DATE=8/5/98 TYPE=BACKGROUND REPORT NUMBER=5-41084 TITLE=KHATAMI ANNIVERSARY -- P 3: THE ECONOMY BYLINE=ALI JALALI DATELINE=WASHINGTON CONTENT= NOT VOICED: INTRO: ON THE EVE OF HIS INAUGURATION ANNIVERSARY (AUG 3) THIS WEEK, IRANIAN PRESIDENT MOHAMMAD KHATAMI ANNOUNCED THE OUTLINES OF HIS LONG-AWAITED ECONOMIC RECOVERY PLAN. THE PROGRAM CALLS FOR FUNDAMENTAL ECONOMIC REFORMS BUT PROVIDES LITTLE DETAILS. (IN THIS THIRD OF A FOUR-PART SERIES), VOA ALI JALALI LOOKS AT ECONOMIC CHALLENGES FACING IRAN UNDER KHATAMI. TEXT: DECLINING OIL PRICES, HIGH INFLATION AND A LACK OF CAPITAL HAVE REPORTEDLY TAKEN A HEAVY TOLL ON PEOPLE'S LIVING CONDITIONS IN IRAN. IN HIS ASSESSMENT OF THE ECONOMY, PRESIDENT KHATAMI LINKED THE DEEPENING STAGNATION TO THE COUNTRY'S DEPENDENCE ON DECLINING OIL REVENUES, SHORTAGE OF CAPITAL AND BUREAUCRATIC RESTRICTIONS ON INVESTMENT. TO CORRECT THE SITUATION, HE PROPOSED SWEEPING REFORMS, SUCH AS REDUCING GOVERNMENT MONOPOLIES ON GOODS AND SERVICES, ATTRACTING FOREIGN INVESTMENT AND BOOSTING THE NON-OIL INDUSTRY. BUT WESTERN ANALYSTS ANALYSTS DOUBT THAT MR. KHATAMI, A REFORM-MINDED CLERIC, WILL BE ABLE TO GET THE POLITICAL STRENGTH NEEDED TO IMPLEMENT HIS AMBITIOUS PLAN. PROFESSOR YERVAND ABRAHAMIAN OF BARUCH COLLEGE IN NEW YORK CITY SAYS THAT SINCE THE PRESIDENT AND HIS TEAM DO NOT CONTROL THE COUNTRY'S ECONOMY, HIS PROPOSED REFORMS WILL LIKELY HAVE LITTLE EFFECT. // ABRAHAMIAN ACT // ANY IDEAS OF REFORM THEY MAY HAVE, THEIR IMPLEMENTATIONS WILL BE VERY MUCH LIMITED BY THE RESTRICTIONS THEY HAVE AND THEY HAVE TO WORK WITHIN THOSE RESTRICTIONS. THEREFORE, WHATEVER HAPPENS, I DON'T THINK IT COULD BE BLAMED ON THE KHATAMI ADMINISTRATION IF THE ECONOMY DOES NOT DO WELL, BECAUSE BASICALLY THEY DON'T CONTROL THE ECONOMY. // END ACT // CONSERVATIVE FORCES PLAY A KEY ROLE IN THE ECONOMY. THEY ARE IMPORTANT FACTORS IN VIRTUALLY EVERY AREA OF THE COUNTRY'S ECONOMIC ACTIVITY, INCLUDING TAX COLLECTION. THEY ALSO DOMINATE THE PARLIAMENT AS WELL AS THE CUSTOMS SERVICE, AND ARE CLOSELY TIED TO THE TRADITIONAL TRADE COMMUNITY (BAZAAR) FURTHER, THE CONSERVATIVE CLERGY HAS VESTED INTERESTS IN MAINTAINING THE HUGE STATE-AFFILIATED FOUNDATIONS (BONYADS) THAT WERE SET UP AFTER THE 1979 ISLAMIC REVOLUTION. THE BONYADS INCLUDE HUNDREDS OF LARGE NATIONALIZED ENTERPRISES AND MOSTLY REMAIN OUTSIDE ALL REGULATORY CONTROL. THEY ARE CONSIDERED A SOURCE OF CORPORATE POWER AND PERSONAL BENEFIT FOR THE RULING CLERGY WHO RESIST PRIVATIZATION. PROFESSOR SIAMAK SHUJAEI OF MANHATTAN COLLEGE IN NEW YORK CITY SAYS THE CONSERVATIVE FORCES ARE A BASIC OBSTACLE TO ECONOMIC REFORM -- AND RECOVERY. // SHUJAEI ACT // THE MAIN PROBLEM IN IRAN IS THE STRUCTURE OF THE ECONOMY AND THE STRUCTURE OF THE ENTIRE SOCIETY. MR. KHATAMI IS FACED WITH A CONSTITUTION WHICH IS THE ROADBLOCK TO ANY REAL STRUCTURAL REFORM IN IRAN. ON TOP OF THAT, YOU HAVE A VERY STRONG GROUP OF MERCHANTS IN THE BAZAAR WHO ARE DEALING WITH THE IRANIAN ECONOMY AND A NEW GLOBAL ECONOMY IN THE SAME WAY THEY HAVE BEEN DEALING WITH PERHAPS FOR CENTURIES. THEY ARE JUST USED TO HAVING ACCESS TO CHEAP FOREIGN CURRENCY GENERATED BY THE OIL INDUSTRY IMPORTING GOODS AND THEN SELLING (THE GOODS) WITH A MARK UP WHICH ARE SOME TIMES FOUR, FIVE AND EVEN SIX HUNDRED PERCENT. AND THAT IS ONE OF THE MAJOR STRUCTURAL CHALLENGES THAT MR. KHATAMI IS FACED WITH. // END ACT // IRAN'S STRATEGY FOR ECONOMIC RECOVERY HAS BEEN ONE OF THE MOST CONTENTIOUS ISSUES IN THE DEBATE BETWEEN REFORMIST SUPPORTERS OF PRESIDENT KHATAMI AND THE CONSERVATIVE FACTIONS THAT CONTROL MOST OF THE POWER CENTERS IN THE COUNTRY. ACCORDING TO PROFESSOR ABRAHAMIAN, PRESIDENT KHATAMI AND HIS PREDECESSOR (PRESIDENT RAFSANJANI) FAVOR AN INCREASE IN FOREIGN INVESTMENT IN IRAN. // ABRAHAMIAN ACT // I THINK ONE WAY OF IMPROVING THE ECONOMY AT THE PRESENT IS TO TRY AND JUMP-START THE ECONOMY, AND TO DO IT THE EASIEST WAY OBVIOUSLY WOULD BE WITH AN INFLUX OF FOREIGN CAPITAL, AND I THINK THAT'S WHAT THE PREVIOUS ADMINISTRATION OF RAFSANJANI TRIED AND THE PRESENT ADMINISTRATION WOULD LIKE TO DO. I THINK FOREIGN CAPITAL WOULD NOT ONLY HELP THE ECONOMY AT LEAST REVIVE BUT ESPECIALLY IN THE OIL SECTOR CONSIDERABLE AMOUNT OF INVESTMENTS ARE NEEDED JUST TO KEEP THE OIL INDUSTRY GOING. BUT TO GET THE FOREIGN INVESTMENTS BASICALLY, THAT TIES IT INTO FOREIGN POLICY, SO THE ECONOMIC ISSUE CAN'T BE ISOLATED FROM FOREIGN POLICY ISSUES. // END ACT // BUT WESTERN ANALYSTS NOTE THAT TO ATTRACT FOREIGN INVESTMENT IRAN MUST FIRST NEW LAWS TO ENCOURAGE AND ENSURE THE SECURITY OF INVESTMENT. THEY ALSO SAY, IMPROVEMENT OF RELATIONS WITH THE UNITED STATES AND EUROPE ARE OTHER KEY FACTORS IN IRAN'S ECONOMIC RECOVERY. GIVEN THE STRONG OPPOSITION TO REFORMING IRAN'S ECONOMY, WESTERN ANALYSTS DON'T EXPECT DRAMATIC CHANGES IN THE SITUATION -- AT LEAST UNTIL THE NEXT PARLIAMENTARY ELECTIONS IN ABOUT 18 MONTHS. (SIGNED) NEB/AJ/KL NEB/AJ/KL 05-Aug-98 1:53 PM EDT (1753 UTC) NNNN Source: Voice of America .
