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Iran's reformist president dogged by economic failure

TEHRAN, May 22 (AFP) - As reformist President Mohammad Khatami celebrates the second anniversary of his election Sunday, the huge problems bogging down Iran's economy remain unresolved -- a currency in free fall, high inflation and almost 100 percent dependence on oil.

Khatami, a religious scholar, is no scholar when it comes to figures, and it shows. Nearly half way through his term, he has still not managed to come up with a clear economic policy.

"His government is being pulled in two directions at once, by liberal moderates, who want him to open up to the outside world, and a by left wing that favours state control as decreed in the 1980s," a Tehran-based Western businessman told AFP.

The Iranian press regularly reflects the hostility between Central Bank governor Mohsen Nurbakhsh, Economy Minister Hossein Namazi and head of the Planning and Budget Organisation, Mohammad Ali Najafi.

The climate of indecision and the deterioration of the economic situation are a gift for the conservatives in their attacks on the government.

"Since Mr. Khatami's election, no laws dealing with the economy have been submitted to parliament, apart from the annual budget," Mohammad Reza Bahonar, one of the conservative heavyweights, said in parliament recently.

Bahonar lambasted Khatami's government for being "active in the cultural and political fields, and asleep as far as the economic sector is concerned."

Public finances have in fact started to look up in the past few weeks, as cuts by the world's major oil producers have pushed oil prices up, after they fell to an all-time low last winter.

But Iran is still dangerously at the mercy of fluctuations in crude prices, since oil represents more than 80 percent of its foreign currency revenues. Far behind come carpets, pistachios and caviar -- which in itself speaks volumes of the backwardness of Iran's industrial and commercial structure.

Furthermore, the economy is burdened by debt, put at 12 billion dollars in the medium and long term, and another 10 billion for short term loans and letters of credit.

Officially unemployment stands at 14 percent, although many experts consider this an underestimate. Every year another 800,000 young people arrive on the job market, which is unable to satisfy the demand.

Inflation, though hard to measure, is presumed to be between 20 and 30 percent at current trends, and personal income is failing to keep up.

While it is true that some large scale contracts have been concluded with oil companies -- Total, Elf and ENI-Agip among the most important -- for offshore deposits in the Gulf, foreign investment is still limited as a result both of Iran's protectionist legislation, and an unwillingness to put money into a country regarded as risky and subject to US sanctions.

The case of petrol prices at the pump is a telling example of the difficulties of implementing the kind of economic reform that all the experts say is essential.

After days of stormy debate in parliament, the price -- one of the lowest in the world -- was put up from 250 to 350 rials (0.08 to 0.11 dollars) per litre (0.3 to 0.4 dollars per gallon), a rise which badly hit ordinary people's pockets.

Even so, the increase was not enough to solve the basic problem of fuel prices, which is still being sold at about one third of its cost price, thanks to ruinous state subsidies.

The general economic slump is automatically reflected in the slump of the currency on the parallel market, where the rial has dropped from 5,000 to the dollar a year ago, to about 8,300 today.


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