No subject

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

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

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

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

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

Dwindling Friends, Emboldened Adversaries

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

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

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

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

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

The Ideological Poles Harden

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

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

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

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

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

Never one who is outdone, Ahmadinejad traveled last week to Iran's
center for religious orthodoxy, the city of Qom, to declare before a
cheering rally that critics of his handling of the oil windfall were
Western agents.  Everyone knew that he referred to Rafsanjani and
company, who have for years advocated investment rights for global
capital.  Building to the occasion, Ahmadinejad paid a first-ever
official tribute in March to the late national hero Hussein Fatemi in
a well-publicized meeting with the former foreign minister's widow.
Fatemi was executed in a CIA-engineered coup in 1953 for helping take
back control of Iran's oil assets from Britain.  (Just last week, the
year-long trial of a prot=E9g=E9 of Rafsanjani on nuclear espionage
charges ended with acquittal, despite thinly disguised attempts by
Ahmadinejad to implicate him.)

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

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

Rostam Pourzal is a political analyst based in Washington.

--=20
Yoshie
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