ideals risked being forgotten altogether, conservative mercantile elites ended up joining forces with those statist revivalists who strongly opposed the drift toward reform of some of their former partners. Thus, where once mercantile and statist elites had stood in opposition to each other, in their latest incarnation as counter-reformists, they worked together to put a stop to what they saw as the Western-style economism of the Khatami administration. Due to the fact that changing circumstances had gradually altered their own outlooks, these counter-reformists were not entirely opposed to the inflow of foreign finance and investment in the way that the Musavi government had been, but they were convinced that the

Conclusion 193 reformists were endangering the survival of the regime with their apparently unconditional support for all forms of foreign investment. Following the discussion, in Chapter 6, of the counter-reformists’ resistance to the forces of economic globalization, and their opposition to two Turkish investment deals in particular, Chapter 7 explored the approach that has been taken toward the goal of economic independence by the Ahmadinejad administration. It showed how, since 2005, the fragile alliance of counter-reformists has itself experienced a great deal of tension, leading to the emergence of numerous internal divisions. However, these divisions have not fallen along a clear line between conservative mercantile elites and statist revivalists: instead, they have emerged much more around the supporters and opponents of Ahmadinejad himself. Although all of the dominant factions continue to refer to themselves as principlists, once they succeeded in removing reformists from the Iranian state, there was little to hold them together. In particular, many principlists increasingly came to disapprove of Ahmadinejad’s populist approach to economic affairs, not to mention his confrontational approach to foreign affairs. To a large extent, such disapproval has been contained in the aftermath of the 2009 presidential election, and the chances of any revival of reformism are remote at best. Nevertheless, the persistence of debate over how to deal with the forces of economic globalization highlights just how contested the Iranian post-revolutionary order remains, even after all these years.

The political determinants of economic policy In their ongoing struggle for economic independence, each of the factions of Iran’s political elite has interpreted the threats and opportunities of the forces of economic globalization in a different way. Pragmatists and reformists with positions in the country’s elected institutions have tended to argue that the best way to work toward the revolutionary goal of economic independence is to engage with the global capitalist system and encourage the inflow of foreign finance and investment, claiming that this will help strengthen the Iranian economy and better enable it to stand on its own two feet. During the period of Khatami’s presidency, these elected groups often benefited from the support of the appointed Expediency Council, led by Hashemi-Rafsanjani, in working toward this version of a strong and independent Iranian economy. However, they always found themselves confronted with opposition from a range of counter-reformist groups: when reformists had control of both the majles and the presidency, the conservative mercantile elites in the Guardian Council imposed their view that the penetration of external economic forces into the Iranian economy should be treated with great caution, and subsequently they were joined by the alliance of statist revivalists and mercantile elites which gained control of the majles in 2004. Since 2005, all of the Islamic Republic’s elected and appointed institutions have been in the hands of these counter-reformists who, on the whole and in

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spite of internal differences, share the view that foreign investment should only be admitted into the country on the condition that a tangible benefit will be secured for the national economy. In accordance with their conviction that the nationalist agenda of the revolutionary movement should be perpetuated, providing them with legitimacy as the defenders of Iranian national interests against the threat of foreign aggression, they prioritize the needs of domestic investors and seek to protect against any unwanted consequences of engagement with the global capital system. Overall, it can be seen that the concerns of both reformists and counterreformists in the shaping of economic policy are not purely economic: they are all engaged in the process of consolidating the post-revolutionary order and determining its identity vis-à-vis the outside world, and this process is inherently political in nature. Their respective interpretations of the economic realities surrounding them are informed by the ideational and material legacies that have been handed down to them from the past and that continue to evolve over time. As such, like anywhere else in the world, where decisions relating to the size of the state, the extent of welfare provision, and the rate of taxation (for example) are all driven by political concerns as well as by the dominant economic theories of the time, so too in Iran are decisions relating to how to respond to the forces of economic globalization shaped by the specific context in which they are made. Keeping this in mind, the foregoing chapters have examined the political debates surrounding the formation of economic policy, as a narrow focus on the impact of Iran’s foreign investment policies alone would have failed to illuminate the motivations lying beneath those policies. In the case of the Islamic Republic of Iran, the semi-authoritarian nature of the state is an important factor affecting the process and direction of economic policy-making. Given that elected institutions are limited by a range of appointed institutions, most notably the Guardian Council by virtue of its responsibility for the vetting of candidates hoping to run for office as well as its ability to block legislation approved by the majles, semi-opposition groups such as the reformists are always constrained in terms of what they can achieve. Even if they wanted to remove all barriers to the inflow of foreign capital into Iran, the ruling elites occupying positions in the state’s appointed bodies would not permit them to do so. Furthermore, it should not be forgotten that all of the factions engaged in debates over economic policy, both elected and appointed, are embedded in the extensive networks of the Iranian state. Holding stakes in the postrevolutionary system, they all seek to ensure its continued survival and future success: the fact that reformists under Khatami never moved from semiopposition to outright opposition, always remaining loyal to the Revolution’s own economic discourse, was a strong indicator of their entrenchment in the post-revolutionary regime. So, with appointed as well as elected bodies an essential part of the state, each one shaped by a different factional outlook, they are all able to influence the policy-making process, and it is the interplay between them that leads to the constant fluctuation of economic attitudes and

Conclusion 195 economic policies on the ground. Nevertheless, due to the attachment of all of these factions to the broad revolutionary mentality of the Iranian regime, such fluctuations will always remain within clear boundaries. As has been shown in this book, the revolutionary narrative of previous interventions by foreign powers in a range of economic activities has been kept alive by the ruling elites of the Islamic Republic, and it continues to inform the debate over all kinds of foreign investment. The problem that the country faces, however, is that in attempting to attract only those foreign investments that will serve the national interest while rejecting all others, these elites set down tough conditions for the foreign investor. Moreover, given that the imposition of international sanctions not only further deters foreign capital from entering the Iranian economy, but also reinforces the sensitivity and opposition of the Islamic Republic’s ruling elites to the forces of economic globalization, a vicious cycle has been created in which the improvement of economic relations between Iran and the West is rendered even more difficult. Now, with the authoritarian dimensions of the Iranian state growing stronger, it is increasingly unlikely that there will be any “normalization” of the postrevolutionary regime, and yet given its multi-dimensional nature, there will surely be continued negotiation and policy fluctuation in the years ahead. It is not clear where this negotiation and fluctuation will lead, but this book’s examination of the political determinants of Iran’s economic policy has highlighted the importance of looking beyond the purely economic to gain a better sense of the general course that future policy may take. Perhaps by similarly exploring the material and ideational concerns that shape resistance to the forces of economic globalization in other parts of the world, and especially in the other countries of the Middle East and North Africa region, a more comprehensive understanding of economic attitudes might be obtained and used by international financial institutions such as the World Bank and the IMF to set more appropriate and realistic targets of economic reform.

Glossary

Abadgaran shortened form of E‘telaf-e Abadgaran-e Iran-e Eslami, or Islamic Iran Developers Council; a faction that promised to revive the revolutionary commitments of the Islamic Republic. Ashura tenth day of the month of Moharram, held in special reverence by Shi‘i Muslims as it commemorates the death of Imam Hosayn at Karbala. Ayatollah literally, “sign of god”; a title conferred upon senior Shi‘i scholars. Basij mobilization force of the Islamic Revolutionary Guards Corps. bazaari merchant. bonyads para-statal foundations established in the months following the Revolution. fatwa formal judgement handed down by an expert in Islamic law. gharbzadegi term popularized in Jalal Al-e Ahmad’s book of the same name, used to convey the sense of a social illness being induced in Iran by the process of Westernisation; often rendered as “plagued by the West,” “weststruckness,” “westoxication,” “westitis,” and “Euromania.” Hawzeh shortened form of Jame‘eh-ye Modarresin-e Hawzeh-ye Elmiyehye Qom, or Society of Qom Seminary Teachers; an association that has traditionally supported “pro-bazaar” economic policies. hojjat-ol-eslam literally, “proof of Islam”; a title conferred upon those Shi‘i .scholars ranking immediately below Ayatollah. Kargozaran shortened form of Hezb-e Kargozaran-e Sazandegi, or Servants of Construction Party; a group of Hashemi-Rafsanjani supporters that backed Khatami in the 1997 presidential elections. majles shortened form of majles-e shawra-ye eslami, literally “Islamic consultative assembly”; approximates to “parliament.” marja‘-e taqlid literally, “source of emulation”; a title earned only by the most qualified and senior of all Ayatollahs. Mojahedin-e Khalq one of the main leftist factions of the anti-Shah movement; described itself as “Islamic Marxist.” mostaz‘afan “the downtrodden,” or “the oppressed.” Mo‘talefeh shortened form of Jam‘iyyat-e Mo‘talefeh-ye Eslami, or “Islamic Coalition Association”; a pro-Khomeini organization that emerged in the 1960s, and went on to support mercantile elites after the Revolution.

Glossary 197 Second of Khordad Front broad alliance of Khatami supporters, named after the Persian date of his first election victory. Thermidor month in French post-revolutionary calendar, when reign of terror was brought to an end; used to refer to post-revolutionary movement toward “normalcy.” Tudeh Iranian communist party. ‘ulama literally, “those with knowledge”; used to describe Islamic religious scholars.

Notes

1 Reform and counter-reform 1 For more on this view, see Cable (1995), Scholte (1997), and Strange (1996). For the counter-argument, see Evans (1997). 2 This view of the state as a unitary entity is presented by structuralists such as Evans et al. (1985), Hall (1986), Mann (1986), Nettl (1968), Skocpol (1979), Tilly (1992), and Trimberger (1978). 3 This more complex view of the state accords with the “state-in-society” framework proposed in Migdal et al. (1994). For further discussion on this perspective, see Gupta (1995), Migdal (1997), and Mitchell (1991). 4 For further discussion, see Arendt (2006: 32–33) and Dunn (1989: 3). 5 For an interesting exploration of this idea, see Arjomand (2009: 8–10). 6 On post-revolutionary factionalism in Iran, see especially Baktiari (1996), Entessar (1994), Moslem (2002a, 2002b), and Siavoshi (1992). 7 For more on the rentier state theory, see Beblawi and Luciani (1987) and Mahdavy (1970). 8 As in, for example, Bates (2005), Lindblom (1982), North (1990), and Przeworski and Wallerstein (1988). 9 For a discussion of the consequences of the types of alterations that have been introduced through this process of translation in other parts of the Middle East, see especially Ayubi (1995: 329–395), Hinnebusch (1997), and Niblock and Murphy (1993). 10 In particular, historical accounts of pre-1979 Iran have often presented the state as an omnipotent force standing above society. This portrait is challenged in Schayegh (2010). 11 See Akhavi (1992), Karl (1997: 201–203), Shambayati (1994), and Skocpol (1982). 12 This point is explored in more depth in Chapter 3. 13 For further discussion of this point, see Keshavarzian (2005: 80–83). 14 The full name of this body is the majma‘-e tashkhis-e maslahat-e nezam, which literally translates to the “council for determining what is in the best interest of the regime.” 15 As specified in Article 150 of the Constitution of the Islamic Republic of Iran. 16 Article 107 of the constitution stipulates that the supreme leader is to be appointed by the popularly elected Assembly of Leadership Experts. Since candidates for this assembly must first be approved by the Guardian Council, whose members are either directly or indirectly chosen by the supreme leader himself, even though the Assembly of Leadership Experts can theoretically dismiss the supreme leader, in practice he retains supremacy over them. 17 For a more detailed discussion of the power structures in Iran, both formal and informal, see Buchta (2000).

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2 Tracing the desire for economic dependence 1 This treaty, signed at the conclusion of the first Russo–Persian War, was followed soon after by the 1828 Treaty of Torkmanchai at the end of the second round of hostilities between Russia and Persia. Both treaties were considered to be among the most humiliating in Iran’s history, as they had resulted in the cessation of many of the country’s northern territories to Russia, and had also awarded Russia economic and commercial privileges over Iran. Iranian feelings of humiliation increased further still when the Qajars ceded to Great Britain the strategically important city of Herat in the 1857 Treaty of Paris. For further information, see Chapters 4, 5, 9, and 11 of Avery et al. (1991). 2 An interesting discussion of these debates of the nineteenth century is provided in Dabashi (2007). 3 For a detailed account of the context of this event, see Amanat (2005). 4 Full details on the Imperial Bank of Persia are provided in Jamalzadeh (1376/1997–1998: 109–111). 5 See Jamalzadeh (1376/1997–1998: 104) and Keddie (1999: 42). 6 For a comprehensive discussion of this protest, see Keddie (1966). 7 For further details of this fatwa, see Bayat (1991), Foran (1993), and Moaddel (1994). 8 For an overview of these developments and their implications for the Iranian state, see Karshenas (1990: 41–63). 9 For a detailed discussion of how Iran was increasingly subjected to rapidly increasing foreign financial and political influence, see Issawi (1971). 10 See Ferrier (1982) for details. 11 For further information on the constitutional revolution, see Abrahamian (1982), Afary (1996), Bayat (1991), Keddie (1991), and Martin (1989). 12 See Shuster’s account of the Russian troops’ actions in Ansari (2006b: 17–18). 13 This decision was made just two years after the First Lord of the Admiralty, Winston Churchill, converted the British naval fleet from coal to oil with a view to ensuring British supremacy over the Germans in World War I. 14 For further details on Britain’s role in the rise of Reza Shah, see Avery et al. (1991), Ghani (2000), Ghods (1991), Katouzian (2000), Keddie (1999), Sabahi (1990), and Zirinsky (1992). 15 See Amini (1384/2005–2006: 27–47) for full details of the 1933 Agreement. 16 For further details of the movement to nationalize oil, see Amini (1384/ 2005–2006), Bamburg (1994), Bill and Louis (1988), Dadkhah (1988), Elm (1992), Gasiorowski (1987), Katouzian (1999), Kinzer (2003), and Zabih (1982). 17 Including Standard Oil of New Jersey, Standard Oil of California, SOCONYVacuum, the Texas Company, Gulf, Royal-Dutch Shell, and Compagnie Francaise de Petroles, as well as AIOC. 18 This trend could be seen, for example, in Cardoso (1972), Gunder-Frank (1969), and Wallerstein (1974). 19 The influence of the Left on the Revolution and the Islamic Republic has only recently begun to be fully appreciated. For a thorough examination of the Iranian Left, see Cronin (2004). 20 See Bayat (1987: 23) and Halliday (1978: 153). 21 On the White Revolution, see especially Ashraf (1996), McLachlan (1977), and Ramazani (1974). 22 For a discussion of Shari‘ati and other Iranian intellectuals of this time, see Boroujerdi (1996), Gheissari (1998), Hanson (1983), Rahnema (1998), and Vahdat (2002). 23 The extent of this presence was highlighted on May 19–20, 1970, when a group of top American industrialists including David Rockefeller came to Tehran to discuss possibilities for investment in agriculture and industry, mining, tourism,

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24 25 26

27

28 29 30 31 32

Notes

forestry, transportation, and petrochemicals. See Kayhan (29 Ordibehesht 1349/ May 19, 1970). This delegation represented the largest group of foreign investors to ever come to Iran (Kayhan 7 Ordibehesht 1439/April 27, 1970). For further details, see Abrahamian (1982), Keddie (1981), and Pesaran (1985). For details of these inequalities, see Hakimian (1988) and Pesaran and Gahvary (1978). Abrahamian (1985: 163) notes that ever since the banner of revolt was raised by the Shi‘a Imams, especially Ali, Hasan, and Hosayn, the struggle between oppressor and oppressed has remained a potent symbol in Iran. See also Keddie (1980: 109). For further details on this emerging Islamic economics, see Katouzian (1983). A similar shift toward “Islamic socialism” had also been experienced in other parts of the Muslim world during the 1950s and 1960s, especially in post-1952 Egypt. For more details, see Tripp (2006). Written in 1961 by an Iraqi Shi‘i theologian, it was translated into Persian and first published in Tehran in 1971. For details on its influence on Iranian clergy, see Rahnema and Nomani (1990: 129). See Mottahedeh (2004: 325) for a discussion of Taleqani’s views on the compatibility of socialism and religion. For further details on the economic philosophies of Taleqani, Baqer al-Sadr, and Bani-Sadr, see Chapter 7 of Bakhash (1985). For further discussion on the bonyads, see Kazemi (1995: 142–147), Keshavarzian (2007: 166–170), Maloney (2000), and Saeidi (2004). Details of the IRGC’s economic activities are provided in Wehrey et al. (2009: 55–75). On the perks enjoyed by Iran’s mercantile elites, see Keshavarzian (2009).

3 Consolidating the post-revolutionary economic system 1 For more details on this movement, see Abrahamian (1985) and Chehabi (1990). 2 As discussed in Ettela‘at (20 Khordad 1358/June 10, 1979). 3 Not to be mistaken with the Assembly of Leadership Experts, which determines and monitors the leader(s) of the Islamic Republic, this Assembly of Experts had 72 members, of whom 55 were pro-Khomeini clerics (Schirazi 1998: 32). It spent three months from August to November 1979 revising the draft constitution, which had been prepared by Bazargan’s provisional government, to ensure that it conformed to Islam and was not influenced by European thinking. For a full discussion on the writing of the constitution, see Chapter 2 of Schirazi (1998). The minutes of the Assembly of Experts are cited throughout as AE Minutes. 4 A report in Ettela‘at newspaper, for example, praised the recent nationalization of the Iranian banking system, as previously “private banks had sought to exploit and dominate” (Ettela‘at 19 Azar 1358/December 10, 1979), and private capital had been tied to Western imperialism. With nationalization of this capital, a new system could be established that would serve the Iranian people and the goals of the Revolution. 5 This draft article was presented for discussion in the 55th session of the Assembly of Experts as Article 127.4, which read simply that, “the economic system of the Islamic Republic of Iran is based on three sectors: state, cooperative and private. The criteria for these will be determined by law” (AE Minutes 3: 1,523). 6 See Salehi-Isfahani (1996). 7 In the 1906 constitution, Article 23 banned the granting of unfair concessions: “Without approval of the parliament, concessions for the formation of any kind of public company or companies shall not be given by the government”; and Article 24 required that “the granting of any commercial, industrial, agricultural or other concession, either to a domestic or a foreign party, must be approved by the

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13 14 15 16 17 18 19

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parliament” (Fundamental Laws of the National Consultative Assembly and the Senate of Iran). See Jomhuri-ye Eslami (7 Mehr 1358/September 29, 1979). For a full discussion, see Emam (1373/1994–1995: 87–120). Ibid: 98–107. Ibid: 101–120. The ensuing series of clashes between the two groups saw the exclusion of the Mojahedin-e Khalq from the first parliamentary elections on March 14, 1980, the dismissal of Bani-Sadr on June 22, 1981, the destruction of the IRP headquarters on June 28, 1981, and the assassinations of President Raja‘i and Prime Minister Bahonar on August 30, 1981. See Milani (1989) for a discussion of the process by which the revolutionary ‘ulama were able to defeat their opponents and establish hegemony in Iran. There had been three different prime ministers between September 1980 and October 1981, but Mir-Hosayn Musavi was to serve for eight years without interruption. For details, see interview with Rawqani-Zanjani in Ahmadi-Amui (1383/2004– 2005: 147). See also Rovasa-ye Sazman-e Barnameh va Budjeh az Aghaz ta Tashkil-e Sazman-e Modiriyat va Barnamehrizi-ye Keshvar: 69. See Rahnema and Nomani (1990: 252–254) for details. For an examination of the Iranian economy during the years of war with Iraq, see Amirahmadi (1990), Amuzegar (1993), Behdad (1996), and Mazarei (1996). See Ghasimi (1992: 607–608) and Mazarei (1996: 299). In the summer of 1984, Khomeini said to Musavi’s government that, “You should not discard the bazaar. That is, if the bazaar is incapable of doing something, then the government should do that job. But if the bazaar is quite capable of doing something, do not stop it; this is not legally accepted by Islamic law” (cited in Keshavarzian 2007: 154). Literally, usance is the period of time given to pay back the interest on borrowed funds. This term is used in Iran to refer to a short-term letter of credit.

4 Redefining revolutionary goals 1 For a discussion of the JRM, see Moslem (2002a: 50–55). 2 This faction included, for example, Habibollah Asgarawladi, Mohammad Reza Mahdavi-Kani, Ahmad Tavakolli, and Ali Akbar Velayati. 3 Sohrab Behdad implies that the statists had in fact deliberately set out to disrupt the rise of the mercantile elites (Behdad 1996: 113). For details on the Iranian reaction to the publication of Salman Rushdie’s The Satanic Verses in 1988, see Baktiari (1996: 164–171) and Moin (1999: 282–285). 4 For details of the new constitution and its implications, see Fürtig (1997) and Milani (1992, 1993). 5 Khomeini himself had declared that, “It was during the war that we concluded that we must stand on our own two feet. It was through the war that we broke the backs of both Eastern and Western superpowers. It was through the war that we consolidated the roots of our Islamic revolution” (cited in Moin 1999: 285). 6 See MEED (March 2, 1990) for Hooshang Amirahmadi’s discussion of the various “stumbling blocks” that prevented agreement on either long-term development strategies or economic targets during the war years. 7 Mas‘ud Nili argued that whenever new members join this committee and are confronted with the economic realities of the country, “they cannot avoid coming to view the logic of the market economy more favorably” (Ahmadi-Amui 1383/2004–2005: 272). Some such members who altered their economic outlook at this time included Adbollah Nuri and Qorban-Ali Dori-Najafabadi.

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8 For a discussion of expectations of Iran’s foreign policy at this time, see Hunter (1992) and Ramazani (2004). 9 Published on various dates throughout Ordibehesht-Khordad 1372/April–June 1993. 10 This article states that, “The Guardian Council has the responsibility of supervising the elections of the Assembly of Experts for Leadership, the President of the Republic, the Islamic Consultative Assembly, and the direct recourse to popular opinion and referenda” (Constitution of the Islamic Republic of Iran: Article 99). For more details on the majles elections of 1992, see Baktiari (1996) and Moslem (2002a: 181–186). 11 Moslem (2002a: 188) shows that they had failed so far to make any significant investments in domestic industrial projects. Also, see Ansari (2006a) for an interesting discussion of this group, which the author terms the “mercantile bourgeoisie.” 12 Pesaran (2000: 86) explains how the existence of three main exchange rates, one official, one floating, and one competitive, had led to rent-seeking rather than productive activities on the part of the bazaar. The bazaar favored an import- rather than an export-oriented economy, and this move to float the rial represented a move toward integrating the Iranian economy into the global market. As such, it was seen as a threat to the bazaar. See also Pesaran (1992) and Hakimian and Karshenas (2000). 13 For a full explanation of the consequences of economic liberalization at this time, see Behdad (2000). 14 For details, see Resalat (27 Mordad 1372/August 18, 1993). Having been removed from the cabinet, Nurbakhsh was appointed as Hashemi-Rafsanjani’s deputy for economic affairs. 15 The Iranian New Year begins on the vernal equinox. 16 In the end, it was decided that this joint committee would be made up of all 15 members of the planning and budget committee as well as one representative from each of the other specialist committees, excluding two regulatory committees (Majles Debates 22 Khordad 1373/June 12, 1994). 17 For an overview of the types of complaints made about the buy-back contract, and their defense by the NIOC, see Mobassar (1379/2000–2001: 344), in which the Organization of the Forces of the Line of the Imam in Khuzestan complains that “the buy-back method is the most expensive and the most un-economical method . . . [resulting in] a complete lack of attention . . . to our skilled domestic experts.” 18 For full details, see Howard (2006: 12–16). 19 This unexpected outcome of economic liberalization is not restricted to Iran. It is discussed with reference to the Middle East more widely in Ayubi (1992).

5 Moving toward reform 1 For a detailed account of the factional shifts that led to the election of Mohammad Khatami as president, see Wells (1999). 2 For details on the various groupings that supported and opposed Khatami’s candidacy, see Fairbanks (1998). 3 These presidential elections were held on 2 Khordad 1376/May 23, 1997. 4 Khatami’s more open attitude to both foreign and domestic affairs is examined in Barraclough (1999). 5 Ali Shamkhani was made minister of defense and Qorban-Ali Dori-Najafabadi was appointed intelligence minister. Khatami had to compromise with his opponents in these two sensitive ministries. 6 The Economist, for example, commented that, “Millions of Iranians, fed up with an intrusive, stifling regime, have made the man who campaigned for human rights, personal freedom and the rule of law their new president. Their surging revolt,

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sweeping aside the establishment candidate, could be the beginning of a quiet ideological revolution” (The Economist May 29, 1997). For further discussion of these elections, see Ansari (2006a: 86–87). See Amuzegar (1999). For further discussion of these two opposing trends, see Amuzegar (1998). For full text of the 1955 law, see Rezaei (1378/1999–2000). For a detailed analysis of the various provisions set down by the law, see Office for Economic Affairs (Spring 1374/1995: 310–317). This plan was presented to the fourth majles in October 1994, and again the intention to present a plan to attract foreign investment was announced to the fifth majles in August 1999, but on neither occasion was the plan investigated or even discussed. See Majles Debates (1 Aban 1373/October 23, 1994, 13 Mordad 1378/ August 4, 1999). Author’s interviews with Eshaq Jahangiri (October 24, 2005), Mas‘ud Nili (October 22, 2005) and Abdollah Ramazanzadeh (November 15, 2005). For example, see Majles va Pezhuhesh (Mehr–Aban 1378/September–November 1999), as well as Majlis Research Center (Ordibehesht 1378/April–May 1999, Ordibehesht 1379a/April–May 2000, Ordibehesht 1379b/April–May 2000). Alongside government research centers, prominent academics such as Mohammad Mehdi Behkish and Behruz Hadi Zonuz were also calling for this article to be clarified at this time. See Behkish (1382/2003–2004) and Zonuz (1379/2000– 2001). This second version of the foreign investment plan was passed by the majles in November 2001. See Majles Debates (13 Aban 1380/November 4, 2001). For more details of the struggles taking place at this time, see Ansari (2006a: 218–223) and Mir-Hosseini and Tapper (2006: 36–38; 136–172).

6 Resurrecting the Revolution 1 OIETAI data (Aban 1384/October–November 2005). 2 These policies had been proposed by the Expediency Council at Khamene‘i’s request during 2004, and now they had received the official approval of the supreme leader. 3 It should be noted that there are certain exceptions to this rule, with activities such as those of the National Iranian Oil Company and the Central Bank, as well as industries that are affiliated to the military, police, intelligence, and security services, remaining in the hands of the state. 4 This strategy was produced over a period of 21 months by a team of 70 economists and government planners, led by Mas‘ud Nili. The complete industrialization strategy was a 10,000-page document, but a shortened version was published as Kholaseh-ye Motale‘at-e Tarh-e Estratezhi-ye Tawse‘eh-ye San‘ati-ye Keshvar. 5 Based at the University of Tehran and Shahid Beheshti University, the 10 members of this group were: Ahmad Tavakolli, Mohammad Hasan Khosh-chehreh, Hasan Sobhani, Elias Naderan, Hosayn Pur-Ahmadi, Parviz Davudi, Abbas Arab-Mazar, Mohammad-Ali Kafai, Hosayn Namazi, and Faramarz Rafi‘-pur. Their letter was published as Jahani-sazi: Yek Hoshdar va Hasht Rahkar. 6 See Sanad-e Cheshmandaz-e Jomhuri-ye Eslami-ye Iran Dar Ofq-e 1404 Hejri Shamsi. 7 See Aghajari’s analysis of political factions in Sobh-e Emruz (18 Ordibehesht 1378/May 8, 1999). 8 For more on Rayshahri and the Society for the Defense of Revolutionary Values, see Buchta (2000: 18–20). 9 This was a conscious revision of Behzad Nabavi’s 1994 categorization of Iranian factions: while the former had been published in the publication Asr-e Ma,

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12 13

Notes

Quchani’s was published under the heading of “Asr-e Naw” (“New Age”), in Siyasatnameh-ye Sharq (12 Shahrivar 1384/September 3, 2005). For more discussion of the China model, see Molavi (2004). These articles stated that, “in order to prevent economic loss to the society while realizing the country’s economic development objectives, the non-public sector shall be permitted to engage in [certain] postal and communication services . . . [including] the mobile telephone network” (Third Five-Year Plan: Article 124); “the State Aviation Organization is authorized . . . to take measures in order to complete and execute the airport and flight projects and develop the air fleet by attracting domestic and foreign investment and through joint-venture contracts, forward sales of the airport and flight services, and settling the relevant obligations” (ibid: Article 130). The proposed law was specifically described as an amendment to these two articles. Specifically, it was reported that a memorandum of understanding had at last been signed by both domestic and foreign parties (Iran 14 Shahrivar 1384/ September 5, 2005). For details, see International Crisis Group (August 4, 2005).

7 Negotiating the path of counter-reform 1 2 3 4 5 6 7 8 9 10 11

12 13 14 15 16 17

For details, see Naji (2008: 122). For further details, see Arjomand (2009: 90–111) and Takeyh (2009: 181–204). For details, see Ansari (2007: 29) and Naji (2008: 50–51). For a detailed discussion of the decline of support for reformists during the 2005 presidential election, see Gheissari and Sanandaji (2009). For a full breakdown of the 2005 presidential election results, see Gheissari and Sanandaji (2009: 284–285). For more details, see Naji (2008: 76–80) and Sadjadpour (2008: 12). Paragraph 3 of this article states that, “The President can appoint a caretaker for maximum period of three months for the ministries having no Minister” (Constitution of the Islamic Republic of Iran: Article 135). For further details, see International Crisis Group (February 6, 2007: 9). For more details, see Amuzegar (2008: 53–55). For more details on these elections, see Sanandaji (2009). On the topic of justice shares, MEED comments that, “Under the scheme, needy Iranians are given share certificates for companies offered on the stock market. The certificates are paid for with interest-free loans that are given to the recipients and can be paid back using dividends earned from the justice shares . . . Now for the hitch: there is so little transparency that it is unclear which companies are represented in the shares. Certificates do not explain which assets back them up. It also appears that many shares were issued before enough companies to support them launched on the stock market” (MEED August 24, 2007). For further discussion of Ahmadinejad’s comments on Israel, see Naji (2008: 139–184). For details of US and international sanctions on Iran, see Katzman (August 3, 2010). For details of Brazilian and Chinese investments, see MEED (March 21, 2009). For details of the Iranian-Venezuelan joint-investment initiative, see MEED (February 5, 2010). For more details, see Naji (2008: 132–133). For a detailed discussion of these contested elections, see Arjomand (2009: 165–171), and Ehsani et al. (June 28, 2009). See interesting comments on the aftermath of the 2009 election in Katouzian (2010).

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Index

Abadgaran 149–150, 163, 196 Abrahamian, Ervand 10, 30 Abrar-e Eqtesadi 123 Adeli, Hosayn 80, 83, 87, 93 “age of principlism” 178 agriculture 40, 45–49, 73, 89, 117, 134 Ahmadi-Amui, B. 31, 32, 40, 57, 60, 68, 87, 110 Ahmadinejad, President Mahmoud: and counter-reformists 5, 157, 15; and economic growth 185; and economic independence 5–6, 187, 193; election of 157, 164–168, 190; foreign policy of 180; and Iran’s nuclear program 180–181; and Khamene‘i 179–180, 187; and majles 178; and principlist economics 168–173; and privatization 178–179 Al-e Ahmad, Jalal 28, 29, 30, 128 Albright, Madeleine 107 Alviri, Morteza 74, 81, 87, 88, 94, 101, 103 America see United States of America Amirahmadi, Hooshang 10 Amuzegar, Jahangir 37, 172, 182 Anglo-Iranian Oil Company (AIOC) 24, 25, 26 Anglo-Persian Agreement (1919) 25 Anglo-Persian Oil Company (APOC) 24, 25; see also Anglo-Iranian Oil Company (AIOC) Ansari, A.M. 25, 99, 106, 109 Ansari, Majid 107 appointed bodies 3, 15, 19, 178

Ardabil province 167 Argentinean debt crisis 140 Arjomand, S.A. 172, 181 armed forces 18, 67 Asgarawladi, Habibollah 56, 59, 72, 85, 91, 101, 176 Ashura 196; march 32 Asian currency crisis 112 Asr-e Ma 87, 89, 94, 101, 102, 103, 110, 114 Assembly of Experts 42, 43, 44, 46–50, 52 Assembly of Leadership Experts 17 Association of Combatant Clerics see MRM Association of Friday Prayer Leaders 19 Astaneh, Mahmud 91, 92 Avery, P. 25 Azad 107, 108, 115 Azari-Qomi, Ayatollah Ahmad 36, 60, 67, 84 Bahonar, Dr Mohammad Javad 40 Bahonar, Mohammad-Reza 91, 152, 176, 177 Baktiari, B. 56, 60, 67, 71, 100 Banani, A. 25 Bani-Sadr, Abolhasan 32, 40, 52, 54 banking 22–23, 25, 40, 43, 176, 182 Baqer al-Sadr, Mohammad 32 Baradaran Shorakka, Hamid Reza 153 Basij 167, 196 bazaar (merchant sector) 84, 99, 101, 106, 141, 149

Index 219 bazaari 21, 36, 196 Bazargan, Prime Minister Mehdi 39, 40, 53 Behdad, S. 32, 34, 64, 95, 108 Beheshti, Ayatollah Mohammad 40, 43, 44, 45, 47, 48, 50, 52, 53 Behkish, Mohammad Mehdi 144 Bilateral Investment Treaties (BITs) 133 bills, parliamentary 17, 163 bonyads 35, 36, 41, 109, 137, 156, 196 borrowing, government 60, 117 Borujerdi, Ayatollah Hosayn 29 Brazil 121, 144, 182 Brinton, Crane 9 Britain see Great Britain Brownlee, Jason 13 Brumberg, D. 11, 54, 84 Build-Operate-Transfer (BOT) schemes 133 Bush, President George W. 126, 146, 180–181 buy-back contracts 93, 114, 133, 170 cabinet, the 16, 55, 56, 59, 168–169, 172, 177 capitalism 7, 8, 12, 32, 44, 69, 77, 143; global 37, 57, 131, 134, 163, 187 car-manufacturing 45 Carr, E.H. 63, 64 Central Bank 58, 75, 83, 86, 87, 101, 111, 176; governor of 57, 67, 80, 113 Chamber of Commerce, Industry and Mines (ICCIM) 123 Chehabi, Houchang 15 China 82, 83, 140, 144, 149, 182 CIA 26, 117 Clinton, President Bill 146 CNN interview 105 communism 27, 31, 32, 69 company shares 49, 51, 179 Comprehensive Principlist Coalition 177 concessions 4, 22–24, 25, 45–51, 121, 132, 170 Conoco 93

consortium agreements 26, 43 Constitution, the: 2, 15, 35, 36, 41–53, 191; pre-revolutionary: 45, 46; Preamble: 41; Article 3: 41; Article 4: 132; Article 43: 42, 46, 47; Article 44: 35, 42–45, 46, 134, 136, 137, 156, 178, 179, 180; Article 46: 36; Article 47: 36; Article 62 (draft): 52; Article 66 (draft): 46, 47–48; Article 76: 16; Article 81: 48, 49–52, 62, 80, 84, 87, 118, 120–122, 132; Article 82: 52–53; Article 88: 45–46; Article 89: 16; Article 99: 83; Article 135: 169; Article 153: 42 consumer goods 1, 59, 75, 121 consumerism 123, 128 Coordinating Council of the Forces of the Revolution 166 corruption 52, 108–109, 111, 146, 152, 166, 168 Council for Reconstruction 74 Council for the Appraisal of the Constitution of the Islamic Republic of Iran see Assembly of Experts counter-reformists 146–150, 159, 162, 164, 186, 193 coup d’état: of 1921: 25, 166; of 1953: 26, 29, 30, 31,105, 117; apology for 107 “cultural invasion” 76, 82, 93, 114, 115 currency 86, 112, 123, 154, 181 Curzon, Lord 25 D’Amato Act 93 D’Arcy, William Knox 24, 25 dams 75, 80, 89 Danesh-Ja‘fari, Davud 169, 171, 177 Danesh-Rad, Aziz 47, 52 de-liberalization 146 democracy 13, 138, 139, 187 “dependent development” 24 dispute resolution 133 Donya-ye Eqtesad 170, 175, 177 Dori-Najafabadi, Qorban-Ali 85, 91, 92 Dunn, J. 12 Dusti, Esma‘il 115

220

Index

economic growth 7, 108, 110, 112–117, 131, 134, 142, 143, 153, 190, 191 economic independence 1, 16, 39, 70, 99, 138, 143–145, 187, 189; desire for 19, 34, 60, 159; different interpretations of 34, 36, 124, 193; and globalization 140, 143; and sanctions 180–186 economic isolation 45 economic liberalization 1, 8, 10, 19,121, 152; and Ahmadinejad 170, 179; and China 82; and Five-Year Plans 79, 82, 83, 88, 89; and Hashemi-Rafsanjani 51, 95, 99, 110, 113, 126, 192; and Khatami 99, 109, 113, 126, 135; and the Soviet Union 81; and the World Bank 13, 88, 95 economic nationalism 21, 26–27, 72, 187 Economic Rehabilitation Plan 113, 114 economists’ open letters 175 ‘edalat-khaneh 24 Ehteshami, Anoushiravan 9, 76 elected bodies 3, 15, 178 elections 16, 17, 33, 84, 94, 108, 109, 150; 2005 Presidential 164–168; 2009 Presidential 185 electoral candidates, disqualification of 87, 102, 129, 146–148 electricity 30, 41 Emam, Farhad 51 employment 74, 113, 114, 120, 121, 131, 141, 153, 175 energy industry 41, 75 Enqelab-e Eslami 66 Entekhab 120, 123 Eqtesad-e Iran 93, 116, 117, 119, 125, 133 Esma‘ili, Ghaffar 91–92 E‘telaf-e Abadgaran-e Iran-e Eslami see Abadgaran E‘temad-e Melli 175, 179, 186 Ettela‘at 27, 32, 33, 40, 45, 51, 54, 66, 72 Ettela‘at International 147, 148, 150, 151, 154 European Union 107, 180, 182, 189, 190

Expediency Council 3, 17, 18, 114, 124, 125, 130, 131, 135, 145, 163, 165, 169, 170, 178, 180, 193 exports 23–24, 73, 75, 185 Fanon, Frantz 30, 70 Fardis, Ma‘sum 154 farmers 23 fatwa 23, 196 fines 154 First Economic, Social and Cultural Development Plan see Five-Year Plans fisheries 23 Five-Year Plans: First 66, 73–78, 79, 80, 81, 192; Second 80, 88–94, 110, 115, 192; Third 114, 115, 117, 120, 130–131, 134, 145, 151, 156; Fourth 131, 136, 144, 145, 170, 175, 178, 185 Foran, J. 24 foreign capital 34, 80; First Five-Year Plan 73–78; inflow of 2, 19, 37, 45, 56, 81, 97, 115, 118, 119, 135, 187, 192; Second Five-Year Plan 88–94 foreign debt 23, 83, 86, 87, 91, 92, 115, 121 foreign direct investment (FDI) 58, 82, 83, 113, 133, 135, 182, 183 foreign exchange 64, 75, 83, 89, 90, 92, 108, 115, 120; flight of 123; reserves 171, 172, 188 foreign finance 93 foreign interference 1, 32, 41, 71 foreign investment 3, 27, 60, 194, 195; and Ahmadinejad 170, 171, 183; blocking 150–153; after FIPPA 131–137, 139; in the Five-Year Plans 56, 89, 92–94; and HashemiRafsanjani 75, 76, 89, 92–94; and Khatami 113–124, 193; and mercantile and statist elites 34, 37, 38, 111, 122 Foreign Investment Board 134 Foreign Investment Promotion and Protection Act (FIPPA) 118, 124, 131–134, 145 foreign loans 60, 75 foreign policy 104–108, 139, 174, 180

Index 221 foreigners, restricting presence of 52–53; economic participation of 119 Foundation for the Oppressed and Disabled 35 France 181; companies 107; loans 108; revolution 4 Free Trade-Industrial Zones (FTZs) 76, 77, 103 gas sector 41, 75, 76, 182, 183, 189 gasoline, import of 1 Gazprom 107 GDP 74, 184; and FDI flows 58, 135, 182, 183; and imports 59 General Assembly, UN 161 Germany 181 Ghaffari, Hadi 74, 81 Ghani-Nezhad, Musa 123 Ghanimifard, Hojjatalloah 133 gharbzadegi 28, 29, 128, 178, 196 Ghasimi, M.R. 83 Gheissari, A. and Nasr, V. 13 Gheissari, A. and Sanandaji, K.-C. 166 Ghorban, N. 189 Gilbar, G.G. 24 globalization: and Ahmadinejad 160, 170, 187; cautious view of 7, 8, 14; differing views of 2, 3; inevitability of 12, 137, 143, 176; resistance to 189, 190, 193–195; as a threat 1, 9, 19, 20, 140 Golzadeh-Ghaffuri, Ali 47 Gorbachev, M. 81 government 3, 34, 60, 66, 67, 192 Great Britain 22, 23, 24, 26, 27, 107, 181 Guardian Council 3, 17, 18, 36; and Ahmadinejad 163, 176, 178; and counter-reformists 122, 146; and elections 83–84, 87, 116, 146–148, 162, 194; and foreign investment 50, 116–118, 124, 130, 145, 150, 153, 170; and Hashemi-Rafsanjani 129, 192; and LAPFI 122–125; and mercantile elites 60, 66, 87, 95, 116, 118, 124, 127, 137, 149, 157–158, 163, 191–193 guardianship of the jurist 18

Ha‘eri-zadeh, Seyed Abdol-Hasan 76 Haddad-Adel, Gholam-Ali 152–153 Hajjarian, Sa‘id 162 Hakimian, H. 135 Hakimian, H. and Karshenas, M. 86, 135 Halliday, Fred 11 Hambastegi 122 Hamshahri 122, 124, 151, 154, 156, 177 Hashemi, Ali 124 Hashemi-Nezhad, Habibollah 44 Hashemi-Rafsanjani, President Akbar 5, 10, 108, 102; 2005 elections 165–167; 2009 elections 185; and economic liberalization 51, 86, 95, 99, 110, 111, 113, 126, 137, 145, 171, 192; and Expediency Council 124, 165, 178, 193; and foreign investment 75–78, 89, 90, 92–94, 98; and the Guardian Council 129, 192; and the Islamic Republican Party 40; and Khamene‘i 69, 88; and the mercantile elites 65–69, 83, 84, 102, 109, 127, 128, 158, 191; and perestroika 78–82, 88, 90, 98, 104; and pragmatists 67, 68, 78, 84, 87–88, 94–96, 98, 102, 104, 106, 119, 137, 146, 158, 192 Hawzeh 68, 101, 106, 149, 196 Helpers of the Party of God 149 Henry, C. and Springborg, R. 13 Herati, Hosayn 77 Heydemann, S. 8 Hezb-e Kargozaran-e Sazandegi see Kargozaran Hezbollahi 107 High Council for Free Trade-Industrial Zones 87 high tariff duties 1 Hojaji, Seyyed Sajjad 76 hojjat-ol-eslam 104, 196 hojjati faction 56 Holocaust denial 174 Hosayni, Haydar Mostakhdemin 153 Hosayniyeh Ershad 29 “house of justice” 24 housing prices 175 Howard, R. 133

222

Index

Huntington, S.P. 105 hydrocarbons 12, 14, 75 hyperinflation 30 Imam Khomeini International Airport 151–154, 157 Imam Khomeini Relief Committee 72 Imam Reza Love Fund 172, 173, 174 Imperial Bank of Persia 22, 23, 25 imperialism 3, 7, 9, 19, 22, 27, 28, 30, 31, 41, 57, 63, 84, 128, 142, 174, 185, 190 imports 1, 53, 55, 58–60, 66, 73, 75, 78, 86, 93 income inequalities 175 India 140 individualism 140 industrialisation strategy 141 inflation 30, 57, 86, 110, 114, 174–175, 176, 177 International Crisis Group 169, 172 international diplomacy 180 International Monetary Fund 7, 8, 13, 81, 87, 88, 95, 195 interviews 3 Iran 124, 147, 148, 151, 152, 153, 154, 155, 169, 170, 179 Iran Daily 179 Iran Electronics Industries (IEI) 155, 156 Iran–Iraq War 5, 41, 57–61, 64, 65, 79, 164, 189, 192 Iran Liberation Movement 31, 39 Iran–Libya Sanctions Act (ILSA) 93, 107 Iranians living abroad 85, 108, 113, 123 Iraq 29, 32, 33, 82 Iravani, Mohammad Javad 67, 68, 122 IRGC see Islamic Revolutionary Guard Corps Isargaran 149 Islam/religion 28–30, 44, 47, 55, 69, 70, 106, 139, 167, 171, 178, 179 Islamic Coalition Association 67 Islamic Consultative Assembly see majles

Islamic culture 32 Islamic economics 32, 42, 143 Islamic Iran Developers Council see Abadgaran Islamic Iran Participation Front see Mosharekat Islamic law 18 Islamic leadership 32 Islamic Republican Party (IRP) 15, 40, 43, 54, 67 Islamic Revolution Devotees Society 149 Islamic Revolutionary Council 40, 41, 53 Islamic Revolutionary Guard Corps (IRGC) 18, 34, 35, 36, 127, 149, 157, 162, 163, 165, 166, 167, 169, 182, 187 Islamic Society of Engineers see Mohandesin “Islamicized” 31, 53 Israel 124, 152, 174, 180 Jahan-e San‘at 157 Jahangiri, Eshaq 112 jahani-sazi 140 jahani-shodan 140 Jam-e Jam 148 Jam‘iyyat-e Defa‘ az Arzesh-ha-ye Enqelabi see Society for the Defence of Revolutionary Values Jam‘iyyat-e Isargaran-e Enqelab-e Eslami see Isargaran Jam‘iyyat-e Mo‘talefeh-ye Eslami see Mo’talefeh Jame‘eh-ye Modarresin-e Hawzeh-ye Elmiyeh-ye Qom see Hawzeh Jame‘eh-ye Rawhaniyat-e Mobarez see JRM Janan-Sefat, Mohammad Sadeq 155–156 Jannati, Ayatollah Ahmad 116, 176 Jomhuri-ye Eslami 45, 48, 60, 90, 123, 152, 153, 154, 172 Jordan 135, 182, 183 JRM 67, 68, 78, 84, 96, 99, 101, 102, 106, 112, 166 judiciary 17, 18, 187 “justice shares” 179

Index 223 Karami, Mohammad 49 Kargozaran 111–112, 113, 117, 123, 124, 147, 148, 179, 196 Karrubi, Mehdi 59, 147, 153, 166, 185 Karun River 23 Kayhan 57, 59, 60, 71, 77, 78, 79, 80, 123, 146 Kazemzadeh, F. 22 Keddie, Nikki 23, 29 Keshavarzian, A. 14, 36 Khalkhali, Sadeq 76 Khamene‘i, Ali: and Ahmadinejad 167, 178–180, 187; and counterreformists 156; and the Five-Year Plans 114, 136; foreign investment 66; “great nation” 104; and Guardian Council 83, 158; and HashemiRafsanjani 69, 165; independence 173; and mercantile elites 69, 91, 192; PM nomination 54; privatization 179; production 72; and sanctions 186; and social justice 88, 89; and the US 82 Khamushi, Ali-Naqi 123 Khan, Reza 25, 166; see also Pahlavi, Reza Shah Khatami, President Mohammad 5, 148, 178, 125; 2004 elections 147; 2009 elections 185; and economic liberalization 99, 109, 113, 126, 135, 171; and foreign investment 113–124, 131, 151, 153, 172, 193; and foreign policy 104–108, 130, 162; and reformists 98–99, 161; social justice 108, 109–115, 129, 136, 139–140, 144, 145; and statists 102, 108, 192 Khatami, Mohammad Reza 147 Khomeini, Ayatollah Ruhollah: and Ahmadinejad 158, 161; and the Constitution 35, 42; his death and will 1, 9, 66, 69–70, 97, 190; and economic independence 1, 129; as founder 1, 15, 21, 29, 33, 35, 36, 40, 53, 187; “guardianship of the jurist” 18; the Iran–Iraq war 65; and the private sector 41, 59, 68

Kıbarog˘lu, M. 181 Kinzer, S. 25 Kordbacheh, Mohammad 170 large-scale industries 35, 43, 45 Larijani, Ali 166, 176, 177 Law for the Attraction and Protection of Foreign Investment (LAPFI) 117–118, 120, 122, 123, 124, 133 Law for the Protection and Expansion of Iranian Industries 40, 41 Law for the Registration of Companies 50 Left, the political 31–2, 34, 36, 40 legislation 18 Linz, Juan L. 15–16 living conditions/standards 64, 68, 85, 172 Ma‘sumi-Far, Ahmad 82, 83 Mahmudzadeh, Ebrahim 155 Mahsuli, Sadeq 169 majles 16, 47, 86, 102, 127, 137, 139, 162, 191, 196; and Ahmadinejad 168, 169, 172, 175–178, 187; and economic planning 55, 56; electoral candidates for 84, 88, 98, 102, 106, 146–147, 194; and foreign investment 73, 80, 90–92, 114–119, 120–125, 130, 145, 150, 159, 187, 192; and Hezbollahi 107; and Kargozaran 111; and mercantile elites 60, 67, 78, 83, 84, 85, 88, 149, 192; and Nurbakhsh 87; sit-in 147; speakers of 66, 78, 88, 90, 152, 166; and statist elites 66, 127, 149; the Turkish contracts 150–157; and Velayati 54; see also Parliament Majles va Pezhuhesh 120 Majlis Research Center 119–120, 152, 154 Majma‘-e Rawhaniyun-e Mobarez see MRM Majmu‘e-ye Nazariyat-e Shawra-ye Negahban 50 Makarem-Shirazi, Ayatollah Naser 43 maktabi faction 56 Malaysia 107, 140 Maleki, Khalil 28, 30

224

Index

Maloney, S. 109 Management and Planning Organization (MPO) 131, 136, 153, 170, 173, 175 Manjil earthquake 81 Mar‘ashi, Hosayn 147 Mardomsalari 170 marja‘-e taqlid 196 Marx, K. 97 Marxist–Leninist discourse 21, 27, 28, 30, 31, 32, 61, 69 Matin-Asgari, A. 31 Maydari, Ahmad 122 Mazarei, A. 64 media and national press 3, 18, 43, 92, 126, 175, 181 MEED 74, 81, 82, 88, 176, 182, 183 Mehralizadeh, Mohsen 166 Menashri, D. 11 mercantile elites 36, 42, 54, 91, 130, 142, 168; and foreign investment 34, 37, 38, 111, 117, 122; and the Guardian Council 60, 66, 87, 95, 116, 118, 124, 127, 137, 149, 157–158, 163, 191–193; and Hashemi-Rafsanjani 65–69, 77, 83, 84, 102, 109, 127, 128, 158, 191; and JRM 101; and Khamene‘i 69, 91, 192; and Khatami 130, 148; wartime 57, 59, 129 Mesbahi Moqaddam, Gholam-Reza 152 Milani, M. 33 mining 45–49, 116, 117, 132, 134, 182 Ministry of Economic and Financial Affairs 74, 83, 112, 113, 132, 153, 169, 177 Ministry for Industry and Mines 137, 177 Mir-Mohammadi, Mohammad 121–122 mixed economy 102–104, 108, 111, 113 Mo‘in, Mostafa 166 Mo‘talefeh 56, 68, 72, 101, 106, 117, 123, 196 Mo‘tamedi, Ahmad 154 mobile phones 151–157 modernization 27

Moghadam, V. 33 Mohammad-Khan, Morteza 118 Mohandesin 117 Mohtashami, Ali Akbar 71 Mojahedin-e Khalq (Organization of the Iranian People’s Mojahedin) 29, 31, 33, 54, 196 monopolies 22, 23, 46–48, 123, 140, 155 Mosaddeq, Mohammad 26, 27, 105, 117 Mosharekat 116 Moslem, M. 82, 100, 101 mostaz‘afan 32, 40, 44, 156, 196 “mother” industries 35, 43, 45 Movahedi-Saveji, Ali 91, 91 MRM 67, 99, 106 MTN 156, 157 multiple exchange rate system 86 Musavi, Prime Minister Mir-Hosayn: and economic independence 73, 186; and economic management 55, 56, 59, 68, 74; election of 54, 62; and loans 60, 64; and the market 69; the presidency 185; and statist elites 67, 71, 83, 84, 128 Musavi-Ardebili, Ayatollah Mir Karim 40 Musavi-Tabrizi, Hojjat ol-Islam Mir Abolfazl 44 Nabavi, Behzad 71, 101–104, 106, 146, 150 Nabavi, Morteza 85, 91, 92, 102, 106 Naderan, Elias 175 Najafi, Mohammad Ali 113 Naji, K. 164, 165, 166, 173, 175, 181 Namazi, Hosayn 112, 113 Nateq-Nuri, Ali Akbar 84, 88, 90, 99, 166, 176, 185, 192 National Bank of Iran 25 National Iranian Oil Company (NIOC) 75, 93, 133, 146, 187 national security 19, 121, 151, 152, 180, 185 nationalism 28, 30 nationalization 34, 40, 41, 44, 47; of oil industry 26, 40 natural resources 22, 40, 42, 123

Index 225 Nawbakht, Mohammad Baqer 77, 91, 115 New York Times, The 116, 125–126 next generation of Iranians 143, 172 Nili, Mas‘ud 60, 110, 138, 140, 142, 144 NIOC see National Iranian Oil Company normalization after the revolution 1, 2, 40, 61–62, 65, 189, 195 nuclear program 161, 180–181, 185 Nurbakhsh, Ahmad 45 Nurbakhsh, Mohsen 57, 67, 68, 80, 83, 87, 111, 113, 118 Office of Revolutionary Planning 53 oil 12, 27, 33, 54, 93, 107, 133, 146, 167, 189; dependence on 59, 3, 74, 87; discovery of 24; export of 1, 80; minister for 169, 177; nationalization of 26, 40, 41, 43; price of 14, 57, 80, 81, 82, 90, 112, 171, 175, 184, 185; revenues from 27, 30, 57, 64, 86, 95, 112, 120, 173, 175, 184, 188 Oil Stabilization Fund 172 Organization for Investment, Economic and Technical Assistance (OIETAI) 132–134 Organization for the Registration of Companies and Industrial Properties 50 Organization of the Petroleum Exporting Countries (OPEC) 27 Organization of the Iranian People’s Mojahedin see Mojahedin-e Khalq Organization of the Mojahedin of the Islamic Revolution see SMEE osulgarayan 164 Ottaway, M. 14 Pahlavi, Mohammad Reza Shah 25–27, 128; Pahlavi period 1, 2, 14, 21–33, 70, 73, 117, 128 Pahlavi, Reza Shah 25; see also Khan, Reza Parliament 3, 14, 16, 25, 26, 34, 36, 45, 48, 52, 53, 60, 117, 177; see also majles

Pasdaran see Islamic Revolutionary Guard Corps Payvand Iran News 180 Pearsall, J. and Trumble, B. 51 perestroika 78–94, 98, 104, 149 Pesaran, M.H. 39, 42, 64, 86 petrochemical industry 1, 75, 80, 133, 136 Petronas 107 Petropars episode 146 Planning and Budget Committee 74 Planning and Budget Organization (PBO) 55–56, 57, 60, 68, 74, 78, 83, 86, 101, 110, 113, 131, 138 political decentralization 10–11 political pluralism 15–16 pragmatists 111, 142, 176, 190, 192 presidency 16, 17, 54, 71, 98, 177 prime minister, abolition of 71 principlists 164–166, 173–177, 180, 185–187, 193; economics 168–173 private sector 36, 40, 41, 43, 44, 59, 72, 78, 136, 138, 141, 142, 149, 179 privatization 98, 101, 108, 121, 134, 135, 136, 137, 156, 157, 169, 178, 179 project financing 114, 133 property ownership/rights 34, 36, 44 Qajar, Naser al-Din Shah 4, 22 Qajar period 21, 22, 24, 29 Qalibaf, Mohammad-Baqer 165, 166, 167, 176, 177 Qasemi, Majid 67, 68 Quchani, Mohammad 103, 148 Rabani-Shirazi, Abdolrahim 44 Rafiqdust, Mohsen 35 Rahbar, Farhad 170 Rahnema, A. and Nomani, F. 32, 39, 41, 54, 69 railways 22 Raja‘i, Mohammad Ali 50 Ramazanzadeh, Abdollah 152, 154 Rashidian, Mohammad 47, 48 rational choice theorists 13 Rawhani, Hasan 90

226

Index

Rawqani-Zanjani, Mas‘ud 57, 68, 83, 92 Rayshahri, Mohammad Mohammadi 148 re-building after Iran–Iraq war 60, 64, 65–78 Reaganomics 81 reformists 111, 116, 137, 142, 162, 165, 176, 185 registration of foreign companies 49, 50 religious law 17 rentier state, Iran as 12–14 Resalat 36, 60, 72, 73, 75, 76, 78, 80, 81, 82, 84, 85, 87, 88, 89, 90, 91, 92, 94, 101, 106, 111, 113, 116, 118, 124, 135, 148 Reuter, Baron Julius de 4, 22 Reuter concession 22 revolution 9, 190; of 1905: 24; of 1979: 14, 21; “velvet”: 185; white: 27 revolutionary discourse 27–31, 97, 138, 162, 194 revolutionary foundations (bonyads) 35 revolutionary goals 39, 68, 98, 126, 144, 145, 181, 191 revolutionary guard see Islamic Revolutionary Guard Corps revolutionary ideals/values 56, 59, 60, 72, 89, 111, 114, 139, 141, 158, 161, 164–165, 167, 168, 170, 174 Rezai, Mohsen 135, 176, 177 rial, the 86, 181; see also currency Rushdie, Salman 69, 70, 107 Russia 22, 23, 24, 107, 112; see also Soviet Union Sadjadpour, Karim 173 Sahabi, Ezzatollah 31 Salam 109, 111, 114, 116, 162 Salamati, Mohammad 76, 78, 110, 116 Salehi-Isfahani, D. 76, 126 sanctions 58, 93, 105, 107, 135, 163, 174, 187, 195; and economic independence 180–186 Sariolghalam, Mahmood 142–143 Sattari-Far, Mohammad 175 Sazman-e Mojahedin-e Enqelab-e Eslami see SMEE

Schirazi, A. 42 Second of Khordad Front 100, 104, 106, 108, 109, 116, 118, 122, 125, 126, 127, 138, 146, 147, 164, 197 “Second Republic” 10 secularism 178 self-sufficiency 34, 36, 54, 60, 70, 73, 78, 100, 104, 129, 181, 187 semi-authoritarian state, Iran as 14–20 September 11th terrorist attacks 126, 180 Servants of Construction Party see Kargozaran Shahi-Arablu, Muhammad 120, 121, 170 Shahrudi, Seyyed Hosayn Hosayni 77 Shahrvand-e Emruz 177, 178, 182, 185 shares 49, 51, 179 Shari‘ati, Ali 29, 30 Shari‘atmadari, Mohammad 112 Sharq 103, 155–156, 166, 168, 169, 170, 171, 172, 175, 176, 178 shawra-ye negahban see Guardian Council Shaybani, Ebrahim 176 Shell 182 Shi‘ism 21, 29, 30, 32, 128 Shuster, Morgan 24 Siavoshi, S. 100 SIM cards 155 slogans of the revolution 11, 98 SMEE (Organization of the Mojahedin of the Islamic Revolution) 31, 94, 99, 103, 106, 110, 116 Sobh 110 Sobh-e Emruz 114 Sobhani, Hasan 122 Sobhani, Ja‘far 52 social and economic inequalities 30 social justice: and Ahmadinejad 167, 168, 173, 174; and Khamene‘i 88, 89, 91, 179; and Khatami 108 109–115, 129, 136, 139–140, 144, 145; revolutionary goal of 39; Shi‘i concept of 21, 32, 128; and the statist elites 98, 159 socialism 44, 78 Society for the Defence of Revolutionary Values 148, 149

Index 227 Society of Combatant Clergy see JRM Society of Qom Seminary Teachers 67 South Africa 156 South Korea 144 Soviet Union 27, 44, 78–79, 81; see also Russia Special Court for the Clergy 19, 162 state sector (Article 44 definition) 43 statist elites 35, 42, 69; and economic independence 68, 106, 129; and foreign investment 34, 37, 38, 111, 122, 125; and Khatami 102, 108, 125, 192; and the majles 66, 127, 146; and Musavi 67, 71, 83, 84, 128; revivalist 104, 124, 127, 137, 142; and social justice 68, 98, 159; wartime 59, 64 students 71, 100, 126; riots 162; siege of US embassy 40, 48 Supreme Council for National Security (SCNS) 18, 82, 161, 185 supreme leader 16, 17, 18, 19, 83, 84, 178, 187 Taheri-Esfahani, Jalal 47 Tahmasebi, Ali-Reza 177 Takeyh, R. 162, 165, 181 Talbot, Major Gerald 23 Taleqani, Ayatollah Mahmud 32 Tasalloti, Mohsen 169 TAV 151–155, 157 Tavakolli, Ahmad 56, 59, 107, 139, 141, 150, 151, 152 tax 12, 132, 138 technology: 71, 83, 85, 102, 154, 156, attracting 113, 133–135; import of 53; and knowledge 70, 171; and science 131; research and 145; transfer of 73, 92–93, 120, 125, 138, 171 Tehran: airport 151; mayor 163–164, 176; stock exchange 175 telecommunications 151–157 Thermidor 4, 8–11, 125, 187, 190, 197 Third-Force theory 28 Third Worldism 28, 30, 128 tobacco 23; protests 4 Tocqueville, A. de 39

Total SA 107, 182 totalitarianism 15 transportation 30, 134 Treaty of Golestan (1813) 22, 30 Treaty of Torkmanchai (1828) 30, 93 Tripp, C. 7, 32 Tudeh Party 27, 28, 32, 33, 197 Turkcell 151–157 Turkish consortia 151, 193 Twenty-Year Outlook 139–140, 169, 178 UK see Great Britain ‘ulama (Islamic religious scholars) 17, 18, 29, 33, 104, 166, 197 unemployment see employment United Arab Emirates 135, 182, 183 United Nations 108, 161, 181–182 United Nations Cease Fire Resolution 598 61, 65, 69 United Principlist Front 177 United States of America 22, 81, 189, 190; 1953 coup 26, 30, 105; anti-Iran sentiment 126–127, 146 180–181; anti-US sentiment 27, 30, 31, 33, 54, 82, 105, 106, 126–127, 140, 174; embassy seizure 40, 48, 53, 58; sanctions 58, 83, 93, 95, 105, 107, 182 universal suffrage 14, 16 universities 93–94, 142, 164, 168, 175 vali-ye faqih 18 Vaziri-Hamaneh, Kazem 169, 170, 176 velayat-e faqih 18 Velayati, Ali Akbar 54, 71 votes of confidence 177 votes of no confidence 16 weapons of mass destruction 107; see also nuclear program Wells, M.C. 100 West, The 106, 108, 117, 128, 140, 181 Western capitalism 12, 16, 21, 171 Westernism, anti- 2, 28, 30, 31, 33, 69, 70, 71, 82, 129, 161, 186, 187, 190

228

Index

Westernization 28, 73, 178 White Revolution 27 World Bank, The 7, 8, 13, 81, 87, 95 World Trade Organization 141 World War I 25, 63–64 World War II 25

“yuzans” 60 Zafarpur, Ali 123 Zanganeh, Bizhan 111 Zhang, W.-W. 10 Zubaida, S. 21, 33, 61