Wednesday, January 26, 2005

Iran's Prospects Under the 7th Majlis - Kargozaran and the China Model

Iran�s Prospects Under the 7th Majlis: "Iran’s Prospects Under the 7th Majlis

By Jahangir Amuzegar

The following article was written for MEES by Jahangir Amuzegar, a distinguished economist and former member of the IMF Executive Board.

Iran’s recent parliamentary elections have produced strong negative reactions, alarming predictions as well as heightened expectations among opposing political groups. The country’s future domestic policies and its relations with the outside world have now become subject to new speculation. The political sea-change caused by the conservatives’ resounding victory, and the strong possibility of their capturing the presidency next year, have caused anger and disbelief in some quarters, joy and jubilation in others. The disqualified and defeated candidates have denounced the voting process as rigged and flawed, expressed fear about a possible rollback of already relaxed socio-cultural restrictions, voiced despair regarding the fate of recent economic reforms, and cast doubts on closer future cooperation with the EU or a thaw in relations with Washington. The winners and their diehard supporters, in turn, have expressed hopes that the shift in the legislative balance of power might give the new Majlis a golden opportunity to find effective remedies for the country’s economic ills, to stand up to “hegemonic” foreign pressures on national defense and security issues, and to safeguard Islamic and revolutionary principles against “Western cultural onslaught.”

A closer examination of these contrasting sentiments – free from personal feelings, factional prejudices, and partisan interpretation – is thus needed in order to assess their true implications for the future of the Islamic Republic and its policies.

Elections Surprise

The crushing defeat of the liberal camp in the February 2004 elections was fairly predictable. It represented the latest swing of the ideological pendulum to the right in a four-year electoral cycle since the end of the Iran/Iraq war. Matching the opposite shift to the left in 1992 and 2000, the latest elections replicated the 1996 experience when the “leftist” Majlis deputies were routed en masse in favor of a new conservative crew. These to-and-fro motions clearly reflect the electorate’s quadrennial displeasure with their elected representatives over their unfulfilled promises. Such dissatisfactions are regularly shown through boycotting the elections, casting blank or invalid ballots, or shifting to the other side. For example, the 160 conservatives among the 225 deputies reportedly elected in the first round of February 2004 elections closely matched the 210 reformist representatives in the 290-member 6th Majlis. These periodic shifts, however, are not as consequential as they are portrayed in the foreign media. While most deputies are replaced in each pendulum’s swing, the real power in the Majlis rotates among a handful of top leaders with revolutionary credentials.

The largest bloc among this year’s right-wing winners – Abadgaran (developers) of Islamic Iran – represents a loose, last-minute, coalition of center-right candidates allegedly hand-picked by the Supreme Leader’s office and endorsed by the Council of Guardians. The overwhelming majority of these deputies are new faces pre-selected from a list of loyalist rank-and-file – some from military, security and intelligence forces – with limited knowledge of domestic or world affairs, and no legislative or administrative experience. These frequently silent delegates follow the guidance and direction of some 25 or so professional politicians from among the Islamic Republic’s 250-member nomenklatura. Significant policy changes in governance are thus not necessarily commensurate with the overwhelming size of the incoming new deputies, or the shifts in their ideological labels. The immediate reactions to the Majlis elections are thus often emotional, exaggerated and short-lived.

Flawed Election Process

The losers’ complaints about balloting deficiencies and irregularities are not new. Domestic reformers and the self-exiled opposition in Europe and North America have questioned the new Majlis’ legitimacy, and castigated its “undemocratic” nature because some 2,500 election candidates were arbitrarily rejected by the Council of Guardians. There are also allegations of vote rigging and other electioneering misdeeds. While these charges may be valid, they are no different from previous laments. None of the Islamic Republic’s previous six parliamentary elections (including the 6th that was captured by the “reformers”) has been pristinely free, fair, and competitive. All candidates have always had to pass the Guardians Councils’ shifting and capricious litmus tests. Balloting and vote counting, too, have not been always honest or flawless.

Furthermore, of the 210 reformers in the 6th Majlis, only 87 incumbents were rejected by the Council while the rest were free to run. Yet, only a total of 39 reformers – many of them new faces – won seats in the 7th. Still further, three incumbent reformers in the 6th Majlis, including the Speaker who were allowed to run, and chose not to boycott the elections, failed to receive enough votes in the Tehran precinct. More to the point, in the February 2003 municipal elections that were open to all candidates, and totally free from the Guardians Council’s jurisdiction, not a single “reformist” won a seat in the Tehran City Council or those of other major cities. If there is one thing that is apparent from these two last elections, it is that the reformers have pretty much squandered their vast popularity with Iranian voters. Their arrogance, political inexperience, legislative ineptness, and rapid challenges to the Supreme Leader and the clerical hierarchy in the last four years have sealed their fate for now.

New Socio-Cultural Restrictions

Despair over possible reversal of recent socio-cultural freedoms is equally exaggerated. Widespread apprehension about the latest shift of the pendulum to the right causing a revival of strict Islamic morals code ignores the recent demographic, cultural social, and Internet-related forces that have sprung up in Iranian society, and within its restive population. The election of some 40 clerics to the new 7th Majlis, compared to a handful in the 6th, certainly points to a reversal of the declining trend in the last three assemblies. But, it does not make Iran’s theocratic oligarchy any more secure in its anti-democratic impositions. Fully aware of their small constituency of perhaps no more than 15% among the country’s angry and cynical population, having received repeated universal condemnations of human rights violations, and faced with a massive annual brain drain, the conservative leaders of the new Majlis are unlikely to want to impose new social or cultural restrictions. Already, one of Tehran’s top vote getters – a close relative of the Supreme Leader and a leading candidate for the new Majlis speaker – has gone on record as saying that the incoming legislature would leave existing social policy intact, and that “there will be no return to the past.” To be sure, the revengeful judiciary will continue harassment of trouble makers among former reformist deputies. Constant critics of the Supreme Leader and the velayat-e faqih, and advocates of constitutional amendments among journalists, intellectuals and student leaders will also be persecuted in various ways. Some intimidating new political red lines also may be drawn on the sand. But harsh new socio-cultural measures will, in all likelihood, be avoided for practical reasons.

Fate of Economic Reforms

The victorious conservative coalition has no grand vision, no overarching theme, or detailed plans on how to reshape the economy. Its leaders’ brief election campaign slogans did not go beyond such platitudes as ensuring ‘social justice’, ‘reducing the people’s hardships’ and ‘creating new jobs’. Some pseudo-nationalists among new deputies have publicly objected to any reform proposals by the World Bank and the International Monetary Fund, and rejected globalization as an economic objective for the Islamic Republic. Yet, the fulfillment of their campaign pledges requires strict observance of the economic reforms already instituted in the last several years at the suggestion of those two institutions. Unification of the foreign exchange rate, revision of the tax structure, a new legislation for attracting foreign direct investment, legalization of private banking and insurance, reduction of trade regulations, replacement of quotas by tariffs, the anti-money laundering law, and increasing the private sector’s role in the economy – urged by the Bank and the Fund – have now become virtually the third rail of Iranian politics. The chances of their revision remain scant. And even if the tempo of other recommendations for restructuring the economy should be stalled, the reform movement could not be stopped.

At the same time, optimistic prospects for quick reduction of the so-called misery index (a combination of high inflation and high unemployment) by the new Majlis remain doubtful. The 7th Majlis will have to approve President Khatami’s lame duck cabinet, and find a modus operandi to work with them, still for a year or so. Some firebrands among the newly elected majority have called for immediate emergency measures to create jobs for the youth, and even talked about impeachment of current cabinet ministers for neglecting the problem. Yet neither of these actions would be helpful to needed long-term economic reforms. The budget for the year 1383 (2004-05) has already been passed, and after its recent approval by the Council of Guardians and the Expediency Council there is not much left for the new Majlis to tamper with except for finding new sources of revenue to finance expected deficits. In all likelihood, the most immediate and significant piece of legislation before the new assembly might be the 4th Five-Year Development Plan bill that has already been prepared by Khatami’s Management and Plan Organization – in case the current assembly should fail to ratify it in its remaining term. Beyond possible modifications of this bill, the new legislature’s options in restructuring the economy will be fairly limited, beyond the ones in the pipeline.

New External Demarches

Because the Majlis is traditionally subservient to the regime’s top leadership in foreign affairs, the new legislature should not be expected to undertake any initiatives in Iran’s relations with the outside world. Despite the strident voices of some Islamist extremists that Iran should withdraw from the nuclear treaty, or cease any contact with Washington, the assembly should be expected to rubber-stamp any foreign initiative or agreement undertaken by the supreme leadership. In all likelihood, the protracted “constructive engagement” dialogue with the EU will continue without concrete results and without the Majlis’ involvement for some time to come. As long as Iran’s position on weapons of mass destruction, human rights violations, and support for the Palestinian cause remains unchanged, there will be no chances of a breakthrough in these negotiations or relations with the US. However, occasional contacts with Washington within multi-party conferences concerning Afghanistan and Iraq will continue. Some informal inter-parliamentary contacts between the Majlis and the US Congress may also take place. But any formal, open, dialogue between the two countries prior to presidential elections in the US (November 2004) and Iran (June 2005) are out of the question. Washington’s frustrating preoccupations with Iraq, NATO’s deepening involvement in Afghanistan, and Russia’s protracted setback in Chechnya may widen the judiciary’s elbow room to move against political dissidents and human rights activists without fear of serious threat or decisive actions by the West at the instigation of protesting Majlis deputies.

A Case of Mistaken Identity

All the above shows that a good deal of the reactions, trepidations and expectations regarding the election outcome may turn out to be wide of the mark. The main reason for such mass misreading seems to be the exaggerated significance given to the Majlis’ role in Iran’s close-knit theocratic oligarchy. As its name in the Iranian constitution indicates, the Majlis is a consultative rather than a legislative assembly. Majlis statutes lack legal validity without the endorsement of the Guardians Council. Majlis disputes with the Guardians Council will have to be resolved by the Expediency Council – another non-elected body. Whether dominated by reformers or conservatives, every Majlis since the revolution has in reality been the regime’s fifth wheel. The new Majlis will surely have fewer legal quarrels with the Guardians Council as they both will take their cue from the Supreme Leader. And if the conservatives should win the presidency next year, cooperation between the two branches of the government will also be enhanced. But, in terms of independent effectiveness, the new assembly will be no different from the previous ones.

The Outlook

The new conservative majority in the Majlis, as with the outgoing reformist one, is not monolithic. There are significant differences within this camp as well. Struggles for ideological supremacy will now surface among different factions on issues from socio-economic reforms at home to dialogues with Europe and the US. There is already evidence of distinct tensions over the selection of the new Majlis Speaker between the clerical and lay deputies before the start of the first session in June.

Three distinct factions can be identified in the new conservative spectrum – with different agenda on political, economic, social, and foreign relations issues. At the extreme right, there are fundamentalist ideologues who do not believe in any form of democratic governance; embrace a populist economics of state intervention, price controls, and subsidies; adhere to strictest Islamic social and penal codes particularly in relations with women; advocate an aggressive foreign stand against the US and Israel, and take a defiant position on nuclear independence. The second faction – the bazaar-connected traditionalists – allows for a limited “Islamic democracy” controlled by the clergy; prefers a trade-dominated and fully protected economy; tolerates kinder and gentler Islamic codes; and would go along with limited engagements in foreign affairs except in the spheres of commerce and technology. The third faction is made up of center-right pragmatists dominated by a technocratic and professional elite who do not object to some limited political freedoms, are in favor of a privatized market economy, allow for limited relaxations of religious edicts, and support a proactive foreign policy.

This last group seems to have the best chance of dominating the 7th Majlis. Initially known as Kargozaran-e Sazandegi (agents of construction) and now joined by the new Abadgaran-e Iran-e Eslami (developers of an Islamic Iran), it presents itself as the only alternative for dealing with Iran’s current predicaments. Its ideal goal is to make Iran an “Islamic Japan” by adopting the “Chinese model.” Its motto is reform without the reformists. Yet its ambition to turn the Islamic Republic into another Japan through the adoption of a Chinese-style social compact seems to lack the basic understanding of prerequisites for creating such a concoction. Its leaders seem to forget that Japanese economic success is rooted in its well educated, frugal, highly motivated, hard working and disciplined workers; centuries of experience with an industrial culture; an innate talent for using borrowed technology in innovative and creative ways; fairly tranquil management-labor relations; and a workable democratic political system. The Islamic Republic lacks all of this. In fact, no other country in Asia perhaps represents such totally different national characteristics with Japan than does Iran.

The application of the Chinese paradigm is even more farfetched. To begin with, it is the height of irony for a Muslim country that has for the last 25 years promised to come up with a model of piety and prosperity for the entire Islamic world now having to seek its guiding lights from a (godless) communist country! Furthermore, China has so far been able to buy political quiescence in exchange for economic freedoms and material rewards as well as a highly relaxed cultural and social atmosphere. There is freedom of religion, open relations between sexes, and an absence of restrictions on women’s dress, Western music, mixed dancing, drinking alcohol, and other recreational pursuits – the type of things strictly forbidden in Iran. By repressing not only political activities, but also denying socio-cultural freedoms, and failing to provide an equitable distribution of welfare, the Islamic Republic has no trump cards in its hands to appease its awakened youth. Still further, China’s massive annual net trade surplus with the outside world under a highly undervalued currency, an unparallel success in attracting foreign direct investment, and an enviable annual economic growth have practically immunized its government against Western pressures to respect human rights and open up its political system. The Islamic Republic, by contrast, with only a modest annual economic growth based almost totally on the recent oil boom, non-oil exports capable of financing no more than two-to-three months of essential imports, and an overvalued currency presents a totally different case. With double-digit unemployment combined with double-digit inflation and an insufficient volume of domestic savings, Iran desperately needs foreign direct investment, financial credits, and technological assistance from the West to be able to grow at 8-10% a year and create a sufficient number of new jobs. These needs make the theocratic government highly vulnerable to reciprocal Western demands for liberalizing domestic political and social climate.

Finally, apart from selecting any model, any real economic restructuring in Iran faces nearly insurmountable hurdles. Moves to downsize the public sector and reduce the grossly inflated bureaucracy are likely to increase the already high unemployment rate. Reducing the treasury’s reliance on crude oil exports in favor of high domestic taxes goes against the vital interests of the bazaar and the so-called charitable foundations (bonyads) – the backbones of the clerical regime. Privatization of state banks and insurance companies, among others, would face objections from the Guardians Council as such actions would contravene some basic tenets of the Iranian constitution. The establishment of a market-based interest rate structure violates the Reba-free (no fixed interest) banking law. The replacement of the fiscally unaffordable across-the-board subsidies that now gobble up close to 20% of Iran’s GDP in exchange for a rational, means-tested, social safety net goes beyond the government’s administrative capabilities. Greater transparency in the budget and fiscal operations is shunned for state reasons. Fighting corruption, trade smuggling, and the black market is successfully resisted by the entrenched vested interests within the regime itself. The only recommendation by the Bank and the Fund that may actually be carried out with greater diligence would be privatization of the money-losing and capital-intensive state enterprises. With the statist-interventionist deputies in the 6th Majlis now out of the loop, and with looming budget deficits in the midst of record high oil prices, the new legislature may prove more amenable to this venture. But the sale of massive holdings by various bonyads would still be a different story.

In sum, the jubilations over the conservatives’ success in the elections may be short-lived. For one, without effective remedies needed to create jobs for some 800,000 new entrants in the job market every year, or to bring down rising living costs, the leading conservative faction can no longer blame the reformers for neglecting these necessities and wasting the Majlis’ time by deliberations on press freedoms and human rights. They themselves will now have to face a radicalized and angry populace that they can neither satisfy nor cajole. For another, unmet job demands by unemployed college graduates, estimated to run as high as 30%, combined with economic hardships suffered by fixed income groups, and rising house and health care costs for the newly urbanized population are bound to intensify street demonstrations, worker strikes, teachers’ protests, and civil disobedience. The reformers now out of the government will have a field day taking the winners to task at every turn for their failure to abide by their promises. And if politically harassed in intolerable ways, they may go underground with an ominous new threat to the majority. Thus, a combination of economic hardships, social restrictions, and political repression—without the Chinese-style safety valves – may ultimately reduce the conservatives’ electoral win into less than even a Pyrrhic victory."


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