Iran's Domestic Politics and Foreign Economic Relations

After the Sixth Majles Elections

Yasuyuki Matsunaga

Assistant Professor

College of International Relations

Nihon University, JAPAN

Ymatsung@aol.com

*Author's note:  This article is Chapter 2 of Politics, Economy and Sanctions

in the Persian Gulf States in a Changing Environment (IDE Spot Survey No. 21), 

published in March 2001 by the Institute of Developing Economies, Chiba, Japan. 

To obtain a copy, contact Research Project Division, Research Planning Department, 

Institute of Developing Economy (Tel: 043-299-9508 / Fax: 043-299-9724).

        The February 2000 Majles (Parliament) elections in Iran constituted the

first national-level popular contest after President Mohammad Khatami

took office in August 1997.  Two nation-wide elections had been held-the

Leadership Experts Assembly (Majles-e Khobregan-e Rahbari) elections in

October 1998, and the first-ever Islamic City and Village Councils

(Shoura-ye Eslami-ye Shahr va Rusta) elections in February 1999. 

However, the former suffered from heavy candidacy screening and limited

popular participation, and the latter-although levels of participation

were remarkable-elected representatives for local-level offices only. 

The Sixth Majles elections, therefore, were expected to become both the

first serious popular test for President Khatami's administration and

its reformist policies, and a significant boost if his faction won a

majority.  

        This chapter analyzes developments in Iran's domestic politics during

the nine-month period in the aftermath of the February 2000 Majles

elections, with special attention paid to the internal dynamics within

the so-called "reformist" camp.  It also briefly reviews the effects of

the reformist victory in the Majles elections on Iran's foreign economic

relations.  The analysis ends with some discussion on future prospects

in Iran's domestic politics as well as foreign relations.

I.      Domestic Politics after the Sixth Majles Elections

1.  The Outcome of the Majles Elections

        The first and second rounds of voting of the Sixth Majles elections took

place on February 18 and May 5, 2000, respectively (the second round of

voting for the Tehran district was held separately on June 30).  The

results signified a major loss for the conservative incumbents and a

stunning victory for the pro-Khatami "reformers." The elections for the

post-Revolution Iranian Majles have been held at regular, four-year

intervals since March 14, 1980.  Due partly to the frequent ups and

downs of many political personalities in post-Revolution Iran, the rate

of turnover among the deputies elected at each Majles elections is

generally high.  However, the Sixth Majles elections in 2000 can be

likened to the Fourth elections in 1992 in that both witnessed a

crushing defeat of the majority faction in the previous Majles-the

radical leftists in 1992 and the conservatives in 2000.

        For the Sixth Majles elections, 6,860 persons registered as candidates

(of whom 504 were women), and almost 90 percent of them-6,083 to be

exact-survived the Guardian Council's candidacy screening process.  Both

numbers represented the largest ever after 1979.  The rate of turnout

for the first round of voting was about 69 percent, with 26.7 million

votes being cast.  The latter figure was a little less, as compared with

the large turnout at the 1997 presidential elections in which more than

29 million votes were cast.  This was partially a result of the change

that the outgoing Majles effected in the elections law by raising the

minimum voting age to 16, from 15, in an attempt to curb the number of

the votes from the pro-reform youth segment.  Yet it also signified a

relative lack of enthusiasm about the contest among the electorate in

general.

        The results, however, made clear who has the majority support of the

Iranian electorate.  To get a clearer view, I here use for the analysis

the initial results announced by the Interior Ministry.  Among the 290

seats contested, only 65 went to the incumbents of the Fifth Majles,

giving more than 220 seats to first-timers.  By factional counts, the

conservatives acquired only about 65 seats (or 22 percent of the total),

while the so-called "reformers" gained about 165 (or about 60 percent). 

The remaining 55 seats were taken by the independents-that is, those who

did not have any backing from a major political party in Tehran,

although many of them ran as pro-Khatami and/or pro-reform candidates.

Viewed from a different angle, the results also demonstrated further

progress of two pre-existing trends.  The first was de-clericalization

of the deputies.  The Sixth Majles elected as few as 35 clerics, whilst

there were 51 clerics among the Fifth.  This was a far cry from the

First Majles in which 137 clerics served among the 263 elected.  Also in

progress was the rejuvenation of Majles deputies.  Of the 65 incumbents

reelected, only 25 had served 3 or more terms before.  The majority, or

40, served only one previous term.  These two tendencies cut across

factional lines.  For example, of the 65 conservatives elected to the

Sixth Majles, a minority or 24 were incumbents in the previous Majles. 

Of them, only 9 had served two or more terms before.  The remaining 15

had only served once before.  Of the 24, only 4 were clerics.  Of them,

3 were in their 30's and served only once before.

        These changes indicated that a majority of the Sixth Majles deputies are

in their late 30's to early 50's, that is, those who reached their

adulthood around or after the 1979 Revolution.  Put differently, the

overwhelming majority of Sixth Majles deputies are first-timers,

non-clerics, and pro-reform representatives.

2.      The Struggle over the Election Results

        By current interpretation of the existing laws, the Guardian Council is

to "supervise" the elections of which the Interior Ministry is charged

with the execution.  This means, in practical terms, that the Guardian

Council has a final say over both the candidacy pre-screening and the

determination of the election results, thereby having the ability to

greatly influence the election processes.  It is, however, a relatively

new development-only existing since the 1992 elections as far as the

Majles elections are concerned.  In the 1980s, the election processes

were, by and large, controlled by the Interior Ministry itself.  The

important point, however, is that in the decentralized political system

of post-Revolution Iran, many official institutions have become a tool

of factional fighting and politics.  As a result, the radicals won a

landslide in the 1988 Third Majles elections, which were held under the

supervision of then Interior Minister Ali Akbar Mohtashami.  For their

turn, the conservatives and moderates won in the 1992 Fourth Majles

elections, when the conservative Guardian Council intervened at the

expense of the radicals. Therefore, the 2000 Sixth Majles elections

were, in fact, the first contest in which the reformist Interior

Ministry and conservative Guardian Council fought against each other at

every step of the election processes.

        After the first round of voting, it had become clear that the

conservative camp suffered its largest defeat.  The Guardian Council,

then, went on to invalidate the election of 12 candidates in 10

different districts, rendering those seats vacant until a by-election to

be held in 2001.  It also found "irregularities" in the elections of the

Khalkhal and Arak districts where a reformist had been announced the

winner.  The Guardian Council cancelled the respective candidates'

victories, and gave the seats to their conservative opponents.  Most

importantly, however, the Council did not confirm the announced results

of the 30-seat Tehran district.  It forced repeated recounting for

nearly three months until May 18 when Ayatollah Khamenei, the Leader,

finally ordered that the recounting be stopped.  Following the

injunction, the Council decided to invalidate about 720,000 votes (about

24 percent of the total) and announced the final result of the Tehran

elections.  There were significant discrepancies between the latter and

the initial result announced by the Interior Ministry.  The former

Majles speaker and president, Ali Akbar Hashemi-Rafsanjani ranked

twentieth in the new result, whereas he had been thirtieth in the

previous one. Furthermore, a conservative, Haddad-Adel ranked

twenty-eighth in the new list, whereas he was thirty-second in the

previous one.  An independent reformist candidate Alireza Rajaie was

forced out of the winners' list as a result. 

        With this announcement, the Guardian Council once again became the

target of harsh protest and criticism from among pro-reform political

groups, newspapers and student organizations.  In particular, the large

increase in the number of votes assigned to Candidate Rafsanjani was

seen with much suspicion after several newspapers printed rumors to the

effect that behind-the-door manipulation during the recounts transferred

votes from the tallies of Faeze Hashemi, his daughter, and some

conservative candidates to the former president's.  With these rumors

and protests continuing, the prospect of Rafsanjani becoming speaker of

the Majles again rapidly vanished.  Five days later, Rafsanjani, in an

unprecedented move, declared that he would not take a seat in the

incoming Majles, thereby disassociating himself with the ongoing

political fights over it. 

3.      The Composition of the Sixth Majles

        The Sixth Majles was convened on May 27.  Its first job was to elect the

speaker and the other members of the Presiding Board of the now-called

"Reform Majles" (Majles-e Eslahat).  With Rafsanjani out of the scene,

the contest for speakership was fought between those who wanted to elect

a non-cleric who would better represent the actual composition of the

new Majles and those who wanted to keep the tradition of appointing a

cleric to the top position.  Pushing for the former option, the Islamic

Iran Participation Front (IIPF)-the main pro-Khatami party-sought to get

elected Mohsen Mirdamadi, one of its own founder members.  However, the

remaining political groups, including the leftist Majma'e Rouhaniyun-e

Mobarez (MRM), the center-right Executives of Construction Party (ECP),

and the conservative faction, opted for electing a clerical old-guard

Mehdi Karrubi, the secretary-general of MRM.  This split was notable

because it was, in fact, the first of the many disagreements amongst the

so-called "reformist" deputies that were to follow.

        The contest ended in IIPF yielding the speakership to Karrubi with a

tacit deal made with regard to the chairmanship of some of the

committees.  On June 11, in-house elections were held for the Presiding

Board which selected Karrubi as speaker with 193 votes, and Behzad

Nabavi and Mohammad Reza Khatami as deputy speakers with 155 and 135

votes, respectively.  The two main pro-Khatami political groups, IIPF

and the Islamic Revolution Mojahedin Organization (IRMO), succeeded in

sending 6 of their own members onto the 12-man Board.

Table 1: The Major Pro-Reform Political Parties/Groups in Post-May 1997

Iran

Islamic Iran Participation Front (IIPF)       

Party established in December 1998 by those activists who backed Mohammad 

Khatami's candidacy in his  1997 election.  Many of its core members such 

as Abbas Abdi, Mohsen Mirdamadi, and Saeed Hajjarian, were student activists 

during and immediately after the Revolution.  Mostly non-clerical and 

ideologically Islamic leftists. Mohammad Reza Khatami, the president's brother, 

is its secretary-general.

Islamic Revolution Mojahedin Organization (IRMO)     

Re-established in 1991  by Behzad Nabavi and Mohammad Salamati.  Political 

organization of the non-clerical Islamic-leftist revolutionaries.  Both 

ideologically and through personal networks, IRMO and IIPF have close ties. 

Majma'e Rouhaniyun-e Mobarez (MRM)    A clerical group mainly composed of

younger disciples of the late Ayatollah Khomeini with Islamic leftist

tendencies.  Split from JRM in 1988.  Although pro-Khatami, it does not

always agree with some of the progressive sociopolitical agenda

advocated by IIPF.  Mehdi Karrubi serves as its secretary-general.

Executives of Construction Party (ECP)        

Established in 1996 immediately prior to the Fifth Majles elections by Cabinet 

ministers of the then Rafsanjani government.  Its members were either relatives 

or proteges of Rafsanjani.  Known for its pro-growth economic policy.  Helped get

President Khatami elected in 1997, but not necessarily appreciated for

this by IIPF.  The former Tehran Mayor Gholamhossein Karbaschi is its

secretary-general.

        The outgoing Fifth Majles had decided to reduce the number of standing

committees to 12 in the Sixth Majles.  This merged two important

committees, the Foreign Relations and the Defense, into one.  Thus the

chairmanship and composition of the newly-created National Security and

Foreign Relations Committees became the next focal point.  In this

contest, the pro-Khatami IIPF and IRMO succeeded completely.  First,

while most of the former conservative members of these two committees

lost their seats in the popular elections, the pro-Khatami deputies

succeeded in forcing the remaining few, such as Mohammad Shahi-Arablou,

out of the new committee.  Then, they managed to elect the

afore-mentioned Mohsen Mirdamadi as its chairman and IRMO's Mohsen Armin

as its deputy chairman.  In addition to these two, the resultant

23-person committee hosts 19 more "reformers" including Mohammad Reza

Khatami, former Ershad Deputy Minister Ahmad Borqani, and Tehran

University political scientist Elaheh Kulaie.  

        The IIPF-IRMO camp also succeeded in sending their prominent members to

several other important committees.  The Energy Committee, which

overseas Iran's oil and gas sector, selected Mostafa Taheri of Najafabad

as its chairman, and Behzad Nabavi and the IIPF's Mohammad Naimipour as

its members.  The Planning, Budget and Accounting Committee, with Majid

Ansari of MRM as its chairman, included as its members Rajabali Mazrouie

and Mohsen Safaie-Farahani.  The Article 90 Committee, which

investigates complaints submitted by citizens, became headed by Ali

Shakurirad of IIPF, who is also a member of the Presiding Board.

While the IIPF-IRMO camp is a largest faction within the Sixth Majles,

it does not have a simple majority of its own.  This apparently is the

primary reason why the so-called Reform Majles has not been very

successful in changing things very much.  With 13 seats yet to be

filled, the IIPF-IRMO faction is composed of about 100 deputies, while

its conservative opponents have about 65 deputies.  The remaining some

110 deputies are divided into several centrist groups (such as ECP, MRM,

the Islamic Labor Party, and Islamic Solidarity Party) and independents,

both siding with one or the other of the above two-that is, the

IIPF-IRMO or the conservative-depending on the issues.  In particular,

the position of MRM is tricky in that although pro-Khatami and with a

leftist inclination, the clerical group is occasionally more in tune

with its conservative opponents than with its lay Islamic-left allies. 

For example, on June 11 when the speaker and his deputies were elected,

MRM sided with the conservative faction in backing Majid Ansari, a MRM

member, for the post of second deputy speaker against the IIPF-ECP

candidate, Mohammad Reza Khatami.  Although he did not win the post,

Ansari managed to receive 115 votes.  On another occasion, October 3,

MRM along with ECP voted down the IIPF-backed nominee for the post of

Post, Telegraph and Telephone (PTT) minister, Nasrollah Jahangard.  On

this vote, Jahangard received 99 votes in his favor, but his opponents

managed to gather 127 votes.  

4.      A Balance-sheet of the Reform Majles: Its First Six Months

        As noted, the Reform Majles has not been able to produce tangible

results in the form of new legislation in its first six months.  This

may not be a surprise given that, although the "reformers" in a larger

sense form a majority within the Majles, most of them are inexperienced

first-time deputies and also that no single faction possesses a simple

majority of its own.  Yet the fact remains that this comes as a

disappointment from the perspective of the reform-aspiring public. 

Here, let us consider the cases of Press Law reform and economic

policymaking.

        One of the first tasks on the agenda that many in the Reform Majles

chose to take up just after it was convened was the issue of Press Law

reform.  The previous Majles, in its final days in April 2000, enacted a

restrictive Press Law that, in fact, authorized many practices that had

already been in use since 1998.  The effort to reform the Press Law in

the Sixth Majles, therefore, concerned both re-upholding those press

freedom-related rights that were negated in the April law and further

ensuring other rights concerning journalists and the press.  The need

for Press Law reform had apparently added to its urgency after more than

a dozen reformist and liberal newspapers and magazines were banned in

late April and several renowned journalists and editors were jailed

simultaneously.

        Efforts to reform the Press Law got under way soon after the Presiding

Board was elected.  As early as June 14 when the Presiding Board had its

first formal consultations, the issue of Press Law reform was

discussed.  Then the Culture Committee headed by Ahmad Pournejati

started its review of the 14-article draft law on July 3 and, after a

two-week intensive review process, approved it on July 16.  The draft

law stipulated that any press offence or banning of periodicals be

judged by the Press Court with the presence of a press jury, and

proscribed the Revolutionary Court or the Special Court of Clergy from

judging press-related offences. 

        Under the constitution of the Islamic Republic of Iran, bills approved

by the Majles must be ratified by the Guardian Council before becoming

law.  Therefore, the efforts by the Sixth Majles to reform the existing

Press Law were expected to be resisted, sooner or later, by the

arch-conservative Guardian Council.  Yet, an end to the efforts came

much earlier and from an unexpected source. On the morning of August 6

when the committee-approved bill was scheduled to be presented to the

plenary session, Majles Speaker Karrubi read out a letter sent to him by

Supreme Leader Ayatollah Khamenei and announced that he had eliminated

the bill from the agenda.  The open session then deteriorated into

verbal arguments between the speaker and some IIPF deputies who opposed

the former's decision to shelve the press bill.  This incident was

remarkable in that not only did the Leader intervene in the legislative

process without being prompted, but he also unequivocally stated that

changing the existing Press Law would not be in the interest of the

regime.  Technically speaking, that judgment was to be made by the

Expediency Council (Majma`-e Tashkhis-e Maslahat-e Nezam) which had been

created, after all, for that very purpose.  Given that, the hidden

intention of the Leader's preemptive intervention may have been to

incapacitate the Reform Majles before it becomes practically

unstoppable.

        At any rate, the incident was also notable in that it made it clear that

the MRM's Karrubi and the IIPF-IRMO reformers did not share the same

eagerness and support for the socio-political reform agenda advocated by

President Khatami.  Speaker Karrubi introduced Ayatollah Khamenei's

letter as hokm, or a mujtahid's injunction that must be followed.  By

doing so, he in effect sided with the conservative opponents of Press

Law reform.  After this incident, wholesale efforts to enact a new Press

Law have been resisted by the speaker himself, although there have been

separate efforts to enact some amendments to the existing law.  In one

such effort, the Majles on October 31 adopted a motion that periodicals

did not need new permission to change their status, say, from a monthly

to a daily publication.  Yet the motion was immediately struck down by

the Guardian Council on the following day. 

        While the Majles has been unable to find a breakthrough in its efforts

to amend the Press Law, we can find some tangible results in its efforts

in the economic policymaking arena.  On June 17, just after the Majles

was convened, President Khatami replaced the Planning and Budget Agency

chief Mohamad Ali Najafi, an ECP member, with PTT Minister Mohammad Reza

Aref.  Aref is one of the few US-educated technocrats that IIPF has, and

his appointment as the head of the new budget agency-named Management

and Planning Agency-indicated a greater desire on the part of the

president and IIPF to secure the upper hand in economic policymaking

vis-・vis the ECP.

        It is, however, ECP-and not IIPF-that is known to have with them many of

post-Revolution Iran's technocrats and economic "bureaucrats."  IIPF, on

the other hand, more or less lacks those with macroeconomic and

development-policy backgrounds.  IIPF activists, such as Abbas Abdi and

Rajabali Moazrouie, made it clear that they place priority on political

rather than economic reform.  This does not seem to have changed even

after the opening of the Sixth Majles.  The final communiqu・that IIPF

adopted at the conclusion of its first party congress in July, 2000, did

not dwell much on its economic agenda.  It is remarkable that it did not

even mention the need for foreign investment, not to mention call for

its expansion. 

        In this sense, it was surprising that the Sixth Majles invited the

finance and intelligence ministers as well as the Central Bank

president, on August 21, to discuss foreign investment in a closed

session, and that it gave approval to the first reading of a Foreign

Investment Attraction and Protection Bill on August 23.  Although it

still requires approval on one more reading after its individual

articles are scrutinized in the relevant committees, the swiftness with

which the Sixth Majles gave its tentative approval to the bill shows a

marked contrast with the difficulties it has encountered with Press Law

reform.  This does not mean, however, that the efforts to enact the

foreign investment bill in question were a result of the new legislative

initiative of the Six Majles deputies.  In fact, the bill, which is

expected to replace the existing 1956 law, has been worked on by

successive Majleses over the last five years.  This is evident from the

fact that the main backers of the bill are ECP deputies such as Esmaeil

Jabbarzadeh and Ali Hashemi.  While the 1956 law does not cover

investment in the service sector, the new bill is designed to protect

foreign investment in non-governmental sectors as well, and specifically

stipulates that buy-back schemes and Build, Operate and Transfer (BOT)

projects will enjoy the protection of the law (Article 3, Note 1).  

        The Sixth Majles also acted on October 10 to authorize some additional

spending for the fiscal year 1379 (March 2000-March 2001) after 8 to 10

billion dollars in extra revenues were expected to accrue from the

country's oil exports.  This move amounted to a policy change in that

the previously-adopted Third Five-Year Plan had stipulated that any

extra oil revenue would be saved in a special foreign-currency account

for possible future shortfalls in export revenue from depressed oil

prices.  The decision was made as some veteran conservative deputies,

such as Mohammad Baqer Noubakht, opposed to the move.  It can be pointed

out, however, that while acting swiftly, the Majles only indicated that

the money be spent to boost employment, and simply entrusted the

government with devising specific spending measures.

        On November 29, the Majles received from the government the budget bill

for the fiscal year 1380 (March 2001-March 2002).  The budget bill,

prepared by President Khatami's new budget agency head, Mohammad Reza

Aref, proposes 449 trillion rials in total spending-a 24.6 percent

increase from the preceding year-and expects 5.5 percent economic

growth.  How well the reform-backing new Majles will be able to deal

with the government's initiatives will be the next important test of its

effectiveness.

5.      The Conservatives' Resistance

        The conservative faction, which had wrongly expected to win the chief

executive position in the 1997 presidential election, has now even lost

its hold on the Majles-the important legislative body and the key public

forum.  As a result, it has increased its reliance on the judiciary

branch and its operatives as a primary tool of factional politicking and

the means to slow or reverse the process of post-1997 "reform" and

liberalization.  The mass banning of the reformist, and some liberal,

press after the February 2000 elections, has left a tangible effect on

the remaining few newspapers.  The Hayat-e Nou and Bahar dailies, which

began publishing after the popular Sobh-e Emruz and Fath dailies were

banned, showed marked conservatism and caution in publishing their news

items and political columns with an apparent fear of being banned. 

Furthermore, the terror attempt on Saeed Hajjarian's life and the

numerous arrests of famed journalists and editors, including Mashallah

Shamsol-Vaezin, Akbar Ganji, and Emadeddin Baqi, constituted a wholesale

attack on "reformist journalistry." The campaign of apparently

politically-motivated arrests has been extended to the participants of

the April 2000 conference held in Berlin as well as civil-rights and

pro-reformist lawyers such as Shirin Ebadi and Hojjatol-Eslam Mohsen

Rahami.  In the meantime, the trials of those indicted in the Tehran

University Dormitory Aggression case, which started just after the

February 2000 elections, ended in acquittal for the 17 accused,

including Commander Nazari of the Greater Tehran Law Enforcement

Forces.  

        At the same time, the fact remains that the conservative faction

has-since 1997-been unable to garner the required popularity to win in

popular elections.  The conservatives have yet to develop a new strategy

to overcome this predicament.  The apparent partiality of the courts-as

well as that of law enforcement forces and other public institutions

such as the Islamic Republic of Iran Broadcasting (IRIB)-does not seem

to have helped reverse this adverse trend for the conservative faction. 

Against this background, it is notable that Ayatollah Khamenei quietly

dismissed two notorious Revolutionary Guard-seconded  police

commanders-the Law Enforcement Forces (LEF) Chief Commander Lotfian in

June, and Commander Naqdi of the LEF's Counter-Intelligence Bureau in

September, 2000.  This may be construed as a balancing act on the part

of the leader to avoid provoking an outright public backlash against the

conservatives. 

II.     Foreign Economic Relations after the Majles Elections

1.        Expanding Foreign Economic Relations

        As noted above, the pro-Khatami IIPF reformers have proclaimed that

they place priority on political reform over economics to such a degree

that their conservative opponents are increasingly criticizing them for

lacking any economic policy.  At the same time, it is a fact that Iran's

foreign economic relations have expanded greatly since the Khatami

administration came to power in the summer of 1997.  This general trend

continued in 2000 after the February Majles elections (see Table 2).

Table 2: Iran's Foreign Economic Relations Highlights in 2000

January        Saudi Commerce Minister visits Tehran

February       French Economic Mission visits Tehran

March           Italian Foreign Minister visits Tehran

                German Foreign Minister visits Tehran

                US Secretary of State announces partial lifting of trade ban with Iran

May             World Bank authorizes a loan to Iran

June            President Khatami visits China

July            Iranian Finance Minister visits Saudi Arabia

                President Khatami visits Germany

                British Planning Minister visits Tehran

                ENI signs a South Pars gas field development deal with Iran

August          Majles Speaker Karrubi confers with US oil executives in New York

September      Tehran International Trade Fair attracts many Western companies

                Egyptian Privatization Minister visits Tehran

                British Trade Minister visits Tehran

October         German Trade Minister visits Tehran with an Economic Delegation

                Spanish Prime Minister visits Tehran

                President Khatami visits Japan

November       Norwegian Oil Minister visits Iran

Among EU countries, it was Germany that seemed to have steadily expanded

its economic relations with Iran in 2000.  In July, President Khatami

visited Germany, which in turn sent its economic minister with a large

economic delegation to Iran in October during the Tehran International

Trade Fair.  For its part, the UK sent two Cabinet ministers to Iran in

2000.  While the Jewish spy trial in Shiraz which started in May

apparently caused the repeated postponement of the scheduled visit by

Foreign Secretary Cook to Iran, the British planning and trade ministers

separately visited Iran together with their respective economic

delegations.  It is also notable that the UK had voted in favor of a

US$230 million World Bank loan to Iran in May, signaling its eagerness

to compete with other EU states for expanded economic ties with Iran.   

2.        Attracting Foreign Investment: The Pro-Khatami Reformists' Position

While not without exceptions, new foreign investment deals that Iran has

signed in the last several years have mostly been in energy-related

areas.  Among them, the most notable was the contract Iran signed with

Agip (ENI) of Italy for developing Phase 4 & 5 of the South Pars gas

field, which was among the 40-some buy-back investment schemes Iran had

offered in July 1998.  Iran's oil and gas industry has continuously been

under the management of its Oil Ministry and the National Iranian Oil

Company (NIOC) which shares the policy outlook of the Rafsanjani faction

(ECP), a fact that the result of the February Majles elections did not

affect.

Yet the fact remains that Iran's negotiations with potential foreign

investors in these buy-back projects have not resulted in as many actual

contracts as Iran had expected.  It is partly due to the fact that these

buy-back schemes are rather short-term and profit margins are fixed over

the contract years regardless of actual productivity.  While the

international energy companies are looking for better terms, there is

some criticism inside Iran that these buy-back projects have given too

much profit to foreigners.  Facing these conflicting demands, the oil

sub-committee of the Sixth Majles-headed by ECP's Ali Hashemi-reportedly

began reviewing all the existing buy-back projects in November.

As noted above, pro-Khatami IIPF did not spell out its stance on foreign

investment in the communiqu・of its first party congress held after its

election victory.  This does not necessarily mean that these

left-leaning reformers are against expanding economic ties with advanced

industrial countries, or inviting direct foreign investment to Iran. 

One indication of this can be taken from an interview with deputy Majles

speaker, Behzad Nabavi, given to IRMO's Asr-e Ma weekly.  

Speaking after the Majles approved the first reading of the new Foreign

Investment Attraction and Protection Bill, Nabavi clearly stated that

Iran definitely needs foreign capital to develop its resources and also

that foreign investment is beneficial because it would transfer recent

technology to Iran.  About the expressed fear of falling into foreign

domination again through accepting direct investment, Nabavi declared

that post-Revolution Iran has succeeded in establishing a truly

independent political regime which is capable of controlling any foreign

investment within the country.  He also stated that a successful

government is one that could invite foreign investment without losing

any of its independence.  Nabavi further argued that given its location

inside a high-risk region, Iran must provide necessary legal and

institutional arrangements in order to attract foreign investment. 

These comments seem to indicate that the apparent lack of foreign

investment policy among the pro-Khatami-that is, IIPF-IRMO-reformers

does not necessarily point to the existence of any ideologically-based

opposition to foreign investment as such.  Rather, it seems more to do

with apparent neglect and lack of expertise on economic matters as a

whole.

III.    Future Prospects

1.  Domestic Politics

        Iran's domestic politics in early 2001 will be shaped by factional

competition and realignment geared toward the presidential elections to

be held in June.  On another level, it is likely that confrontation will

be further intensified between the courts and other conservative

institutions and groups, on the one hand, and pro-Khatami

activists/politicians and other reform-seeking personalities, on the

other.

        As for the presidential elections, the focus now is whether or not

President Khatami will in fact run for a second term.  In late July,

after the Sixth Majles was convened with a reformist majority and the

first IIPF congress elected his brother, Mohammad Reza Khatami, to its

secretary-general, President Khatami declared that he would nominate

himself as a candidate in the coming elections.  Yet, as we noted above,

the developments since early August, both inside and outside the Majles,

seem to have made the president rethink his initial decision.  Not only

did the Majles stumble with its efforts to reform the Press Law, several

days of violent confrontation erupted in Khorramabad, the capital of

Lorestan Province, when a key pro-Khatami student organization-the Unity

Consolidation Office (Daftar-e Tahkim-e Vahdat)-sought to hold its

annual convention there.  Also increasing conservative criticism of the

popular culture and Islamic guidance minister, Ataollah Mohajerani, led

finally to his apparent resignation in September.  Since mid-October,

several reports have come out to the effect that President Khatami was

expressing deep reservations, and remained undecided, about running for

a second term.

        While still maintaining his high personal popularity among the

citizens, President Khatami has increasingly been unable to even protect

his embattled supporters, much less to advance his socio-political

reform agenda over the last couple of years.  Under these circumstances,

even if he wins a second term in the popular contest, the political

impasse will likely continue into the second term, with serious effects

on underlying popular discontent over continuing factional fighting. 

While most pro-reform politicians and activists, including President

Khatami himself, assert that the process of their reform is

irreversible, continuing failure to achieve a breakthrough in political

reform may well sooner or later "kill" the momentum for change that the

May 1997 elections had created on the political scene as well as among

the citizens.  Given the actual record of his first term, any election

victory for President Khatami this year is unlikely to be as

overwhelming as in 1997.  Short of some dramatic turnabout among his

conservative opponents, the process of political reform in Iran seems to

certainly face an increasingly uphill battle as of now.

2.      Foreign Relations

        A focal point in Iran's foreign relations in 2001 is whether or not Iran

and the US will be able to move toward improved relations.  The arrival

of a new administration in Washington gives the opportunity to review

existing US sanction policy against Iran-especially for those added

after 1995.  A possible thaw and expansion in bilateral US-Iran

relations may well occur in 2001, especially in their economic ties. 

The lifting of the 1995 Executive Orders which banned all US trade with

and investment in Iran would be the key for this change to materialize. 

The initial burden, therefore, will be borne by the new US

administration.

        Although having expanded continuously since 1997, the recent trend in

Iran's foreign economic relations with the EU and other states could be

disrupted if the domestic political situation plunges into further chaos

and insecurity.  Some of the signs in this regard have already appeared

in relation to Iran-Germany ties.  The arrest and the trials of

participants of the April 2000 Berlin conference are threatening again

Iran's relations with its largest trade partner.  The presidential

elections in June will also be of key importance in this matter.  If

President Khatami succeeds in re-establishing his leadership by wining

the election, the favorable trends in Iran's economic relations with

foreign countries will likely continue.  If not, a reversal of the trend

may ensue.