Iran's President Khatami Prepares to Plow Ahead

Despite first-term setbacks, time is on his side

Some of the thousands of people in the crowd at a Tehran sports stadium had been waiting in the hot afternoon sun for three hours. But when President Mohammed Khatami finally appeared at what was billed as the big rally of his reelection campaign, they cheered him like a rock star. Holding up his hands in his trademark blessing, Khatami returned the greeting. Then he launched into a speech urging restraint. "Avoiding extremes and achieving balance--that is going to be our tactic," he said.

Hardly a rallying cry for democracy in Iran. As Khatami and his followers head toward the June 8 election, they have a wealth of bitter experience to contemplate from the moderate cleric's first term as President. Khatami's supporters figured they could turn Iran into a freewheeling democracy with an Islamic gloss. But conservative clerics struck back by jailing key Khatami supporters and shutting down many of their newspapers. "Khatami's reform policy is finished," says Fariborz Raiss-Dana, an Iranian economist.

But the President's advisers convinced him that the country was better off with him running. An aide says that the families of those in jail played a big role in persuading him to run, pleading that otherwise, the hardship of their relatives would be wasted. "He is tired, but he is not despondent," says Mohammad Ali Abtahi, Khatami's Chief of Cabinet.

Despite the disappointments of his first term, Khatami seems almost certain to easily defeat the nine candidates running against him. And though Khatami may have failed to deliver on expectations of political reform, he has made a huge contribution to reconnecting Iran with the outside world. He has reestablished high-level cooperation on oil policy with the Saudis. Foreign investment has begun streaming into the oil-and-gas sector, and after the election, international oil companies are likely to participate in several big projects. Khatami's reelection will be interpreted as meaning that Iran is pursuing "a stable and discernible course," says an executive of a major European company in Tehran.

STOCK JUMP. It's interesting that despite the wave of repression, the Tehran Stock Exchange provided a total return of 56% last year and 12% more so far this year. The near-tripling of oil prices has given share prices a big boost. But Khatami's honest, calming approach has played a role, too. "In my opinion, things have very much improved," says female stockbroker Maknaz Nobari, between taking calls on her mobile and fixed-line phones on the floor of the exchange.

Subtle shifts in expression are also taking place. Even though newspapers have been closed, for example, incidents such as the beating of Khatami supporters by religious thugs at the Martyrs' cemeteries do get reported, and there is much more open debate about the country's future. Women in fashionable North Tehran are pulling back their scarves to show their hair and wearing sandals to reveal painted toenails. "It is very different from the mullah-dominated Iran of 10 years ago," says one diplomat. Mohammad-Javad A. Larijani, a former Deputy Foreign Minister and academic with conservative ties, says the President has "opened the way for more modernization."

The question is, presuming he is reelected, how will Khatami proceed? Some analysts say Supreme Leader Ali Khamenei, a fence-sitter who has recently leaned to the conservative camp, is increasingly taking the lead as a policymaker, relegating Khatami to a Prime Minister's role of fulfilling his directives.

RESTIVE YOUNG. Yet Khatami and his supporters figure that with Iran's huge population of restive young, and with Net and satellite communications telling Iranians about the outside world, time is on their side. Madjid Emami and Abdollah Fateh, the American-educated founders of Net service provider Pars Online, say that so far, the telecom authority hasn't tried to censor their service. "They realize the Internet is something they can't do without," Fateh says. Meanwhile, young voters will play a crucial role in Khatami's reelection. Women, who make up 60% of university students, are increasingly a force for change. Many already resist the pressure for early marriage.

And Khatami has been quietly trying to win over conservatives. Nasser Hadian-Jazy, a political science professor at Tehran University, thinks there is an opportunity for Khatami and conservatives to agree on a democratic system, since both sides are now reluctant to resort to violence. "Neither side knows what will happen if it tests power," he says.

One area where the parties may be able to find agreement is the economy. Conservatives have always been more in favor of economic liberalization than many leftists in Khatami's camp. Unemployment is already running at 12% to 15%. Without major improvement, the Islamic Republic could face serious discontent or worse.

Parliament recently passed a new foreign-investment law, and Ali Khamenei has spelled out a whole series of economic goals, from the "importance of transparency" to boosting petrochemical production. Still, it would be foolish to bet on vast changes overnight. Things don't work that way in Iran--unless there is a revolution.

By Stanley Reed in Tehran

    Before it's here, it's on the Bloomberg Terminal.