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Mon 9 Mar 2009 09:07 PM

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Iranian economists warn against energy price hikes

Economists claim government proposal to raise prices will stoke already high inflation.

A group of Iranian economists has warned against a proposal for a sharp rise in energy prices, saying it would increase poverty and stoke already high inflation, press reports said on Monday.Under a 298-billion-dollar budget approved by Iran's parliament on Sunday, the government plans to earn 20 billion dollars during the year to March 2010 by hiking prices for heavily subsidised energy and utilities.

Media reports have said prices could rise fourfold if the proposal is backed by parliament, which is currently reviewing details of the budget bill before giving its final approval.

The budget - lower than the current year's 307 billion dollars - comes at a time when Iran is battling high inflation of around 26 percent and reduced revenues because of the plunge in world oil prices.

Oil revenues account for 80 percent of Iran's foreign currency receipts, making the economy highly vulnerable to shifts in global crude prices, which have sunk to around 50 dollars a barrel from a high last year of 147 dollars.

In a letter carried by several reformist newspapers, 13 economists urged lawmakers "not to approve a sudden rise of energy prices," saying the measure was being taken "out of desperation" following the oil slide.

The bill "is a clear definition of shock therapy implemented in some countries in the 1980s and 1990s, bringing about uncontrolled inflation, deep recession, intensified poverty and inequality and social unrest," it said.

It added the government's calculation of real energy prices and its plan to raise them stems from its "incompetence in macro policy-making and managing its institutions."

At present petrol sells for 36 cents a gallon and electricity is as cheap as six cents per 10 kilowatt hour.

If the budget is finally approved, the government plans to spend part of the 20 billion dollars on cash payments of 20 to 26 dollars to compensate people from low and middle income groups.

As part of his wider economic reform plan, President Mahmoud Ahmadinejad submitted a separate bill to parliament in December to abolish costly subsidies on fuel, electricity and water. This bill is yet to be debated.

Sarmayeh newspaper reported that former central bank chief Tahmasb Mazaheri warned that implementing "targeted subsidies in the current situation will impose an inflation of 40 percent for a few years on the country."

He accused the government of not formulating polices to contain such high inflation. (Reuters)

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