SINCE the 1978 Islamic revolution, an alliance between mosque and bazaar has driven Iran's economy. Market traders, known as ``bazaaris,'' are given preferential treatment in exchange for the religious dues that every devout Iranian pays to an ayatollah. The informal deal ensures that religious leaders retain control of the government of the country.
In late December, however, President Ali Akbar Hashemi Rafsanjani unveiled Refah, a 1,000-discount-store chain with low prices guaranteed by the government. The move is intended to break the hold of bazaar merchants on the economy.
``Our distribution situation dates back to centuries ago,'' announced Mr. Rafsanjani at a Friday prayer sermon in December. ``The leech-like elements standing between production, distribution, and consumption will have to be eliminated.''
Understandably, tradesmen's societies greeted the plan with politely worded venom. They fear widespread bankruptcy and have warned the government not to tread on their turf. Amid their protests is the subtle reminder that the mullahs' rule depends on their mutual cooperation.
Rafsanjani is facing growing popular discontent over food shortages caused by distortions in the economy. Ordinary Iranians blame bazaaris for manipulating prices through hoarding and selective distribution.
Iran's economy remains troubled by legacies of the 1980-88 Iran-Iraq war. A flourishing black market developed, which discouraged domestic production; businesses could make better profits by trade than by production. A complex system of multiple exchange rates allowed traders to import consumer goods with cheap dollars and sell at free-market rates up to 20 times as high.
Rafsanjani removed the official exchange rate in March 1993, but the liberalization proved short-lived. One year later, its reserves under pressure, the central bank reintroduced multiple rates, now arrayed from an official rate of 1,750 rials to the dollar, through a floating market rate of 2,700 to the illegal black market nearer 3,000. Trade remains more profitable than production.
If Rafsanjani goes ahead with the Refah plan, Iranians say he could face the combined wrath of conservative businessmen and mullahs.
Rafsanjani's own position is mixed. He is a bazaar businessman himself. State-owned Iranian newspapers confirm his own family is deeply involved in exploiting local monopolies in the soft-drinks and auto markets. Yet rising prices have become the population's main gripe and a spur to violent unrest in Iran's cities. In 1991, fivefold increases in some urban transport costs sparked street clashes in Tehran, leading to a curb on the lifting of subsidies on basic commodities.
High inflation a threat
Rafsanjani won a second presidential term in May 1993 advocating a reduction in the role of the state through privatization, the liberalization of foreign trade, and an opening to foreign investment. The reforms have led to high inflation, now the main threat to Rafsanjani's government.
Officially, the consumer price index has been rising at about a 22 percent annual rate, but the government's index covers only a narrow range of items. Even Rafsanjani admits that 30 percent annual increments to the minimum wage have not kept pace with real prices. Wholesale price movements, along with the lifting of some subsidies on telecommunications and transport, have contributed to a figure closer to 60 percent.
The president is painfully aware that the price of gasoline is set to double in March - from 7 cents to 14 cents per US gallon. This will boost costs for public transportation as well as for private cars and will not be popular.
The progress of economic reform in Iran was never likely to be an easy one. Officials at Tehran's newly reopened stock exchange say privatization, which Rafsanjani began in 1991, has slowed dramatically since the 1993 presidential election. Tehran's religious authorities, alarmed at the prospect of widespread job-shedding, ordered the government to curb the number of public companies sold off to the private sector. So far, only 18 companies have been sold off on the exchange.
The exchange has tried to broaden its appeal by encouraging new products, including the Islamic republic's first bond - coyly referred to as a convertible bond - to raise a projected 1 trillion rial ($370 million) capital for the Refah stores. Exchange staff say they worked hard to overcome the suspicions of the country's religious hierarchy about a debt-based financial instrument.
Instead, public companies have been sold directly to individual investors, often prominent figures well-connected to the regime. Investors have wrangled favorable terms and easy credit, sometimes with little collateral. Those outside a favored circle allege that many such firms were drastically undervalued; vocal newspapers have accused government ministers of nepotism.