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Mohammad Khatami Slams President Ahmadinejad

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CAIRO — The top reformist candidate in Iran's presidential race blamed incumbent Mahmoud Ahmadinejad for the country's isolation, while a leading global energy watchdog warned Thursday that the hard-line leader's policies are worsening Iranian economic woes.

The salvo from reformist President Mohammad Khatami signaled that his campaign to unseat Ahmadinejad will aggressively target worries over the hard-liner's foreign and domestic policies.

Many Iranians fear Ahmadinejad's anti-Western rhetoric has worsened their international status at a time when the economy is struggling, including an inflation rate that recently hit 30 percent, before easing back a bit.

Iran has been hit hard by the global financial crisis and the plunge in oil prices. At the same time, the government is under U.S. and U.N. sanctions for refusing to suspend uranium enrichment until it allays suspicions its nuclear program is aimed at developing atomic weapons.

The Washington-based consultant PFC Energy said that whoever wins the June presidential election will inherit major economic problems it blamed on Ahmadinejad.

The firm sharply criticized Ahmadinejad for making direct cash distributions to the masses. The handouts have boosted his popularity among the poor, but they ramped up spending and burned through oil revenues that the government relies on for 70 percent of its budget.

"A toxic mix of populism and misguided priorities" by Ahmadinejad have deepened reliance on oil revenues, fueled inflation and caused economic inefficiencies, said Hanan Amin-Salem, PFC Energy's director.

In the first half of 2008, record high oil prices made boosting spending easy, but then the market collapsed. Iran needs oil to bring roughly $90 a barrel to cover the government's budget _ almost three times the current price.

With no sign of prices rising, "Iran is clearly poised for a hard landing in 2009," Amin-Salem said.

That could help Khatami, a liberal cleric and former president who is considered the sole pro-reform candidate capable of beating Ahmadinejad.

In 1997, Khatami was elected president in a landslide after campaigning on ambitious promises to ease political and social restrictions imposed under Islamic rule. His attempts at reforms were largely foiled by religious hard-liners, however, and Ahmadinejad's election in 2005 largely deflated the reform movement.

Khatami's speech late Wednesday to a gathering of supporters _ his first since announcing his candidacy over the weekend _ suggested his campaign will focus on the discontent with Ahmadinejad.

"The current situation in the country is not desirable," Khatami said, according to comments posted on his Internet site. If it continues, he said, Iran's "social capital and international reputation will be damaged even more."

Khatami assured Iran's clerical leadership that he would work "within the framework of the system and we are loyal to constitution and leadership." The comment was an apparent attempt to deflect hard-liners' accusations that reformers intend to undermine clerical rule installed by the 1979 Islamic revolution.

Still, despite unhappiness over the economy, the presidential race is expected to be a tough fight. Ahmadinejad has backing from hard-liners and from Iran's supreme leader, Ayatollah Ali Khamenei, who holds ultimate political authority.

The victor will have limited options for dealing with the damaged economy, PFC Energy said. It noted Ahmadinejad's heavy spending means Iran has failed to save or invest the oil revenue raked in during the first half of 2008 _ unlike oil-producing Arab nations.

Potential fixes, such as cutting spending or raising taxes, are politically untenable for Ahmadinejad, and may be difficult to implement immediately after the election, the report said.

Another option, tapping foreign currency reserves, risks "setting off a dangerous hyperinflationary spiral," capital flight and currency devaluation, the report said.

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