sanctions are less effective. this is something that the u.s. should continue to keep its pocket. finally, i think that the economic dissatisfaction we have seen over the past few years, especially with these rising numbers of young people entering the labour force and the failures of the president's economic policy do give an opportunity to undermine support for the current regime in iran. [applause] >> thank you, to both of you for too exciting presentations. i hope this will lead to a good discussion. let me use my prerogative as a

moderator to throw out a couple of questions. if i could ask you, what i have been struck by in the run-up to the presidential elections is that two processes have changed. on the side of the reformists, you have interesting attempts to rehabilitate the faction after its isolation in the mid 2000's and its apparent failure of its strategy, but you have very little in the way of generational change. and the two candidates are individuals that have a history with the islamic republic back before the revolution. these are those who are carrying the torch for that movement and they are supported by a network

of activists. given how conservative they have come -- they have become over the years, all to what extent has the reform movement stymied in this change? has there been some sort of blockage in terms of its own rehabilitation in its revival? today, we see this incredible interest in warfare because it is a very diverse faction and mahamu out to dinner job is not a traditionalist. but -- mahmoud ahmadinejad is not a traditionalist. there has been made enormous amount of warfare between this

faction and what you have seen is the younger generation becoming more involved. can you predict who are the people or elements to watch in iran for the future? >> that is a great question. i think that the reformist movement has a real problem in iran because its leadership is older. i think that his candidacy shows you how iran functions because he does not relate to the youth. he gets all lot of support from young people. -- he gets a lot of support from young people. i do not think it is because these people are popular or well liked.

they're not obama-like figures. young people are excluded from the government. they do not want to get involved in politics because a look at the political system and see how dysfunctional it is and how restrictive it is. they would rather go to europe or canada. that is a problem for the reformist movement. and a lot of ways, i do not think it has new ideas and it does not have new leadership. the fact that they were not able to change the system really counts against them. they cannot bring up another person to represent them because that could be seen as a threat to the system. i talk about the left at being a reformist.

he believed along with the left of the reformists that the islamic republic was going in the wrong direction. he has been compared to gorbachev. i do not think that as a good comparison so. although i talk about differences, i do not think we should exaggerate these differences. it is in a very confined space. part of the problem is that there is a trend in iranian society toward secularization. young people do not accept the rule of their ron as much. one more thing, i watched the debate. he is not a very good speaker. he has no charisma. although the economy is in bad shape and he is getting a lot of support, i wonder if that will

translate into a massive vote for him. it might because people may not like mike muthanna finished job as much may not like mahmoud ahmadinejad joas much. i think that the president represents a new generation of the right. they were part of the revolutionary guards. i do not think they got the share of the spoils that they deserve. they have been left out. a lot of the right establishment in iran has opposed the president not so much for his ideology but because he has taken power and wealth and privilege away from them. i think the military association

of clergyman refused to endorse them and this is a problem. of the cleric's see him as been problematic. he has aligned himself to revolutionary guards that are not dominated by clerics. they have come to dominate the iranian economy. if you look at what happened two years ago, there was an iranian that cannot and said that the system is corrupt -- that came out and said that the system is corrupt. he basically accused the system of assassinating revolutionary guard members. that shows that there is a lot of attention not just between the right and left anbut with them the right and the right also.

what i am not an economist. it is hard for me to avoid bidding you to speak about the political issues. i will try to get you to stick to numbers rather than political implications. first is the youth vote. i have heard others say that iran actually got a handle on the democratdemographic challen. this is obviously not attend to the challenge so we have today of creating jobs -- akin to the challenge we have today and of creating jobs. iran will look something like japan, where you have a very elderly population being

supported by a relatively small young cohort. the second question is more political. looking at your presentation and the book that you have done on this issue, one comes away with the realization that the two main challenges for the political system are subsidies and crony capitalism. there are two challenges that the president has confronted head-on. to some extent, he has tried to go further than any previous iranian president in actually getting a handle on the subsidies issue. none of these have been economically advisable and none of these have been terribly successful to date. is it possible for any iranian leadership to deal with these issues that are fundamental to the economy and the political structure without creating the

kind of instability that the regime is averse. let me throw out another point. this is on the minds of people here in washington. how effective do you think an embargo on refined products would be? >> to talk about the demographic change, there are about 60 countries in the world have declining populations. i think that iran and every one else wanted to that point because if you have a continued rise in population, the world will not hold the ball. -- will not hold them all.

you heard one of my german colleagues point out that they had raised retirement ages and he has seen shifts in pensions. i am not one that fears of the aging problem. actually, ron is more where china was 15 years ago where you have this much larger than normal share of your relatively working age and you do not have a lot of children that our dependencants. turning to the credit capitalism issues, i would not call it crony capitalism, i would call it crony stateism.

maybe the rhetoric was one way, but it has not been the other way that is an area which is best addressed by just opening up competition and i think that is where the government made quite a bit of progress. it has to do with where the president took a large step back. the of focused on people with connections and they had huge transfers of wealth in terms of under market loans and most of those loans have gone to corporations. the rational monetary policy would give people incentive to save and would do more about

corruption. in terms of subsidies, the world bank and the finance minister under the old version, this is such an extraordinary waste of money. the value of having young iranians being able to drive up and down at high speeds and getting stuck in traffic jams provides very little utility to the population and very little value to the economy. what we have seen in iraq is that we have raised gasoline from a nickel to a gallon of -- from a nickel a gallon to a dollar. we start a fairly substantial rationalization of the gasoline market. we saw a drop in terms of funds that would go to terrorist

groups. what does happen is when you're in a situation where you have a lot of political sensitivities, it is a great issue to latch onto. we have seen groups that are opposed to the government and they grab that issue with the prices are raised in the use that to push for a regime change. i see the regime has been strong and stable. wha lot of people did not benefit from the subsidies. to answer your last question, the best gift we could possibly give the iranian government would be to try and launch an embargo and that would let them

do something they really need to do and that is to make better use of the money that they have and blame it on us. >> of the trifecta of american policy making. >> let me open it up to questions from the audience. if you could identify yourself, try to put a question mark at the end of your comments. >> you said that successful engagement was more likely in a balanced factional environment. how soon after the elections will we know that such an environment does or does not exist and what should we look for? >> i think that one thing we should look for is how the new president staffs the office.

when the president became president, he completely overturned the foreign ministry and replace a lot of embassadors and diplomats. people who are very professional and diplomatic were replaced with people who were not as much. they were people that tended to be ideological. if moussaouthe other candidate s president, i think and the problem with iran is that the revolutionary guards have such a strong grip on the bureaucracy even reformist presidena reformd not be affected. there was a report that they

were trying to come -- it depends on who heads the revolutionary guard. i think the top decisions are made in the top epsilon of the government. even when the other president was in office, he had a problem with the guards. he tried to control the ministry and he could not do that. i am not sure this candidate will have as much luck. >> economic incentive is often thought of as a carrot that we could use.

what would this -- how would this affect the cronies? how much does the other attendant care about the economic situation of the country and how much does he and the president think the greater openness to foreign investment is in the best interest of iran? >> i think that openness is very much in our favor. it is in the favor of the iranians. i think that there are question marks. they did not care about the fact that the turks built the airport, but it wanted to get their hands on that asset. in terms of economic sanctions,

i do think that targeted sanctions have been quite effective. the financial sanctions have hurt. they are irritants. have there are things that the iranians would like to get rid of. they are not enough to fundamentally threaten the regime. there are things that you do not really like, but rarely do you have a situation where sanctions force governments to take -- make decisions that are contrary to the national interest. >> i think that the candidate cares about the economy. i think that perhaps he doesn't care about economic development as much. if you look at the constitution, the constitution says that it is

a means to an end, it is nothing in ththe end itself -- s not the end itself. the reformist movement tried to privatize their economy and there is a lot of emphasis on stateism. they do not really believe in capitalism. you have a hodgepodge of capitalism and roy capitalism or whatever you want to call it -- and crony capitalism or whatever you want to call it. i think the candidate wants to improve the economy. i do not know if he really means that or is capable of doing so, but the way that the regime is set up, if you're going to

change the entire system, that could affect regime stability. i think he likes to take in criminal steps. -- i think he likes to take incremental steps. >> in terms of which presidential candidate is successful, using to be suggesting that it might be a replay of a formal election. are you suggesting got it might be best to have the president

reelected in terms of the potential for talks with the u.s.? we have a very short time frame and i am under strict orders to give us out of here as close to on time as possible. i see a hand at the back, two hands at the back. great. >> i do think that if he decides to engage the u.s., i think it is a problem for iran in terms of image, style and tone. he does not possess those qualities. somebody that denies a holocaust, how can you engage somebody like that? the seasoned diplomats look at them and say that they cannot speak for them. what is this guy talking about?

that is where you get a lot of emotional reactions from people who were genuinely upset about his tone and style. it is not that they won different objectives, he was on a good course. i think that if he becomes president, in terms of tone and style, you can have better engagement in terms of who he is. i think that part of his problem is that he looks better, but he cannot do much. >> if we can just get to the two quick questions in the back, i will ask each speaker to take the man and any closing

thoughts. >> two things that were seen alive in the paper is the prediction that your point to have been very low voter turnout in this election and there is a likelihood that the current president will win. it is interesting what he pointed out, that this is highly unusual given the economic situation in iran, that you would end up with both of these things, low voter turnout and without the population throwing the ball out, you almost always see that. if the population is a political for these elections are not free and fair elections, it explains some of it. it is so extreme. if that were to be the outcome, there has to be something else out there going on. i wonder if any of you have a suggestion for that.

is there something that is offset a -- offsetting these economic numbers? >> scott, did you have a quick question? >> can i draw you out a little bit? you talked about different factions within the politicians contested the election. could you make a prediction, when we have the results of the election, will who will have one in your view? what is this election being

contested on on the basis of it? >> i will address to his question, 1st. you could have high turnout. if you look at the 2005 election, one candidate was ahead and he went to bed and the next morning, he had lost. the current president came out ahead. there were a lot of discrepancies. allegations of fraud, of vote rigging and involvement of the revolutionary guards. there are also allegations that there were some burt -- fake birth certificates and the were used -- and they were used

several tons. -- several times. let's say that the candidate wins a majority of the votes, but he loses at the end. i am not sure if it is probable for this election because i think that the stakes are higher. you have already had -- i think that if the iranian government decides to fix the elections, as some may have done in 2005, that could actually be very problematic. that is a very strong possibility. if you look at the ministry of interior, it is all stacked with supporters of the president. in terms of the election, there is a lot talk about the economy

driving boats. i think that is true to a large extent, but we should not look at their presidential election as we do all elections in our own country. the president's election is not based on popular will. the way this system works is that you elect the president and the president has to adhere to those mourns. since the beginning of the republic, you have had the incumbent become president. the economy has been terrible every time. i am not sure -- the economy can lead voters, but it will not necessarily mean he will become president.

he has a weaker organization supporting him. a lot of students have come out for minorities. the revolutionary guards are very well organized within the country. over the last few years, they have restructured themselves to really monitor internal security and expand their presence throughout iranian towns and villages. in every village and every hamlet, the guards are present. i think that if they get the command from top down, i think that is a very strong possibility. >> and wish you would like to call the iranian election a week in advance, i respect your opinion on that one. i think this is a terrific discussion. i think you. [applause]