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Iran budget seeks state sell-offs

Iran's president, Mohammad Khatami, has unveiled a budget designed to expand public spending by 30% but loosen the Islamic republic's dependence on oil.

The budget for the fiscal year starting on 21 March calls for the sell-off of 20% of the state's corporate holdings. Mr Khatami's second term as president ends on 1 August, making this his last budget. But opposition from members of parliament who have attacked previous privatisations could block his plans. Elections in May 2004 ousted many of Mr Khatami's supporters in parliament in favour of more hard-line religious conservatives. Late last year, they backed a law which would give parliament a veto over foreign investment. The ruling was a response to the involvement in telecoms and airport projects by Turkish companies, which hardliners accused of doing business with Israel. It came not long after the Expediency Council - Iran's ultimate decision-maker - blessed Mr Khatami's policy of selling stakes in sectors protected by the constitution such as energy, transport, telecoms and banking. Continued obstruction of foreign investment could get in the way not only of privatisation plans, but also of Mr Khatami's hope of modestly reducing the government's reliance on oil revenues.

In an address to the Majlis, Mr Khatami predicted economic growth of 7.1% in 2005-6, up from 6.7% in the current year. He said he wanted to increase the 2005-6 budget to 1,546 trillion rials ($175.6bn; £93.6bn) from the previous year's 1,070 trillion. Within that figure, taxation would rise to $14.3bn, a rise of over 40% from what is expected from the current year. In contrast, oil revenues were expected to fall to $14.1bn from $16bn in the year to March 2005. "Current government expenditure should come from tax revenues," Mr Khatami said. "Oil revenues should be used for productive investment." Mr Khatami has already been blocked by parliament from reducing the subsidies on many products including bread and petrol, reducing his room to manoeuvre.