Among the most important novelties of the 633.700 billions Iranian Rials (83 billions US Dollars) draft budget is the application of a single exchange rate, calculated at 1.750 IR for the Green back, which is close to free market rate of around 8.000 IR.

Noting that 66 per cent of the new budget, calculated on the basis of 18 USD for barrel of oil, the main source of Iranian revenues, goes to State-owned firms, banks, foundations and other privileged companies, most of them loss-making, Dr. Fereydoon Khavand, a Paris-based economist, said both the draft budget and the figures for the past exercise were "over optimistic, if not exaggerated".

According to the draft, GDP growth for the coming year would hit 5.8 to 6 per cent, thus placing Iran among the fastest growing economies of the third world nations, in sharp contrast with a 3 per cent forecast by independent firms that say next year’s international economic outlook would be the worst in the past 55 years.

Experts also doubted figures presented by Mr. Khatami for both the past and future exercises, including inflation, job creation and subsidies.

"The government's policies in the 1381 budget bill are aimed at a sustained economic growth, social justice and employment of productive elements realistic", the 57 years old middle rank cleric Khatami told the Majles, adding that inflation rate is projected to hover around 12-14 percent and economic growth rate is seen to edge up at 5.5 or six percent and State spending is expected to grow by 14 percent.

"One does not know where the Budget and Planning Authority have got their figures, at a time that Iran’s GDP is half of that of Turkey, equal to that of Egypt and far bellow Israel, with a population one tenth of Iran’s", one Iranian economist observed, speaking on condition of anonymity.

He said real inflation was around 20 per cent; the government hopes to create 300.000 jobs while it must create at least 800.000 new ones for the one million young job seekers who hit the market every year, or we shall have more than 8 millions unemployed by the (Iranian) year of 85.

"The budget furthermore lacks transparency regarding the reality in the market and follows the same unrealistic-euphoric pattern as in previous years", both Mr. Fatemi and Mr. Khavand said.

According to the president, the Iranian economy is emerging from stagnation and production and investment indices show a growth.

"Gross domestic product (GDP) registered a 5.9 percent rise in the last Iranian year which ended March 21, 2001, Khatami said, adding investment growth has reached 8.4 percent. This growth rate stood at 9.6 and five percent in the industry and services sectors respectively", he said.
Economists also disputed that the budget was balanced, projecting a "hidden deficit" of 12 USD billions.

Under pressure from both the conservatives and the left wing of his own coalition, the President kept the subsidies for basic food and commodities, including fuel oil, sugar, wheat, until a comprehensive system of social welfare like the one existing in the West could be worked out.

"As for the issue of subsidies and the price of gasoline, we must perform emergency economic surgery in order to achieve practical results and implement a free market economy", "Iran News" said.

But he acknowledged that "all is not so rosy for the struggling Iranian economy", citing undefined "major challenges" hampering a "smooth economic rehabilitation" which is still reeling from the 1980-1988 Iraqi-imposed war as well as foreign sanctions.

"Citing these achievements do not mean we consider the ongoing situation favorable and are satisfied with the pace of measures taken," he said.
Iran, with a population close to 70 millions, is struggling hard to wean its economy from dependence on petrodollars, which constitute 80 percent of the country's foreign exchange earnings. This makes the country vulnerable to economic instability and social instability due to oil price fluctuations.

Meanwhile, Mr. Khatami said he hoped that the bill for encouragement and protection of foreign investment as well as another bill on direct taxation would be approved by the conservatives-controlled Council of Guardians (CG) that has blocked many of government’s initiatives for attracting foreign investments.

President Khatami told reporters after submitting the next year's budget draft to the parliament that a bill on customs duties would soon be submitted to Majlis which if approved and turned into law all relevant problems would be removed.

He said the government is determined to carry out structural reforms and despite all the existing pressures it has been able to go ahead with its programs.