Iran Reaches for Foreign Capital

Nation seeks closer ties with Europe and US in effort to get funds for reconstruction

IRAN, whose 1979 Islamic Revolution alienated most of the world, is stepping out of political and economic isolation. Tehran's move to restore ties with Arab neighbors, European countries, and even the Great Satan (the revolutionary label for the United States) is all part of what Iranian President Ali Akbar Hashemi Rafsanjani calls pragmatism. The pragmatism is largely born of Iran's pressing need for international financial help to complete its ambitious reconstruction following the Iran-Iraq war.

Mohsen Noorbakhsh, Iran's minister of economic affairs and finance, told the Monitor that his country suffered $300 billion in damages due to the eight-year war with Iran. ``What you see in Kuwait [destruction] - that was our situation in more than 15 cities,'' he says. ``We have huge costs to pay, and we're counting on every barrel of oil.'' Iran reaped $15 billion in 1990 oil revenues, a level targeted for 1991.

The government plans to invest more than $100 billion over the next few years, $17 billion of which will be borrowed from international sources. A World Bank team now in Tehran is finalizing its first Iran country-report in 15 years. Iran expects to receive project financing from the bank soon.

Minister Noorbakhsh, who studied graduate economics at the University of California at Davis, says foreign investment and assistance is essential for his government to develop Iran's infrastructure. As an example, he cites the port city of Morashmir, population 400,000. ``We need 100,000 homes there, but only 10,000 have been constructed.''

Iran is liberalizing trade, encouraging foreign joint ventures, and may soon allow more than 50 percent foreign ownership in an Iranian firm.

The country's population of 50 million, plus its proximity to the Middle East, Asia, and Europe are very attractive to investors, says Noorbakhsh. ``We have natural resources, trained manpower, and basic industries.''

`Good credit risk'

Already, Austrian, French, German, Italian, and Japanese firms are active in Iranian industry, from petrochemicals to sugar cane production. With practically no debt, Iran is a good credit risk, says the minister.

International investment and foreign borrowing, approved by the Majlis (Iran's parliament) marks a strong departure from the most orthodox interpretation of Islamic fundamentalism, which forbids such foreign reliance.

State socialism that promised Iran's self-sufficiency ``lost credibility with the demise of socialist-Marxist economies in Eastern Europe,'' says Ahmad Ashraf, managing editor of Columbia University's Encyclopedia Iranica.

The recent Gulf war, Professor Ashraf says, ``led to the defeat of radicalism and militancy in the area and the realization that it is silly and impossible to fight US imperialism with hijacking, suicide attacks, and hostage-taking.'' The war also ``hastened and enhanced normalization and modernization of the Iranian elite. The most pragmatist elements, such as the finance minister, the central bank governor, and the president, have all pursued liberalization.''

Masoud Kavoosi, professor of international business at Howard University, says that ``while radical fundamentalism may be on the defensive, we shouldn't underestimate its potential for a vengeful return. President Rafsanjani is trying to bring Islam in line with modernity.''

Iran's leader tried to satisfy radical elements by opposing foreign intervention in the region during the recent Gulf conflict, and he later satisfied the pragmatists and nationalists by not opposing the coalition's efforts to defeat Saddam Hussein, Professor Kavoosi says.

Iran was awarded an unexpected bounty from the recent Gulf war - windfall oil profits; Iraq's restoration to Iran of valuable shipping access to the Gulf in the Shatt al-Arab waterway; the military devastation of Iraq, Iran's foremost military foe; and the probability of participating in Persian Gulf security, alongside Arab Gulf neighbors.

Urgent needs

Despite these gains, Iran's financial strains are increasing. Food, shelter, and social services are lacking for the country's urban poor, who make up ``at least 20 percent of the population,'' Ashraf says. ``The regime tries to do what it can, but its resources are limited.''

Iraqi refugees now in Iran exacerbate shortages by presenting ``huge costs,'' says Noorbakhsh. ``Just feeding them costs $500,000 per day. We don't know how long they are going to stay with us.'' Western help to defray the expenses is marginal, he says. ``At the same time, the US is freezing our assets.''

US State Department officials say restored relations with Tehran and the release of $10 billion-plus Iranian assets frozen in US banks are largely contingent on Iran's efforts to release Western hostages in Lebanon.

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