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Rouhani moves to leverage unrest to loosen IRGC grip on economy

The Hassan Rouhani administration appears to be leveraging the recent protests in Iran to continue pushing for its agenda of greater accountability and lesser military involvement in the economy.

In the aftermath of the recent protests in Iran, public announcements about a concerted effort to get the Islamic Revolutionary Guard Corps (IRGC) and the Iranian army (Artesh) to divest from the economy seem to signal that President Hassan Rouhani remains firmly committed to his agenda.

Indeed, unlike the past — when civil unrest was quickly assumed by default to weaken moderates as the security state stepped in — elite responses to the protests have this time acknowledged grievances. Believed to have initially been instigated by hard-line foes who sought to undermine him, Rouhani is now using the protests to leverage his efforts to restrict the influence of unaccountable centers of power.

The endeavor is not new; rather, it has been on Rouhani’s agenda since he first took office. To achieve this objective, the administration has avoided confrontation aimed at wholly emptying the pockets of its rivals. Instead, the president’s approach has been one of co-optation via the gradual opening of the books of his opponents, with the aim of one day demanding full accountability. His engagement with the IRGC is a case in point.

Broadly speaking, the administration’s effort to co-opt the IRGC can be divided into several phases. Initially, public debate on the highly contentious topic of the IRGC’s economic activities was brought to the fore. Rouhani then laid out a discursive framework in which he effectively ring-fenced the IRGC’s economic domain by publicly negotiating respective turfs. Major projects outside the realm of the capabilities of the private sector were to be awarded to the IRGC, putting them in competition with revolutionary foundations and conglomerates controlled by religious endowments instead of the private sector. The impact of this was quickly visible: Only months after Rouhani took office in August 2013, Ali Saeedi, the supreme leader’s representative to the IRGC, said the IRGC “will continue to reduce the number of its projects, as it has already started to do.”

With the added incentive of seeking to "immunize" the IRGC from internal decay stemming from corruption, while also "protecting" the Iranian economy from external sanctions targeting the IRGC, the supreme leader has personally authorized the latest phase of Rouhani’s co-optation of the military: namely, its renewed focus on its core duties.

On Nov. 28, precisely a month before the initial protests in Mashhad, Rouhani declared on state television: “One of our goals … is for economic enterprises to be transferred to the people. And I think that besides the government, others who are in the public and nongovernmental sector, or the armed forces, must also [engage in] divestment. In this respect, and under this government, I have also spoken with the supreme leader and he fully agrees that all of these [economic enterprises] be transferred to the people.

As part of this redirection of the military’s focus, there has been a quiet crackdown on the IRGC's business activities. In September, the Financial Times reported that “at least a dozen [IRGC] members and affiliated businessmen have been detained in recent months, while others are being forced to pay back wealth accrued through suspect business deals.” In this vein, a “regime insider and a government official” told the Financial Times that “in the past year, the [IRGC] … had to restructure some holding companies and transfer ownership of others back to the state.” Importantly, this was reportedly being overseen by Maj. Gen. Mohammad Bagheri, the chief of staff of the armed forces, “to show that the process is carried out by a bipartisan institution.”

Enter Defense Minister Amir Hatami’s Jan. 21 interview with the official Iran daily, which has been making waves. Speaking about the divestment of the IRGC and the army, he said, “Responsibility for this task has been assigned to the General Staff of the Armed Forces by … the supreme leader, and the General Staff is pursuing this matter with all armed forces until these forces will exit irrelevant economic activities.” Hatami added that the activities of the military in the economic realm will continue per the needs of the government.

Hatami's comments confirmed Rouhani’s disclosure that Supreme Leader Ayatollah Ali Khamenei fully supports the refocusing of the duties of the IRGC and the army. They also confirmed prior reports about Bagheri being in charge of the restructuring of the business operations of the military — and thus likely being the key arbiter of what constitutes a “relevant” enterprise. Furthermore, Hatami’s comments contained three other important pieces of information.

First, he acknowledged that “the degree of our success depends on market conditions and the possibility of divestment.” Business observer Esfandyar Batmanghelidj has rightly pointed out that Iran’s “equities markets are insufficiently capitalized” to facilitate the sales of state enterprises at “sufficiently high prices,” and that this particularly applies to “investors outside the circle of bonyads and other quasi-state holding companies.” Thus, it appears evident that simply finding buyers for the military’s assets is going to be a major task. Kevan Harris, assistant professor of sociology at UCLA, told Al-Monitor, “Remember that since 2014, it has been hard for the IPO [Iranian Privatization Organization] to sell off a good chunk of public companies because they were not attractive to private buyers. So who is there on the demand side? I do not know, since we don't know the companies yet.” Harris has previously noted that "out of $70 billion worth of assets of [state-owned enterprises] divested since 2006, only 13.5% of the shares had gone to the private sector.”

Second, when asked whether the Defense Ministry will seek the assistance of the IPO, which is tasked with finding buyers, Hatami said, “There is no need for the capabilities of the IPO, and this work can be done in the capital market.” In this vein, Harris told Al-Monitor, “The IPO will most likely be the organization which handles any divestment of companies, unless there is a new system developed.” The involvement of the IPO in the divestment drive would be a key win for Rouhani for one simple reason: The administration will get a much more thorough look at the books of these often opaque organizations ahead of divestment.

Third, Hatami directly referenced “protecting the value of the money of the pensioners” in an apparent nod to the political difficulties involved in privatizations. Looking ahead, one instructive experience is that of SHASTA, the investment arm of the Social Security Organization that provides pensions to almost 40% of the Iranian population. Harris noted that “pensioners would hardly accept a sell-off of SHASTA’s investment portfolio to the private sector without major guarantees of future entitlements by the state.” But, as Batmanghelidj pointed out, “the Rouhani administration has committed to reducing entitlements.” The impact of this dynamic should not be underestimated when considering the potential role of the army and IRGC retirees in the grander scheme of things.

While many questions remain about the military’s divestment from the Iranian economy — including whether it will actually be implemented, to what extent and when — one thing is clear: The Rouhani administration has quickly managed to return the question of the role and duties of the IRGC to the center of the public debate, within its grander discursive framework of tackling unaccountable powers. The game remains the same: to co-opt via greater oversight and accountability rather than to confront. As Harris told Al-Monitor, “They want to even the taxation field, and the first step is to make the economy ‘legible’ to the state, so to speak.”

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