Tuesday November 3, 2009

Ahmadinejad threatens to withdraw Iran subsidies law

By Reza Derakhshi

TEHRAN (Reuters) - Iranian President Mahmoud Ahmadinejad threatened on Tuesday to withdraw a law cutting food and gasoline subsidies after parliament sought greater control over money which the law would release, state media said.

EDITORS' NOTE: Reuters and other foreign media are subject to Iranian restrictions on their ability to film or take pictures in Tehran. Iran's President Mahmoud Ahmadinejad in Tehran October 17, 2009. (REUTERS/Morteza Nikoubazl/Files)

Parliament last month backed government proposals to end subsidies on basic goods ranging from gasoline to wheat and rice, a key plank of the hardline president's plans to reform the major oil producer's economy.

Removing subsidies would ease a heavy budget burden and make Iran less vulnerable to any new sanctions on imports which could be imposed over Tehran's disputed nuclear programme. But higher consumer prices could also hurt the poor and stoke unrest.

State radio said parliament passed an amendment on Tuesday linking the subsidy cut to the state budget and obliging the government to channel any money saved by shelving the subsidies into a special account for public spending.

The vote appeared to ruffle Ahmadinejad who made a surprise appearance in parliament to argue against the change and afterwards threatened to remove the bill altogether.

"The president, before leaving the parliament, handed over a letter to the parliament speaker requesting withdrawal of the bill," prominent lawmaker Alireza Mahjoub was quoted on the semi-official news agency Fars as saying.

AHMADINEJAD REJECTS BUDGET LINK

Corruption became an issue in this year's tense presidential campaign, and Tuesday's amendment would give greater oversight to parliament which has repeatedly criticised Ahmadinejad for withdrawing money from Iran's Oil Stabilisation Fund.

Parliament's approval of the subsidies plan last month was seen as a sign he was consolidating his position after the huge protests provoked by his disputed re-election in June.

"Long-term plans need fixed and stable laws ... we can not move forward with this (amended plan) while we are linked to the budget plan," Ahmadinejad said in comments broadcast by state radio, adding the government wanted "flexibility" in distributing subsidies and social spending.

"The government's initial plan has been stopped ... Is this the way (to show) your trust in the government?"

The subsidy bill also needs the approval of hardline watchdog body the Guardian Council before it becomes law.

Critics say that phasing out subsidies, even over the planned five-year period, would hurt the poor by pushing up inflation, now officially about 10 percent.

Media reported on Sunday the government will open bank accounts for 36 million people, about half its population, to give them cash to compensate for higher food and energy prices.

The introduction of a gasoline rationing plan in mid-2007 sparked riots in Tehran.

(Writing by Andrew Hammond; Editing by Dominic Evans)

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