By NASSER KARIMI

Source: Bloomberg BusinessWeek

March 16, 2010

TEHRAN, Iran

Iran’s parliament has given final approval for a $368 billion budget bill for the current Iranian calendar year, bowing to the hardline president’s full request despite concerns it includes measures that would stoke inflation.

The final approval Monday came after lawmakers last week had initially approved a $347 billion budget for the 12-month period from March 2010 to March 2011, slashing $20 billion of the $40 billion President Mahmoud Ahmadinejad had requested as direct payments to the neediest Iranians to offset the impact of a phased fuel and food subsidy cut.

Several Iranian newspapers, including the economic daily Donyae Eqtesad which reported the budget’s approval on Tuesday, did not explain how the government planned to come up with the additional $20 billion.

Iran, a key OPEC exporter, earns up to 80 percent of its foreign revenue from oil sales. The new budget is based on oil at $65 per barrel while oil is currently in the range of about $80 per barrel, a level the U.S. Energy Department’s statistical arm projects could hold for the rest of the year.

The budget bill must still be approved by a constitutional watchdog before becoming law, but its passage with the full amount requested by Ahmadinejad was a reflection of the hardline government’s lobbying power.

Critics have argued that the subsidy cuts — planned over a five-year period — and distributing the money directly to the poor could cause a 50 percent spike in inflation, straining an economy already struggling under double-digit inflation, high unemployment and the impact of U.N. and U.S. sanctions.

Iran also faces the possibility of further sanctions because of its controversial nuclear program. The U.S. and other Western nations believe the program is geared at developing weapons while Iran insists it is for peaceful purposes such as generating electricity.

Ahmadinejad’s push for the full $40 billion under the new budget, however, also reflects the country’s dire economic situation.

Subsidies consume about 30 percent of the government’s budget, or $100 billion, and Ahmadinejad has come under heavy criticism that he squandered the country’s oil wealth on populist projects aimed at winning him support among poorer Iranians at the expense of the economy.