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Iran parliament approves reduced sanction-hit budget

Mahmoud Ahmadinejad's $462 billion annual budget shows that international sanctions are taking their toll

Reuters, Saturday 19 May 2012
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Iran's parliament on Thursday approved President Mahmoud Ahmadinejad's $462 billion annual budget, the official IRNA news agency reported, a drop in real terms from last year as international sanctions took their toll.

Iran's currency has lost much of its value in recent months due to sanctions designed to curb the Islamic Republic's nuclear program, which the West suspects is a cover for making atomic bombs, a charge Tehran denies.

The official exchange rate for the 2012/13 budget was set at 12,260 rials to the dollar, while last year's budget was based on 10,500 rials to the dollar.

The 2012/13 budget was approved with 123 votes in favor, 46 against, and 14 abstentions among the 200 members present in parliament, IRNA said.

The value of the rial began to slip in January, after U.S. President Barack Obama imposed fresh sanctions against the country's central bank and speculation rose over a possible military strike against Iran by Israel and the United States.

The European Union has also toughened financial sanctions and on January 23 placed a ban on Iranian oil imports, but gave companies until July 1 to wind down their existing business.

The dollar traded at around 20,000 rials in February, up from around 10,500 rials to the U.S. dollar in December. It now stands at around 16,500 Rials.

Tehran resumed nuclear talks with major powers in mid-April after more than a year and a second round of talks is scheduled for May 23 in Baghdad.

The 2012/13 budget is based on an oil price of $85 per barrel, higher than last year's breakeven price, but well below levels in global markets in recent months, when Brent crude soared as high as $128, partly due to fresh Western sanctions on Iran.

"The budget at best stretches the envelope of imagination in how it will be implemented," said Mehrdad Emadi, an Iranian-born economic advisor to the EU.

"It pre-supposed that Iran is still earning significant oil revenue but it doesn't take into account its problems in selling and the sweeteners that it offers to its clients."

Iran has long offered generous payment terms to its crude oil buyers and analysts say its dwindling clients are now in a position to benefit from its isolation.

The country is undergoing what the government has called major economic surgery, in the form of cuts to the multi-billion dollar subsidies which for years have held down the price of essential goods like fuel and food.

Inflation is now officially running at about 20 per cent, although economists say prices of the goods most Iranians worry about are rising at a much faster rate.

"This budget will deflate the economy. To have what is almost zero growth with a growing population like Iran's, in real terms the country is going to contract severely. It is a truly bad situation," added Emadi.

DEPENDENCY

Ahmadinejad has said the new budget will decrease Iran's dependency on oil revenues but critics have accused him of squandering previous windfall oil revenues that Iran earned when crude prices soared in the first half of 2008.

He presented the draft budget to parliament in February based on a 20 per cent rise in tax revenues, but some analysts thought this unrealistic as key oil revenues were threatened by sanctions.

Relations between Ahmadinejad and parliament have become increasingly strained in recent years, particularly over budget matters. Parliament, which has the power to impeach the president, accused him of economic mismanagement and making illegal appointments.

In March, he became the first president in the Islamic Republic's history to be summoned to the assembly for questioning.

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