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Iran moves to spend oil windfall on job creation.

By Mehrdad Balali

TEHRAN, Aug 28 (Reuters) - Iran is rushing to invest billions of dollars in surplus oil revenue to revive the stagnant economy and address chronic unemployment, officials said on Monday.

But economists say structural reform, not a big cash infusion, is the key to sustainable economic recovery.

President Mohammad Khatami's government has sought parliament's approval to start at once using an estimated $6 billion in extra revenue Iran has earned from oil exports in recent months.

Parliament, where a majority are allied with Khatami, has agreed to give urgent reading to the bill, but has yet to discuss the details.

Iran 's current budget forecasts earnings of $15.7 from export of each barrel of crude, but Iranian crude has been selling at an average of $25 per barrel in recent months.

The country already earned about $4.6 from crude exports in the first quarter of the year which began on March 20.

Anticipating the rise in oil revenue, Khatami's five-year economic plan, launched in March, calls for creation of a special reserve account to save any oil earnings beyond budget forecasts.

The accrued funds would be used to offset possible budget shortfall after March 2002, a provision designed to protect the oil-dependent economy against future crude price fluctuation.

To ease reliance on oil, Khatami's plan also limits crude revenue spending to $56.6 billion over the next five years.


But, facing dire economic prospects and worsening unemployment, the government seeks to invest surplus revenues in job creation or lend them out to private businesses.

Khatami has been under pressure to shift attention from his political and cultural reform programme to the ailing economy.

"Unemployment has reached a critical state and the situation is near explosion," said Hossein Anvari, a member of parliament. "If we do not take step to solve this problem, we will face mounting economic and cultural challenges."

Official unemployment rate stands at 16 percent and inflation hovers around 20 percent.

The government hopes to benefit from higher oil prices to achieve its ambitious economic goals, including sharp growths in GDP and private investment to help create 3.8 million jobs over the next five years.

Some 60 percent of Iran 's 63 million people are under 25 years old and many of these have bleak employment prospects.

Social unrest is growing throughout Iran , mainly involving unemployed and disgruntled youngsters. Officials have blamed the weak economy for a sharp rise in crime rate.


But even the president admits his government lacks clear economic direction, and there are concerns the money may not be used properly.

Similar spending during a reconstruction drive after the 1980s war with Iraq led to widespread waste and corruption.

"We do not have a strategy to spend the money. This could create a situation like before when huge funds were wasted," said MP Hassan Sobhani.

Others have called for structural reforms.

"The recession is caused by structural problems. Injecting $6 billion into the economy will not help," said deputy economic minister, Morteza Qarabaqian. "We better spend it on the infrastructure productive sector."

Some economists say flushing the economy with big cash could have inflationary effects and hurt non-oil exports by further boosting the rial against major currencies.

The rial has been stable for much of this year, one of its longest period of stability since the 1979 Islamic revolution.


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