Foreign Investment Debate Heats Up

By Azam Gorgin/Charles Recknagel

Iran's conservative-dominated Guardian Council this month struck down a bill from the reformist-led parliament to loosen restrictions on foreign investment. The rejection sets the stage for a renewed battle over the direction of Iran's economy, which is struggling with high unemployment and -- many critics say -- needs foreign capital to recover. RFE/RL correspondent Azam Gorgin looks at the confrontation.

Prague, 22 June 2001 (RFE/RL) -- A conflict over the direction of Iran's troubled economy began last month (May 16), when the country's reformist-led parliament passed a new bill to attract and protect foreign investment.

The new bill would streamline procedures for foreign investors, confirm the legality of foreign ownership of more than 49 percent in joint ventures, and give more favorable terms for repatriating capital and profits. The bill was intended to replace a current law which dates back to 1956.

The bill was seen by parliamentarians as a way in which Iran -- like many countries with struggling economies -- could benefit from foreign investment to create jobs. Under its five-year development plan up to 2005, Iran is seeking an annual 7-percent rise in investment to create 800,000 jobs a year for its booming population.

But the Guardian Council, which oversees legislation for adherence to the values of the Islamic Revolution, rejected the bill on its first presentation.

Iranian media carried a letter signed by the secretary of the Guardian Council, Ayatollah Ahmad Jannati, stating the body's rejection of the bill. He wrote: "implementation of the Majles-approved bill would jeopardize the country's independence and territorial integrity and could lead to its infiltration by foreign investors and eventual domination of the country's economy."

He added that the bill will also mean that "preference will be given to Iranians residing abroad and will lead to unjust discrimination."

By rejecting the bill, the Guardian Council opened a new battle with the parliamentarians in which it appealed to patriotic elements, such as independence and territorial integrity, to hold off efforts to change the Islamic Republic's economy.

Parliament is expected to now make some minor adjustments to the bill before resending it to the Guardian Council. If it is rejected a second time, the matter will be referred to an Expediency Council, which rules in disputes between the two bodies.

The Expediency Council assembles at the call of Iran's Supreme Leader, Ayatollah Ali Khamenei, in instances when the Guardian Council is presented with legislation from parliament which opposes or falls outside the realm of the constitution or religious injunctions. The Expediency Council is formed of members chosen by the supreme leader and its rulings, which must be approved by Khamenei, are final.

A member of parliament told RFE/RL's Persian Service correspondent Fereydoun Zarnegar that he expects the Guardian Council to reject the bill on second presentation. But Mohammad Shahi-Arablou says he feels the bill is likely to be endorsed by the Expediency Council:

"My perception is that the parliament and Guardian Council will not concur. The parliament has to insist on its suggestions so that this bill is referred to the Expediency Council. There are some experts in the Expediency Council who will take the financial situation of the country into account and will approve the bill."

Shahi-Arablou says that this is not the first time for the Guardian Council to disagree with a bill, and it will not be the last time. But he says the Majles is not obligated to concur with the Guardian Council:

"The Guardian Council has the power to veto, but the parliament is not obliged to agree with the Guardian Council's opinion at all times." Shahi-Arablou, who is a conservative, says that most conservative parliament members share the political values of the Guardian Council -- but not in the case of the foreign investment bill. He says that foreign investment will not create a problem for the country and is necessary for the growth of the economy:

"In the parliament, we don't act in factions when introducing or endorsing a bill. The [parliament deputies] voice their opinions. I know a lot of [deputies] in the minority faction who are of the same political opinion as the Guardian Council, but disagree on this issue." As the debate is now set to continue between the parliament and the Guardian Council, many economists in Iran say they would welcome greater foreign investment.

Economist Fariborz Raies-Daana, speaking from Tehran, told RFE/RL that every country needs outside capital to develop. But he says Iran must be cautious in opening its economy to prevent possible exploitation:

"Everyone needs [foreign investment], even the U.S. But from an economist's point of view, it is not a good idea to blindly accept any foreign investor who comes here. We should not necessarily think that all foreign investment brings technical development and creates capital and employment, or leads to economic growth."

Supporters of the foreign investment bill are encouraged by the fact that the Expediency Council has previously approved of laws allowing private banking and the establishment of free trade zones after their rejection by the Guardian Council.