By Peter Kiernan.

A difficult year looms for President Khatami. Rising political tension between government factions and a weakening economy are serving to frustrate the implementation of his reformist policies. But, for the time being at least, Khatami continues to have the support of the majority of Iranians, and this could be the decisive factor that will allow the President's reform programme to prevail.

Elected in an upset poll in 1997, Khatami's platform focussed on confirming the rule of law, allowing greater political expression, relaxation of social restrictions and improving Iran's regional and international standing. Indeed some concrete reforms have been made, including the loosening of controls over media and entertainment which has allowed a wider range of newspapers, periodicals, music, books and films to become available. The establishment of professional, cultural and some political groups has also been approved, while the role of local militias in enforcing Islamic codes has been transferred to regular police units, ensuring less harassment in the streets. Furthermore, Khatami has appointed a woman, Dr. Masoomeh Ebtekar, as Vice President for the environment, and relations with Arab states and EU countries has improved.

While these reforms are regarded as modest by many of Khatami's supporters, they have been disturbing enough to the regime's anti-reform elements to launch a series of counter-offensives designed to weaken Khatami's authority and intimidate his supporters.

Iran's complex political structure prevents any one figure from controlling all the organs of government. The Iranian parliament (majlis), security forces and judiciary are controlled by the regime's establishment, as are two other powerful bodies of the regime, the Guardian Council and the Assembly of Experts. The country's supreme leader, Ayatollah Ali Khamanei, has conservative leanings however so far he has avoided a direct confrontation with Khatami. Both figures are committed to Iran's Islamic framework, and often disputes on issues are mediated by the high level Expediency Council, chaired by the former President, Rafsanjani. Khatami has re-iterated his support for the concept of velayatefaqih (an Islamic vice-regent, a position held by Khamanei) while Khamanei has stopped short of directly challenging Khatami's position.

However Khatami's supporters, even in high places, have not been so lucky.

Vice President, Abdollah Nuri, (who was impeached as Interior Minister by the majlis) and a ministerial colleague, Abdollah Mohajerani, were physically attacked by hard-liners at a public procession held in honour of Iran's war dead. Another supporter of Khatami, Teheran's popular mayor, Gholam Karbaschi, was put on trial for corruption charges in a move widely seen as politically motivated. He faces two years gaol and a ban from holding executive office for five years.

The October 1998 elections for the 86 member Assembly of Experts, a constitutional body empowered with the responsibility of appointing and dismissing the supreme leader, resulted in a majority for the conservatives, largely because reformers were prevented from running. The Guardian Council, a body that also screens candidates for majlis and presidential elections, guaranteed an anti-Khatami majority by doing this. As a result calls for a boycott didn't go unheeded, and the voter turnout was only 45 per cent, much lower than the 80 per cent turnout for the poll which elected Khatami in 1997. Although moderates won only 13 positions, the low turnout made the conservative victory rather hollow.

Despite the relaxed controls on print media many pro-Khatami political newspapers have been suspended from publication or temporarily closed down by the 'revolutionary courts' for 'security' reasons.

A more disturbing trend in late 1998 has been the murder of Iranian dissidents and journalists. The dissident Dariush Foruhar and his wife were killed in their home, while four writers have been murdered and another is still missing. The recent killings outraged Khatami, who described the murders as 'disgusting crimes' to a group of Teheran University students. He also promised that anyone violating the law would receive the maximum penalty. Khatami's speech was attacked by some powerful conservatives, and one senior figure called on him to rule for the whole nation, not just for a group of people who abuse our divine values.

To consolidate the momentum for reform supporters of Khatami have formed a new political party, the Islamic Iran Participation Front. Its members boast some 100 senior political and cultural figures, including one vice president, four ministers and seven deputy ministers. It aims to consolidate support for Khatami's policy priorities, including civil participation, social justice and guaranteeing freedoms in accordance with the constitution and rule of law.

This party is likely to contest the Islamic Republic's first council elections on 26 February. Approximately 200,000 representatives will be elected across the country - who will in turn propose mayors for appointment by either provincial governors or the interior ministry. Despite attempts by the majlis to establish a screening process to weed out Khatami supporters, there is a good chance the candidate lists will not be stacked with hard-liners as the interior ministry, which is conducting the poll, is controlled by the moderate faction. This election will be the next test of real strength for both sides.

Furthermore, the next majlis elections will be held in March 2000, and this is also of immense strategic importance. It is feasible that the support for Khatami in the presidential poll will be replicated in the majlis elections if current general opinion lasts throughout 1999, however candidates for this poll must be approved by the Guardian Council, which may try the same tactic it used in the Assembly of Experts election. The paradox is that moves to stymie Khatami's reforms by the conservatives only serve to increase his support, however it simultaneously makes the supporters of reform more powerless. In the longer term, however, the increasing pressure for constitutional (as opposed to arbitrary) rule has gained momentum with Khatami's victory, and a larger share of Iran's voting population consisting of people born after the revolution means reform will become more a question of when, and less a question of if.

Much of the focus on Khatami's performance has been on political change, yet economic growth has been steadily declining in the last two years and the economy faces considerable long term structural problems. Khatami has spoken of the importance of political change that will encourage the acceptance of tough but necessary economic policies. He said that 'if the political rights of people are defended and materialised, they will in turn tolerate hardships' in his budget speech to the majlis in late November.

However some analysts have argued that Khatami's administration lacks direction in economic policy.

If this is true, lack of direction is the last thing that the Iranian economy needs. GDP growth fell to 2.8 per cent in 1997 from 4.8 per cent in 1996, and is estimated to have been negative one per cent in 1998. This declining growth has largely been due to rapidly declining oil prices which have wreaked damage on the Iranian economy. Approximately 80 per cent of Iran's export revenue comes from oil, and revenues have declined 35 per cent from $15.7 billion in 1997 to an estimated $10.2 billion in 1998.

Oil accounts for 36.4 per cent of state revenue, but this is forecast to decline to 22.8 per cent in 1999.

Iran's economy is too reliant on oil revenue, and recently moves have been made to attract foreign investment to boost the non-oil sector. The current budget bill includes a proposal to allow foreign investors to repatriate funds without restrictions, and a recent law protects foreign investments in Iran's free trade zones from any losses incurred by nationalisation or other subsequent legislation. These reforms, though necessary, are overshadowed by immense structural change required to restore Iran's economic health. These include dealing with corruption and inefficient state enterprises and reorienting the administration of government from political patronage to technical expertise.

Khatami is in the unusual position of being a popular figure in an unpopular regime, and currently he is not being blamed for the country's economic woes. It is uncertain how long this goodwill can last if the economy continues to worsen, and if both political and economic change are stifled disillusionment will set in.