Iran General NewsIranian parliament rejects Ahmadinejad subsidy cut

Iranian parliament rejects Ahmadinejad subsidy cut

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ImageReuters: Iran's parliament on Tuesday blocked President Mahmoud Ahmadinejad's plan to phase out subsidies on food and energy by approving only half of the savings requested by the government, news agencies reported. ImageTEHRAN, March 9 (Reuters) – Iran's parliament on Tuesday blocked President Mahmoud Ahmadinejad's plan to phase out subsidies on food and energy by approving only half of the savings requested by the government, news agencies reported.

Parliament on Monday approved the outlines of Ahmadinejad's 2010/11 budget but some lawmakers warned planned cuts in subsidies could spark runaway inflation.

The government had proposed to raise $40 billion by cutting subsidies but parliament only approved half of that amount, the official IRNA news agency reported.

Before parliament's vote on Tuesday, Ahmadinejad met MPs to "convince them to vote in favor of his proposal," ISNA news agency reported, citing a lawmaker.

"President Ahmadinejad urged parliament to vote for the proposal and warned that if lawmakers do not vote in favor of it, the government might face problems cutting subsidies," ISNA quoted lawmaker Mousa Ghorbani as saying.

The government projects revenues of 596 trillion rials (about $59.6 billion) in fiscal 2010/11, a senior official has said, which will result in a $6 billion deficit.

That includes plans to phase out subsidies on food and energy during fiscal 2010/11 — which begins March 21 — which the government has already said will add 15 percentage points to its average inflation forecast of 10 percent in 2010/11.

Analysts estimate the cuts could send up inflation back to 30 percent or more.

Inflation currently stands at 8.9 percent but is on the rise again after coming down from nearly 30 percent since late 2008.

Iran is the world's fifth-largest crude exporter. But while oil prices have surged, Iran's economy has slowed as a result of the global economic downturn, political isolation and sanctions over its nuclear energy programme. Analysts estimate it probably will have grown just 0.5 percent in the year ending March 2010.

Lawmakers have said the government plans to distribute oil revenues directly to social programmes for the poorer sectors of the population — a move intended to soften the subsidy cuts.

Parliament also decided on Monday to base the budget on an oil price of $65 per barrel, higher than last year's $37.5 per barrel.

Iranian media reported last week that a parliamentary committee had questioned the government's calculation of $40 billion savings through subsidy cuts, saying $20 billion was more realistic.

Critics accuse Ahmadinejad of squandering windfall oil revenues Iran earned when crude prices soared in the first half of 2008, leaving the country more vulnerable now that it faces possible additional U.N. sanctions over its nuclear programme. (Editing by Mark Trevelyan)

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