Second Revolution Brews in Iran

The crucial support of the poor and merchants is being undercut by economic reforms

IRAN'S citizens are taking to the streets again. The ''deprived and the oppressed,'' which the 1979 Islamic revolution represented, say they are again the victims of harsh economic reforms.

The April 4 demonstration in a working-class Tehran suburb is starkly reminiscent of the protests during the 1979 revolution, when the US-backed shah was ousted.

The late shah's rush to industrialize was partly responsible for alienating the poor and merchant classes, whose support of the Islamic clerics was crucial to the success of the revolution.

Now President Hashemi Rafsanjani may be facing a similar situation. His campaign of free-market economic reforms -- including efforts to privatize state enterprises, attract foreign investment, and cut government subsidies -- has stalled.

This month's riots, which followed the doubling of fuel prices, were swiftly controlled, but only after violent clashes between the protesters and police that left at least one dead and many others wounded.

The value of the Iranian currency, the rial, has fallen nearly by half in the last few months, while prices for basic commodities and rents have risen sharply.

But most analysts and foreign diplomats do not expect the riots to cause President Rafsanjani to reconsider his World Bank-inspired reforms they say are necessary to improve Iran's credit status and ability to attract foreign investment.

But others say that Rafsanjani cannot ignore the protests of the less privileged. ''Reform policies have many victims.... The paradox here is that the victims are the core supporters of the regime,'' says a political scientist at Tehran University, who requested his name not be used.

A combination of a decline in oil prices, the staggering damage to the economy as a result of Iran's eight-year war with Iraq, and government mismanagement of resources has led to an economic crisis. President Clinton's efforts to ban trade with Iran is expected to further stifle Iran's attempts to gain foreign investment.

Islamic principles support an economy based on private enterprise, but one in which the rich help the poor through a welfare tax. Consequently after the revolution, the government assumed a large role in the economy. The government took over major industries and services and subsidized most staple goods, including education at the country's many universities.

But Rafsanjani is trying to reverse some of those practices. Last October, he cracked down on profiteering by imposing price controls on some consumer goods. This angered the merchants, further weakening the president, who found himself engaged in contradictory policies promoting a free-market economy and government price controls simultaneously.

Rafsanjani is facing strong opposition from the conservative merchants and the lower-income classes. The merchants fear their political and economic dominance will be undercut by his reforms. They wield tremendous influence in the Majlis, the Iranian parliament, enabling them to effect policy changes on their behalf.

The less privileged express their disenchantment through riots, having staged several in the last two years throughout Iran. Angry letters have been published in Tehran's Salam Islamist opposition newspaper. ''What has Islam given to us?'' screams one recent letter.

In January, Rafsanjani attempted to privatize Iran's universities. But students at Tehran University, the bedrock of the 1979 revolution, staged public demonstrations, charging the government with promoting capitalism. In reaction to the protests, the Iranian parliament put a cap on tuition fees.

And Rafsanjani opened the first in a chain of cooperative Rafah (welfare) stores. His plan is eventually to have 1,000 of these stores, selling goods to the underprivileged at government-controlled prices at least 5 percent to 10 percent less than market prices.

Economists say one reason for Rafsanjani's failure to put through his free market policies is the reluctance of the merchants to invest in industrial projects. Largely because of Iran's geographic location -- on big stretches of the ancient Silk Road that once was used to transport goods from China to parts of Asia and Europe -- Iranian merchants are accustomed to making a quick profit and are not interested in long-term investments in industry.

But another problem that Rafsanjani faces is that at least one-third of Iran's wealth is controlled by bunyads -- foundations set up by the Islamic clergy to run businesses confiscated from the shah and his supporters in 1979. The foundations' main function was to distribute the revenues of these companies among the disadvantaged.

''The bunyads do not coordinate much with the government ... they are monopolies on their own,'' says another political scientist from Tehran University, who requested anonymity. The powerful bunyads, some economists say, constitute the economic base for the conservative clerical establishment, and they are only accountable to Ayatollah Ali Khamenei -- the country's religious leader.

Efforts to make the bunyads accountable to the parliament have not been successful despite increasing complaints about their corruption.

But Mahmoud Sareiolghalam, a US-educated international relations professor at Tehran University, says a new upper-middle class of young people -- in their late 20s and early 30s -- is gaining influence in government departments. ''They are a growing class. They need the system. Their expectations are not political, but they expect efficiency in the state.''

But economists and analysts expect popular protests to continue as economic hardships persist. Iranian leaders will be under tremendous pressure to make concessions in other areas, mainly political freedoms, in order for the public to tolerate the sacrifices that Rafsanjani says are needed to salvage the Iranian economy, analysts say.

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