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Khatami says democracy needed for growth

TEHRAN, Sept 3 (Reuters) - Iran's President Mohammad Khatami, under pressure to boost growth and jobs, said only democratic reforms could revive the economy and foreign investment.

``It is impossible to have economic development in a socially and politically underdeveloped society,'' Khatami, a moderate, said in a television interview late on Thursday.

Khatami's conservative opponents have been pressing him to shift from political and social reforms and address economic problems.

``Why does an entrepreneur not turn to productive investment? Is the reason economic? In my view, the main cause is social and political, it is linked to a lack of confidence,'' Khatami said.

``Historically, our society has suffered from despotism. Governments were uninvited guests which came and went independent of the popular will,'' Khatami said.

Khatami has sought to regain the confidence of businessmen, many of whom show little interest in investing. They complain about the jailing of big businessmen accused of amassing ``ill-gotten wealth,'' unpredictable state regulations, and instability.

``When we came to office, our total foreign debt was about $28 billion, while the sum of our hard currency reserves was $6 billion, not all of which we could spend,'' Khatami said.

``We had been unable to repay our foreign debt in previous years and there was a certain lack of confidence in...Iran's ability to meet its foreign commitments.

``Therefore, foreigners were charging us higher insurance premiums and interest rates on loans,'' added Khatami, who took office in August 1997.

``In the middle of all this, oil prices fell in a way that was unprecedented in our history.''

Khatami said the price of Iranian crude had fallen to an average $10.80 per barrel in the year to March 1999, the lowest in the past 20 years, depriving Iran of $5 billion in revenue.

The problems were compounded by a recession that set in after Iran cut state outlays to fight spiralling inflation, he added.

Khatami reiterated his government's resolve to reform Iran's ``sick'' economy by boosting privatisation and employment, and cutting government red tape and dependence on oil.

But he said he would seek to strike a balance between growth and ``social justice,'' pledging to protect the poor by controlling inflation and continuing state food subsidies.


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