Iran parliament approves Ahmadinejad budget

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March 9, 2010 4:07 PM EST

Iran's parliament approved President Mahmoud Ahmadinejad's 2010/11 budget on Monday, state radio reported, but some lawmakers attacked the plan, saying planned cuts in subsidies could spark runaway inflation.

"It was approved," speaker Ali Larijani said. The Mehr news agency said 151 deputies out of 290 approved the outlines of the budget after making some amendments. Larijani said only 226 members were present at the vote.

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

That includes plans to phase out costly 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 inflation spiralling back to 30 percent or more and lead to a repeat of rioting seen in 2007.

"Do we have any solution to curb the inflationary impact of this plan to solve the people's problems?" moderate MP Mostafa Kavakebian said during Monday's debate on the budget in parliament, broadcast on state radio.

"According to government officials, the inflation rate in the next year will reach 25 percent, while experts believe it will be higher than this figure."

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

"The government and the parliament spent days on this budget bill ... and were aiming at decreasing its inflationary impact as well as increasing the rate of economic growth in the best possible manner," government representative Ebrahim Azizi said in a speech before the voting took place.

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

Prominent lawmaker Ahmad Tavakoli said government plans to distribute oil revenues directly to social programs for the poorer sectors of the population -- a move intended to soften the subsidy cuts -- could backfire if the oil price slips.

"What if the oil income falls and the government cannot pay the pre-planned cash to the people?" he said. "The inflationary impact of this budget is dangerous as experts believe the inflation rate might reach 50 percent."

Iran's ISNA news agency said parliament approved on Monday to base the budget on an oil price of $65 per barrel, higher than last year's $37.5 per barrel. On Monday, the oil price topped $82.

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 program.

(Writing by Andrew Hammond; Editing by Ron Askew)

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