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Tue 30 Dec 2008 02:02 PM

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Iran president presents economic reforms

Bill expected to include hiking fuel prices and directing subsidies to the needy.

Iran's president presented an economic reform bill on Tuesday expected to include hiking fuel prices and directing subsidies to the needy, but some in parliament said it was ill-planned and would stoke inflation.

Mahmoud Ahmadinejad suggested his reform ideas before oil prices tumbled but he said change was needed more urgently now crude has fallen below $40 a barrel from July's peak of $147, hurting Iran's main source of revenue.

However, pushing through reforms may be fraught with challenges for Ahmadinejad, who is expected to run for re- election in June after four years of what economists say was profligate spending that pushed inflation to almost 30 percent.

Ahmadinejad told parliament that the first goal of the plan was "to implement justice and remove discrimination" and said Supreme Leader Ayatollah Ali Khamenei, the ultimate authority in Iran, had "approved the generalities and its basis".

"Targeting subsidies is impossible without amending prices, therefore prices should be amended and become as real as possible," he said in an address broadcast on state radio.

Ahmadinejad did not spell out details but officials and media have previously said it would include hiking prices for fuel. The plan also aims to pay direct subsidies to those most in need. Officials say the rich often benefit the most now.

Fuel, including gasoline for cars, is heavily subsidised. Gasoline sells at the equivalent of just 10 U.S. cents a litre, although the government last year introduced rationing to limit the amount of subsidised fuel drivers can buy.

Lawmaker Emad Hosseini, who voted against a motion passed by parliament to debate and vote on the bill swiftly, said the plan needed more careful study. "It will increase unemployment and the inflation rate," he said.

A central bank official, Ramin Pashaifam, was quoted by Etemad newspaper on Tuesday as saying the reform plan would push up inflation by a further 11 to 15 percent. After climbing to almost 30 percent, it has started to slip in recent weeks.

Ahmadinejad sought to ease worries, saying any jump in prices would be short term, lasting about 12-18 months. And he said falling prices globally, an effect of the financial crisis, made implementing the plan now easier for Iran.

"On the other hand, a fall of oil prices encourages us to implement this plan as quickly as possible," he added.

Ahmadinejad has previously brushed off the impact of falling oil prices saying Iran could survive for three years even if the crude price fell to zero.

Economists say Iran will have to cut spending in the 2009/10 budget unless oil prices rebound to $80 a barrel or so. They say economic reforms are needed to reduce the subsidy burden on the state, but would have been better done earlier in Ahmadinejad's presidency when the crude price was soaring.

Ahmadinejad's political critics say he has squandered windfall oil earnings in recent years, rather than saving more for times of need, like now. (Reuters)

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