Iran: Established Political Tradition Is Not Broken

It so happened that all the presidents in Iran’s history have served two terms, as allowed by the Constitution. The exceptions were caused by extraordinary events. President Banisadr was toppled, while Mohammad-Ali Rajai was killed in a terrorist attack. Now Hassan Rouhani won his second term. 

Even though Hassan Rouhani and Ebrahim Raisi are not charismatic figures, they represent two opposite trends in the political and economic policy of modern Iran. The main political forces have rallied around them. The main line of attack the conservatives pursued against Rouhani involved the economy, high unemployment, inflation, and the lack of a rapid influx of foreign investment into the country.

Of course, the government can be criticized for failing to resolve the issue of unemployment and corruption in full. The economy remains highly dependent on crude oil exports. The government didn’t always regularly pay compensation for cancelling subsidies on gas, water, electricity or bread.   

Nonetheless, the government managed to do a lot. Primarily, it pulled the country out of crisis and reversed the decline in GDP. Perhaps for the first time in the history of the country, exports of non-oil products exceeded imports in 2016. The country managed to restore its oil production capacity, and the industrial growth rate exceeded total GDP growth, even though many enterprises were unable to fully recover their capacity. 

The fact is that the level of localization in Iranian industry is not high. The industrial enterprises, especially the ones that make products which enjoy high demand, have been using imported parts; and imports, 80 percent of which are mostly semi-finished products for the industry, shrank because of the sanctions on the banks and a decline in foreign exchange earnings in Iran. Time is needed for Iran to resume its production chains. The government has prepared amendments to the tax code which will allow to lessen the dependence of the budget on oil revenue, where the emphasis is made on ending benefits, which are mostly used by Islamic funds and waqfs and raising taxation rates on wealth, but they have not yet been approved by the Majlis. Despite the continuation of US energy sanctions on Iran, foreign investment, including from the West, has started flowing into the country. In 2015, the inflow of foreign direct investment dropped to $2 billion. In 2016, it is estimated to have at least doubled. This is also evidenced by the fact that the volume of accumulated investments increased by more than $3 billion, amounting to $46.1 billion by late December 2016. Based on the signed contracts, Western investments accounted for the greatest increase. Iran's gold and foreign currency reserves grew significantly (by more than $ 20 billion) over the course of 2016. 

Rouhani considers signing the nuclear agreement the main achievement of his government. During the first round of debates, he even accused the IRGC of trying to thwart the agreement, bringing up the anti-Israel slogans written on ballistic missiles during tests in March 2016, i.е. immediately after the JCPOA entered into force. Hassan Rouhani seeks to establish relations with various countries and avoid confrontational alliances. While he actively argues for expanded contacts with the West, Rouhani is equally interested in cooperation with Russia and the EAEC. Such a balanced position does not contradict the interests of the West, Russia or China. The heightened tensions in the election campaign were perhaps largely due to the position of the United States, which, on the eve of the election campaign in Iran, repeatedly called for more sanctions on Iran. Of course, this weakened the supporters of Rouhani’s pragmatic course. 

Rouhani’s victory could preserve the JCPOA and, most importantly, the policy of reducing confrontation between Iran and the international community.


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