MARKET DISCIPLINE:

Iran fears capital flight after ultra-conservative victory (Iran Focus, 26 Jun 2005)

Iran’s financial markets reacted negatively to the election of ultra-conservative Mahmoud Ahmadinejad as President, raising fears of capital flight and massive sell-off.

“We have faced a lot of uncertainty in the past few weeks”, Hossein Abdoh-Tabrizi, chairman of the Tehran Stock Exchange (TSE), said in a telephone interview. “The markets have reacted negatively, but we hope this is going to be a temporary phenomenon”.

The TSE index lost a record 126 points on Saturday in reaction to news of Ahmadinejad’s victory.

“The recent instability in the capital market is due to psychological factors”, Haidar Mostakhdemin Hosseini, Iran’s deputy Minister of Economy and Finance, said on Saturday.

Ahmadinejad sent shockwaves among investors when he said in a speech, “Stock market activities count as a form of gambling, and Islam has banned gambling”.

Harsh attacks by Ahmadinejad and his close allies on free-market economy, campaign speeches filled with references to “bloodsucking entrepreneurs” and “daylight robbery by profiteers”, and promises of a more ideological approach to foreign investment and relations with the West have frightened the indigenous business community and the dwindling ranks of foreign investors.

Which is why there's no alternative to liberalization.

MORE:
Iran fears for future as hardline Islamic president takes over: Vote winner is hailed as a champion of the poor by some, but others feel uneasy (Robert Tait, 6/26/05, Sunday Herald)

“Ahmadinejad’s vote comes from two sections of the electorate,” said one Tehran-based analyst. “The first are the genuine hardcore religious voters who rallied behind him when they realised certain people were supporting him in the revolutionary guards. That mobilised hardcore comes partially from the basij and partly from the guards.

“The second part belonged to the forces of tradition, people who have difficulties coping with changes in society. They feel economically impoverished and want somebody to speak their language. They want somebody who appears modest and honest. Many voters didn’t know about Ahmadinejad’s political affiliation. They don’t care about that. They want someone who isn’t flashy and doesn’t spend much money.”

Ahmadinejad tapped into that second group by promising to tackle unemployment – estimated at around 25% – and to redistribute oil wealth, the most prized national asset.

Many voters voiced admiration for his ascetic style, citing his modest house and car. As mayor of Tehran, Ahmadinejad burnished his populist reputation by donning overalls and helping sweep the streets. [...]

Of more immediate concern to secular-minded, affluent Iranians will be his attitude to the modest, hard-won social freedoms granted by the outgoing reformist incumbent, president Mohammed Khatami.

Concerns were being voiced yesterday that Ahmadinejad’s presidency would herald a crackdown on a range of social activities, from mingling of the sexes to women’s dress code.

“I voted for Rafsanjani because I think Ahmadinejad will take our freedom away,” said 19-year-old Ali, a voter in the south Tehran district of Naziabad, an Ahmadinejad stronghold. “This system is terroristic. They have put women under pressure and don’t let us drink alcohol.”

Before Friday’s poll, Rafsanjani aides pointed to an Ahmadinejad statement describing the all-encompassing black chador as the official mode of dress for women.

He represents an Islamic radicalism that wants to take us backward,” said Amir Mohseni, deputy head of Rafsanjani’s campaign in Tehran province.

As mayor of Tehran, Ahmadinejad strictly enforced the Islamic dress code that forbids male municipal employees from wearing short-sleeved shirts, and made lifts gender segregated. There are also fears that, with the new president in control of the culture and guidance ministry, mass closures of liberal-minded newspapers and a crackdown on other artistic activities, such as public concerts, will ensue.

Last week, Ahmadinejad’s handlers attempted to neutralise such fears, insisting there would be no clampdown on private behaviour.

“We will never stop or prevent any movement which has taken Iran forward and we will never move back,” his media spokesman, Dr Nader Shariatmadari, on being asked about the possibility of reversing Khatami’s reforms: “We respect people’s freedoms in the political, cultural and social realms within the framework of the law.

“But we will try to pay more attention to those needs that have been forgotten, for example, the youth. We believe that the young people deeply believe in Islam. According to our beliefs, regulations and laws, people’s private behaviour, as long as it does not harm others, is acceptable.”

Rather than a return to the militant Islam of the revolution’s early days, Ahmadinejad’s team is promising a renewed emphasis on economic disparities and the corruption many see as endemic in Iran. “The main and essential demands of people lie in the economic framework,” added Shariatmadari. “We have problems with unemployment, inflation and social discrimination. A gap has emerged between the social classes which is concerning and we have to find a solution. People feel that opportunities and privileges are not fairly accessible. Those holding management positions get better and easier access to all kinds of opportunities.”

Sadly for the mullahs, there is no Islamicist way to grow an economy.

Posted by Orrin Judd at June 26, 2005 11:03 AM