The Wall Street Journal-20080129-Politics - Economics- Economy Is Focus of Iran Vote- Downturn Bodes Ill For Ahmadinejad- Allies Turn Critical

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Politics & Economics: Economy Is Focus of Iran Vote; Downturn Bodes Ill For Ahmadinejad; Allies Turn Critical

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TEHRAN, Iran -- It is election season here, too, and the big issue may sound familiar: the economy.

That is bad news for President Mahmoud Ahmadinejad, who came to power in 2005 promising to bring the country's oil wealth to the people. With Iran's economy in a tailspin, many of his onetime allies are criticizing him for failing to deliver. That has weakened his base among the conservatives who dominate the legislature, as the country heads toward parliamentary elections in March.

Iran's opposition reformist parties aren't likely to gain, however. Many reform candidates learned last week they had been disqualified under a vetting system controlled by Iran's conservative establishment. Those disqualifications can be appealed and reversed, but party members don't hold out much hope for election victory.

Still, in the past year, many conservatives have broken ranks with Mr. Ahmadinejad over economic matters. A loss of support in Parliament could make it harder for the president to push through his economic policies. His foreign policy -- notably his determination to pursue a nuclear program despite the threat of sanctions -- still has significant support among conservatives.

In recent weeks, the criticism of Mr. Ahmadinejad's leadership has grown louder. "If we continue like this, going with the [economic] policies of the government -- which I'm not optimistic they will change -- then we are headed toward a critical situation" with regard to the economy, says Mohammad Khoshchehreh, a conservative parliamentarian and onetime Ahmadinejad ally.

Last week, the speaker of Parliament took the unusual step of disclosing a correspondence from Iran's Supreme Leader Ali Khamenei. It rebuked Mr. Ahmadinejad for opposing Parliament-mandated spending on natural gas for remote villages suffering from an unusual cold snap this winter.

The move was seen by some here as a double blow to the president. It was seen as the first public fissure between Mr. Ahmadinejad and Mr. Khamenei, who as supreme leader doesn't choose a president -- the leader of Iran's executive branch is elected by the people -- but can undermine his popularity.

The disclosure of Mr. Khamenei's rebuke was also interpreted as the latest maneuver by conservatives in Parliament to create some space between themselves and the president's unpopular economic policies.

"The conservatives would like to prepare the ground ahead of their own elections, by distancing themselves from Ahmadinejad," says Mohammad Ali Abtahi, a reformist cleric and Iranian vice president under the former president, Mohammad Khatami.

Mr. Abtahi says he doesn't hold out much hope for a reformist comeback in parliamentary elections this year because of the mass disqualifications. But for presidential elections in 2009, where candidates will be much better known and harder to disqualify, he is more hopeful.

In municipal elections in late 2006, Mr. Ahmadinejad's hard-line, religiously inclined conservative base lost ground to more flexible, pragmatic conservatives and reformists. If conservatives aligned against Mr. Ahmadinejad gain seats in March parliamentary elections, it could serve as another rebuke.

"We didn't expect this to happen this soon, and the gap to be so wide," Mr. Abtahi says of Mr. Ahmadinejad's falling popularity.

A former mayor of Tehran, Mr. Ahmadinejad ran on a populist platform, promising to rid Iran of corruption and more equitably distribute the country's vast oil wealth. Since coming to power, oil prices have marched steadily higher, swelling government coffers. That has allowed him to spend lavishly.

He has handed out easy credit for young couples and for housing, and he pushed banks to lower interest rates. Earlier this month, Mr. Ahmadinejad submitted a budget to Parliament calling for spending increases of about 20%. Many economists blame the policies for stoking Iran's high inflation.

Last year, the government introduced gasoline rationing. It was a highly unpopular move but one that looked more politically palatable than jacking up Iran's largely subsidized gasoline prices. Despite being one of the world's largest oil producers, Iran imports a big chunk of its gasoline.

Mr. Ahmadinejad has defended his economic policies, blaming Iran's economic crisis on his political rivals, high global inflation and Iran's dependence on imports. In a Dec. 16 interview on state television, he was quoted as saying he had "extensive plans" to tackle inflation, without detailing them. A government spokesman wasn't available to comment.

For much of his term, Mr. Ahmadinejad has coupled populist economic measures with a fiery foreign policy, asserting Iran's right to pursue what it calls a peaceful nuclear-energy program. Washington and the United Nations have imposed sanctions, claiming the program could be used to develop weapons.

In December, a U.S. intelligence report concluded Iran had ceased its nuclear-weapons program in 2003. That eased worries here about the threat of an American attack and has helped refocus attention on Mr. Ahmadinejad's economic failings. And in recent months, sanctions have started to hurt Iranian businesses, which now find it more difficult to raise finances and conduct international trade. Those higher costs appear to be filtering down to imported items, though economists don't agree how much.

"Suddenly, prices are going up," says Ghasem Sultani, an appliance trader at the vast covered bazaar in central Tehran.