<http://ipsnews.net/news.asp?idnews=36348> ECONOMY-IRAN: Shia-Sunni Split - Factor in Annual Budget Kimia Sanati
TEHRAN, Jan 29 (IPS) - President Mahmoud Ahmadinejad has submitted to Iranian parliament a budget bill for the fiscal year starting Mar. 21 that factors in the possibility of falling oil prices to "neutralise the plots of the enemies" of Iran, already under United Nations sanctions.
Oil prices have plummeted from 78 US dollars per barrel in July to 48 dollars currently and may drop further if the Organisation of Petroleum Exporting Countries (OPEC) does not lower production. Basing the budget on oil revenues of 33.7 dollars per barrel for the next year is considered more realistic than last year's budget which expected Iranian oil to sell at 36 dollars per barrel or more.
"One must bear in mind the new factor contributing to the regional and Iranian economy and oil prices, namely, the Sunni-Shiite conflict. There is now every reason to believe that the Saudis, whose economy won't be seriously damaged by a drastic fall of oil prices, are deliberately avoiding to help stop the plummeting of oil prices by refusing to allow cuts in OPEC surplus production of 700,000 barrels per day," a political analyst in Tehran who chose not to be named told IPS.
"Iran's support of Shiite fundamentalists in Iraq is causing greater concern among the Sunni Arab countries and the best way that Iran's role and influence there can be diminished without resorting to violence is making it economically impossible for Iran to sustain that support, so Iranians have to tighten their belts now. The deflationary budget for the next year, if strictly followed, can serve to reduce the effects of further more depressing U.N. sanctions and falling oil prices," he added.
Most domestic newspapers, even the reformist opposition's few remaining mouthpieces, have viewed the budget bill, submitted last week, favorably and 'Keyhan', a hard line newspaper and staunch Ahmadinejad supporter, described it as ''bold''.
"The step taken by the government is a firm response to a new round of Western plots against Iran that mainly aim to reduce investment in Iranian oil and gas sectors and deprive Iran of its most important source of revenues. Now one can say that the enemy has lost its last lever to put pressure on Iran," a Keyhan editorial said.
In spite of last year's extravagant budget, the government has had to ask parliament four times during the current fiscal year to supplement the budget, from deposits accumulated in its Oil Reserve Fund from selling oil at much higher prices. Five billion dollars of the reserve have into importing subsidised gasoline alone.
"Even with oil selling above 60 dollars per barrel for several months, the government has managed to drain all the reserves from ORF, and the balance at the end of the present fiscal year (ending Mar.20) will be nil if the government's insatiable need for money continues in the same way. Government expenditure is expected to swallow even the last drops of its estimated 56 billion dollar oil revenues in the current year whereas 50 percent of the deposits of the ORF was meant to help the private sector to develop and expand at the time of its establishment," an economic observer in Tehran told IPS.
Critics say the government may try to increase expenditure in the proposed, seemingly austere budget, if oil sells better than the predicted 33.7 dollars per barrel, by sending budget supplement bills to parliament and extracting money from the ORF to meet its needs.
"When giving its approval to the budget bill, the parliament must prevent the government from making supplementary budget bills a tradition. Now that the government has volunteered to reduce its current expenditures, the parliament must also avoid letting government expenditures rise by approving its budget supplements," Masoud Nili, economist, was quoted by the 'Sarmayeh' newspaper as saying. If the government is free to ask for more and more money all the time from the parliament, the budget plan will lose its function, he said.
The Iranian budget has to be planned in accordance with the country's '20-year Vision' -- a plan outlined by the Supreme Leader Ayatollah Khamenei to make Iran an economically developed country by 2021 -- as well as the country's fourth 'Five-Year Development Plan' of which the country is now in the second year. Both of them require the government to minimise its role in economy.
Nearly a year after Khamenei directed implementation of provisions in the Iranian constitution to privatise and reduce the role of the government, the Ahmadinejad administration maintains an overwhelming presence in the economy and continues to weaken the private sector -- a policy that is reflected in the budget bill.
If the government fails to carry out privatisation as envisaged in the next fiscal year a huge budget deficit will result, but there are yet no signs of surrendering control over public sector companies.
"It's now golden days for the Iranian steel industry. (But while) the government is required to sell a part of Mobarakeh Steel Factory, it is planning to build an 800,000 ton steel mill itself. The government could have prepared the conditions to develop the industry by the private sector instead,'' a former industries minister, Eshagh Jahangiri, was quoted by the Sarmayeh newspaper as saying.
Government interference in economy is felt in other areas, too. Last year the government increased minimum wages which led to an increase in the prices of products. At the same time, the government banned any increase in prices of dairy products, incurring huge losses on dairy factories.
"When Ahmadinejad administration and the parliament were warned last year of inflicting the already ailing economy with the Dutch Disease, they just snubbed everyone, and parliament approved one of the most extravagant and expansionary budget bills in post revolutionary years for fear of losing popular support,'' the economic observer said.
Ahmadinejad denies inflation has risen, just as he says he is not worried about the U.N. sanctions. The inflation rate announced by the Central Bank of Iran for the past nine months stands at 11.9 percent. Critics say the government keeps the figure down by not including prices of certain items such as real estate and rent in the 300 item basket on which calculation of inflation rate is based.
Lower oil prices, U.N. sanctions, U.S. threats, government control and the ever-rising inflation are not the only woes of the Iranian economy. Constant accusations levelled against private investors by the President himself have resulted in a sharp decrease in investment. This is also denied by the government.
Scaring away investors has caused the criticism of Ayatollah Shahroudi, the conservative Chief Judiciary, who defends improvement in conditions to encourage private investment by creating a safer economic environment. Nobody should be called "economically corrupt" unless the corruption is proved in court, the Ayatollah says.
Further U.N. sanctions, if Iran does not suspend its uranium enrichment programme within a few weeks, can hit banks very hard. Two of the major Iranian government-owned banks, Saderat and Sepah, have recently been boycotted by the U.S. treasury with many European banks following suit. The flow of cash in and out of the country is harder than before and many transfers are done through indirect and more costly channels.
"The boycott can be seen as part of a new U.S. policy to take advantage of Iran's economic troublesà the new policy is a much less costly procedure for the Americans and when coupled with diplomatic pressure from the international community, it can bring Iran down to its knees much more effectively than a military attack," the analyst said. (END/2007)
<http://www.mmorning.com/ArticleC.asp?Article=4397&CategoryID=6> Iran: Ahmadinejad seeks spending rise in new budget
President Ahmadinejad, who has come under fire from both conservatives and reformists over his Administration's inability to control inflation
President Mahmoud Ahmadinejad last week unveiled his second annual budget, forecasting a sharp 20-percent increase in spending but lower oil revenues for OPEC's second largest exporter.
He asked Parliament to approve a budget of 2,290 trillion rials (about 248 billion dollars) for the next Iranian year starting on March 21, a 19.6 percent rise on current expenditure. It was based on projections that Iranian oil will sell for 33.7 dollars a barrel, compared to 40 dollars in the current year's budget.
Ahmadinejad has come under sharp domestic criticism over his government's increasing dependence on petrodollars and its inability to control inflation, which is officially at 12 percent but which economists believe is at least 20 percent.
"The future is not predictable. It is possible that our enemies want to reduce oil prices to hurt us; that is why we have set the price at 33.7 dollars per barrel to show we are ready for anything", Ahmadinejad told the legislature.
"Even if they reduce oil prices, we'll be ready to handle it".
Crude prices have fallen from 68 dollars to about 50 dollars per barrel in the past six months. Iranian oil usually sells for about 10 dollars less. -- Yoshie <http://montages.blogspot.com/> <http://mrzine.org> <http://monthlyreview.org/>