In the next Iranian election in June former president Khatami will likely run as a candidate against the current president Ahmadinejad. The 'western' view on the differences between these two men is clouded as it is looking solely at Iran's nuclear project or its rhetoric against U.S. imperialism and Israeli zionism.
The Iranian president is simply not the one deciding about those issues. That is the prerogative of the supreme leader Khamenei and the power structures around him. (For a deeper description of the power structure and his personality this portrait – Reading Khamenei: The World View of Iran's Most Powerful Leader (pdf) may be helpful.)
But the Iranian president can direct interior and economic policies in Iran. So unless distracted by some 'shiny object' conflict the voters will naturally look at those policies to decide whom to give their votes.
I asked Moon of Alabama commentator Parviz, who is an Iranian and lives in Iran, to explain the differences between Khatami and Ahmadinejad in economic policies. Here is his response.
The Iranian Election
by Parviz
If ex-President Khatemi decides to run (which is highly probable now that his pragmatist rival Moussavi has withdrawn) he will almost certainly win the election on June 12th with about 65% of the popular vote, which is less than his astonishing 80% vote in both 1997 and 2001 but nonetheless sufficient to prevent the need for a run-off a week later.
The above prognosis assumes that the U.S. and Israel will keep very, very quiet and not take any dramatic measures to affect the outcome: Ironically, if the U.S. were to make substantial concessions to Iran during the next few months it would merely legitimize Ahmadinejad’s hardline policies of the past 4 years, while if the U.S. were to exhibit increased hostility it would scare the regime into putting its full weight behind Ahmadinejad and possibly even ‘fixing’ the election results in his favor. So any interference of any kind by the U.S., whether positive or negative, will torpedo Khatemi’s election efforts.
Khatemi’s renewed popularity is partly by default, meaning that most of the population is fed up with Ahmadinejad; and partly by design, meaning that Iranians have now come to appreciate the solid economic, social and diplomatic gains achieved during Khatemi’s 8-year presidency. When Khatemi was elected in 1997 Iran had near-zero growth, a massive short-term debt of $30 billion and only $10 billion annual oil revenues. Non-oil export revenues were a mere $1 billion. 8 years later GDP growth had risen to above 6%, Iran had become a net international creditor to the tune of $30 billion and had repaid its entire foreign debt. True, oil had risen from below $10/bbl in 1998 to around $30/bbl when Ahmadinejad was (s)elected in 2005, but the real reasons behind Khatemi’s success were the solid economic reforms he introduced, whose main features were:
- Slashing of the top income tax and corporate tax rates from 55% to 35%.
- Ratification in 2002 of the first Foreign Investment Law in Iran’s history, guaranteeing foreign corporations the right to own up to 100% of domestic companies and to repatriate not just the principal investment but all profits, including property appreciation, copyright, goodwill and other value added assets. This boosted foreign direct investment (FDI) from a 20-year annual average of $25 million to a whopping $2 billion in 2003 alone.
- Establishment of the Oil Stabilization Fund which in 2005 had reached $40 billion, to provide a cushion against falling oil prices. The Fund was plundered by the Ahmadinejad administration to pay current budget expenses despite massive windfall forex revenues of $100 billion in 2008 and is now close to zero.
- Establishment of the first private banks in Iran’s post-Revolutionary history, which within their first 2 years of operation constituted 6% of total banking turnover and which, equally significantly, placed pressure on the state banks to modernize and reform.
- Massive investment in the non-oil sector, thereby increasing non-oil forex revenues from petrochemicals, agriculture, manufacturing and the service industry (including income from overseas engineering contracts) from just $1 billion in 1998 to $15 billion in 2005.
- Issued the first ever sovereign bond (EUR 500m) in 2002, yielding 8.5%, which was so successfully received that it issued a 2nd bond of EUR 450m just a few months later at a substantially lower yield.
The results of the above economic reforms was that the Iranian Rial strengthened 25% against the U.S. Dollar from 1997 – 2005, inflation was kept at a manageable 13%, Iran’s OECD Investment Risk rating was upgraded from 5 to 4 (with Fitch upgrading to B+) and the Silent Confirmation fee on Letters of Credit dropped from 8% to just 1.5% p.a., dramatically lowering Iran’s import costs (The a/m fee is now 14% p.a., which is what foreign banks charge to ‘guarantee’ payment of Iranian L/Cs to their domestic exporters).
The above summarizes merely Khatemi’s economic reforms. Barflies know what Khatemi achieved politically and culturally from the many posts on this subject, all of which have since been reversed by Ahmadinejad. Even the incumbent’s popularity in the provinces, generated by flooding rural areas with cash and hand-outs, has been tempered by the realization that inflation has risen from 15% to 50%, unemployment has doubled to 25% and corruption has reached unprecedented levels. Drug addiction and prostitution are among the highest levels anywhere on the globe, yet another indictment of the ‘Islamic’ Republic.
Khatemi is now very much appreciated in retrospect, which is why many Iranians disappointed that Khatemi did not change the Islamic system completely now realize that his achievements in the highly restrictive circumstances have been underestimated, and that hostility and pressure by the U.S. in the aftermath of 9/11 (for which Iran was blameless) limited his ability to achieve even more.
Undoubtedly the Islamic Republic is a 7th century anachronism that hinders Iran’s economic, social and political progress, but if the choice is between Ahmadinejad and Khatemi the populace will choose the lesser of two evils.