BusinessWeek

By Stanley Reed in London and Haleh Anvari in Teheran; Edited by Rose Brady
17th September 2001

Will Iran's Mullahs overplay their hands?

There is an old saying in Iran that once you let a mullah ride your donkey, it is very hard to get him off. In the same vein, Iranians, who voted overwhelmingly for reform President Mohammad Khatami in last June's elections, are having a terrible time shaking off the influence of hard-line religious conservatives.

While Khatami won about 70% of the vote, hard-line clerics, who didn't even put up a candidate, have been acting as if they were the winners. In August, they managed temporarily to hold up Khatami's inauguration. They have also taken to staging public floggings in parks and on traffic islands in Teheran to punish drunkenness and fraternization between unmarried men and women. Their aim is to remind Khatami, as he forms his new government, that the conservatives still have clout. Although they have lost control of the executive branch and the Parliament, this group of clerics, led by judiciary chief Mohammad Hashemi Shahroudi and Ayatollah Ahmad Janati, retains control over law enforcement. It dominates the Council of Guardians, a body that has sweeping powers of review. In the past, conservatives have also enjoyed a great deal of success in convincing Supreme Leader Ali Khamenei that Khatami's program is largely about ''sex, drugs, and rock 'n' roll,'' as one Iranian political scientist puts it. In his first term, which began in 1997, Khatami did a poor job of managing Khamenei, who is potentially the most powerful figure in Iran's hydra-headed political system. SUBTLE GAME. Along with disappointing many Iranians, the recent backlash could damage hopes for improving the country's struggling economy, which badly needs outside capital and knowhow. The infighting can't help but sow doubt in the minds of both Iranian and foreign investors, who had hoped that the political jousting would lessen after the June vote. ''I am sure that a lot of foreign companies are reassessing political risk in Iran,'' says Bijan Khajehpour, managing director of Atieh Bahar Consulting in Tehran.

In response, Khatami and the reformers have to play a subtle game. They are rolling with the punches, hoping that the hard-liners will overplay their hand. The more the mullahs use their control of the judiciary to enforce their positions on social issues, the more unpopular they become with the public. Hard-liners ''are making a clear stand now -- and this has costs,'' says Abbas Abdi, a left-wing journalist.

Meanwhile, Khatami is working out a modus vivendi with the Supreme Leader, who, despite his conservative instincts, realizes that the clerics' obstructionism could eventually backfire. Khatami has learned to proceed cautiously. He hasn't put any controversial reformers in his new Cabinet, for example. That's in contrast to his first term, when outspoken Interior Minister Abdullah Nouri landed in jail and other key aides were forced out. ''MORE PROFESSIONAL.'' Even so, Khatami may now have the personnel he needs to push through reforms such as privatization and devolving more power to local governments. His new Finance Minister, Tahmasab Mazaheri, an ex-presidential adviser, can only be an improvement on his predecessor, Hossein Namazi, a 1960s-style Third World socialist. ''This is a more professional Cabinet,'' says Saiid Laylaz, a prominent Teheran economist. Khatami has cut a deal with conservatives to open the country more to investment.

Still, hard-liners will not yield their power easily, even though their rule has left Iran impoverished and lagging behind much of the world in many fields. Khatami holds out hope of beneficial change, but it's going to be tough for him to deliver.

© 2003 All Rights Reserved. Atieh Bahar Consulting.