In Iran, clerics' wealth draws ire

Backed by President Khatami, Iran's reform-minded parliament recently scrapped laws exempting the foundations from paying tax. Most observers doubt anything will change. Bonyad bosses, they say, can always fall back on privileged relations with Iran's banks, almost all state owned. "Credit is rationed," explains Mr. Amuzegar, "and it's rarely private business that gets it."

"I've never even bothered trying to get a bank loan," says Ataollah Khazali, owner of a small smelting works outside Tehran. "Perhaps the private banks will be better for people like me, but they're very new and few people trust them."

For now, cash-starved businessmen like Mr. Khazali are obliged to turn for credit to members of the country's bazaari class, strongly pro-regime merchants who double as money lenders.

"Iran lacks liquidity; we do our best to remedy that," one bazaari says. One method, he explains, is the systematic backdating of checks. "Strictly speaking it's illegal, but it enables us to play with money that isn't ours."

This bazaari is a small player, specializing only in copper goods. Others are far more powerful, and with political attachments. The current head of the influential pro-bazaari Coalition of Islamic Associations, Habibollah Asgar-Ouladi, was commerce minister in the 1980s, a position he used to procure lucrative foreign trade contracts for his brother. The family is now estimated to be worth $400 million.

Neither brother is renowned for his reformist sentiments. When Khatami broke his customary cautious reserve to warn against the rise of "religious fascism" in December 1998, Mr. Habibollah publicly reminded him he was "president of the whole nation and not just one group which insults and violates the holy values of the revolution."

"These bazaari are like a mafia, obeying no laws," says one clothes manufacturer, who buys all his fabric from them. "If one of them decides to boycott a company, they all do."

"Fortunately the younger generation is slightly more moderate," adds opposition economist Ali Rashidi.

With Iran's chronic unemployment - officially 12.5 percent but probably closer to 20 percent - exacerbated by the arrival on the job market of 1980s baby boomers, analysts insist only a radical reworking of Iran's crony capitalism can stave off a crisis.

"The regime knows it has no choice but to liberalize," argues Mr. Laylaz. "They may use anti-Western rhetoric as their political trump card, but they can only save themselves by opening up."

But Amuzegar is more pessimistic. "It's not Islamic ideology that's holding the system up; it's the clerics' and bazaaris' hold on the economy," he says. "As long as they survive, so will the system."

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