Iran comes in from the cold

Rouhani’s first months in power see focus on economy and international relations

So far, so good. Few would have expected the early months of Hassan Rouhani’s presidency to go so well. World powers including the United States have, at least for now, abandoned the United Nations Security Council requirement for Iran to suspend all uranium enrichment — allowing Rouhani to claim they have recognized Iran’s ‘right’ to a nuclear program. Talk has resumed of a negotiated solution in Syria.

At the same time the president has promised that, regardless of any easing in sanctions, better economic management and tighter fiscal discipline will lead by March 2015 to renewed growth (GDP fell 5.8 percent in the year ending March 2013) and reduced inflation, from 40 percent to 24 percent. Should sanctions be lifted beyond the six months of November’s interim Geneva agreement then the economy will pick up faster.

In his first draft budget, announced last month, Rouhani seeks to balance the books by reducing government spending. Ministers have looked long and hard at a costly $1.5 billion-per-month legacy from Mahmoud Ahmadinejad; the cash payments to Iranians that have become near-universal benefits, although they were supposed to target poorer people and cushion them against the phasing out of subsidies on everyday items like bread and gasoline. This is sensitive ground, partly because of politics and public perception, and partly because any cutbacks could undermine growth. There are no easy options given what the president described as “so much recession and inflation together” (aka stagflation).

Rouhani’s strategy is simple and with a mandate from June’s election, and the blessing of Supreme Leader Ayatollah Ali Khamenei, he is well placed to carry it through. When I recently asked Paul von Maltzahn, Germany’s former Ambassador to Iran, to characterize Rouhani, he chose the word “determined” to describe the man he remembers leading negotiators in Iran’s 2003-05 nuclear talks with the Europeans. Rouhani’s clearest exposition of his intentions came in a 110 minute television interview in November marking 100 days in office. The president stressed the importance of “informing” the people and of “sharing” problems with them. Such honesty conveniently involves criticism of the previous administration. “You cannot fight the world with slogans,” Rouhani told viewers.

The Ahmadinejad government had been “the richest [ever] in terms of foreign exchange, oil and non-oil revenues” with an “unprecedented” $600 billion in oil revenue in its eight years. And yet Rouhani found state coffers so empty that he had to borrow from the central bank and delay capital projects to pay public sector salaries. Shaming Ahmadinejad is not an end in itself. Rouhani wants to build public and parliamentary support and thereby reduce leeway for critics, including over the nuclear issue. He is preparing parliament and the public for tough and controversial decisions. He knows that vested groups, including the Islamic Revolutionary Guard Corps, will try to defend their economic interests if challenged. On the nuclear issue, Rouhani has stressed he will defend the “rights” belonging to the people while following the “framework” set by the leader. He has insisted uranium enrichment within Iran is a “red line” — a stance compatible with accepting suspension of enrichment to 20 percent (for medical and other purposes), more intrusive international inspections and even limits on lower-level enrichment (under 5 percent) for power generation.

On the reformist agenda, Rouhani has pledged vaguely to end state “interference in culture,” something over which Ayatollah Khamenei has already expressed qualms. The government will be cautious in easing controls on the media and universities. Early release is unlikely for imprisoned opposition ‘Green Movement’ leaders Mir-Hossein Mousavi and Mehdi Karroubi, although the conditions of their house arrest have improved.

For now, critics are muted. Reformists are still relieved at Ahmadinejad’s replacement with a pragmatist who has brought centrists and reformists into government. They are delighted with the diplomatic initiative with the West.

On the other side, ‘principle-ists’ or fundamentalists may have stopped licking their wounds after Rouhani crushed their candidates in June. But they are restrained in venting their dislike of talks with the US or their contempt for the urbane style of the US educated foreign minister, Mohammad Javad Zarif. The reason is simple. Principle-ists believe almost by definition in vilayat-e faqih (rule of the jurist) and Ayatollah Khamenei has made clear Rouhani’s negotiators have his support.

Gareth Smyth has reported from around the Middle East for nearly two decades and is the former Financial Times correspondent in Tehran

Gareth Smyth has reported from around the Middle East for more than two decades and is the former Financial Times correspondent in Tehran.

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