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Iran parliament frees government hand over subsidies

TEHRAN (Reuters) - Iran’s parliament voted on Sunday to give the government a free hand to spend money saved from cutting food and fuel subsidies, in an apparent victory for President Mahmoud Ahmadinejad.

EDITORS' NOTE: Reuters and other foreign media are subject to Iranian restrictions on their ability to film or take pictures in Tehran. Iranian President Mahmoud Ahmadinejad in Tehran November 5, 2009. REUTERS/Caren Firouz

Removing subsidies would ease a heavy budget burden and make Iran less vulnerable to any new U.N. sanctions on imports over Tehran’s disputed nuclear energy programme, which Washington says is a front for building weapons. Tehran denies this.

But higher consumer prices could also hurt the poor and stoke unrest. The introduction of a gasoline rationing plan in mid-2007 sparked riots in Tehran.

Sunday’s vote, broadcast live on state radio, means the government of the major oil producer can spend the money in any area it sees fit, though the cash remains linked to the state budget where parliament has oversight powers.

Last week the assembly passed an amendment linking the proposed cut in food and gasoline subsidies to the budget and forced the government to put the money into a special account for public spending.

The vote ruffled Ahmadinejad. He made a surprise appearance in parliament to argue against the change and afterwards threatened to withdraw the bill to cut subsidies altogether.

Parliament’s initial approval of the subsidies plan last month was seen as a sign Ahmadinejad was consolidating his position after the huge protests against his June reelection.

Police clashed with supporters of opposition candidate Mirhossein Mousavi last week during a rally marking the 30th anniversary of the storming of the U.S. embassy.

Critics say that phasing out subsidies, even over the planned five-year period, would hurt the poor by pushing up inflation, now officially about 10 percent.

Media have said the government intends to open bank accounts for 36 million people, about half its population, to give them cash to compensate for higher food and energy prices.

On Sunday, MPs also removed reference to the next Iranian year, which starts at the end of March, as the starting point for the bill, which requires the approval of hardline watchdog body the Guardian Council before finally coming into effect.

Budget plans are normally submitted to parliament in January or February, ahead of the new year.

Parliament will vote on Nov. 15 on three of Ahmadinejad’s nominees for the final vacant ministries in his new cabinet: Hamid-Reza Hajibabaie, a former MP, for education minister, Sadeq Mahsoul, interior minister during the June election, as social welfare minister and Majid Namjou as energy minister.

An oil minister has already been appointed.

Reporting by Reza Derakhshi; writing by Andrew Hammond; editing by Andrew Roche