The prospect of large-scale privatisation in Iran has pitted hardliners keen to keep the government's grip on the economy against pragmatic conservatives who want to free business from the state's stranglehold.

 

The Expediency Council, Iran's top legislative arbitrator, on Saturday gave the green light to major privatisations, overhauling Article 44 of the constitution that had decreed core infrastructure should remain in the hands of the state. After stripping reformers of their parliamentary majority and isolating the moderate government of President Mohammad Khatami, splits have emerged among Iran's conservatives. Although the pragmatic conservatives looking to revitalise the lumbering state-heavy economy are focusing on commercial goals, analysts say a more alluring environment for foreign investment could catalyse political and cultural reform. The changes to Article 44 drew instant fire from radical hardliners who are inspired by religious seminaries that have resisted foreign infiltration into Iran for more than a century.

 

"We have repeatedly warned about doctoring Article 44 and the negative consequences of entrusting sensitive and vital state bodies to the private sector," the hardline Jomhuri-ye Eslami daily said on Sunday. This breed of hardliner is represented by the most vocal of the hardline lawmakers who took up parliamentary seats in May. They are opposed by pragmatic conservatives, who argue Iran can breathe life into its economy without weakening Islamic values.

 

"I was expecting something like this since Rafsanjani and others in the Expediency Council are more business-minded (than the parliamentarians)," said Albrecht Frischenschlager, a director of Tehran's Atieh Bahar Consulting.

 

Former President Akbar Hashemi Rafsanjani heads the Expediency Council and has reared an influential network of business-minded proteges active throughout the economy.

 

"It is a clear signal to parliament. Most of the leadership, both conservatives and reformists, have been very unhappy about parliament's performance," he added.

 

Iranian parliamentarians have thrown out bills proposed by reformists looking to privatise banks and insurers and lure foreign investors into the needy energy and financial sectors. Radical parliamentarians argued they could make no concessions to the private sector because of Article 44. Pragmatists have now stripped them of this excuse. "This shows that the radicals still lack strongholds within the senior decision-making bodies of the establishment," said economic analyst Saeed Leylaz. The change to Article 44 must now be approved by Supreme Leader Ayatollah Ali Khamenei, Iran's most powerful figure who asked the Expediency Council to make a ruling on the issue.

 

 

TECHNOCRAT CONSERVATIVES

Leylaz said the pragmatist conservatives had formed alliances with the traditional merchant conservatives of the bazaar, also alive to the merits of liberalisation. "Traditionalists and technocrats are allied and have extensive plans for running Iran the morning they land on the president's seat next August, as they think they will," he said. The reformist Khatami cannot stand again in mid-2005 polls.

 

Downstream oil and gas, mines, banking, insurance, telecommunications, railways, roads, airlines and shipping can all now be privatised in Iran, which holds the world's second largest reserves of crude oil and natural gas. Many view Iran as a slumbering giant, with massive resources and an educated workforce held back by outdated laws. Major sectors such as shipping and car-making have outpaced the weak domestic banking structure and are seeking European bank loans and eurobond issues. "The political impact could be huge, once you leave things to the private sector, you lose control, " said one Iranian political analyst, who declined to be named. "Central government will lose its grip on society and politics. The people will not have to depend on them for everything," he added. "There will be an opening up to foreign investment and ultimately culture."

 

Iran's parliamentarians have opposed foreign investment, trying to bar Turkey's Turkcell from running a mobile telephone network and accusing Anglo-Dutch oil giant Shell of excessive cultural influence. A starker warning to foreign investors came as Revolutionary Guards took over Tehran's new airport the day it was due to open in May after Turkish company TAV spent millions of dollars building it and hoped to recoup its money by running it. But though these high-profile names have proved alluring targets for hardline attacks, many middle-sized foreign contractors have found rich pickings in Iran, in power stations, mining and the petrochemicals' port of Assaluyeh.

 

(Additional reporting by Paul Hughes and Amir Paivar in Tehran)