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Last Updated: Monday, 16 August, 2004, 07:39 GMT 08:39 UK
Iranian economic reform falters
oil installation
Oil is the lifeblood of Iran's economy
The Iranian parliament on Sunday voted against key parts of a reform plan aimed at opening up the economy to foreign investment.

The rejected proposals would have given oil exploration companies the right to exploit their discoveries.

They would also have paved the way for the sale of state-run banks, and allowed foreign banks to open in Iran.

The vote marks a setback for Iran's reformists, who lost control of the parliament in February.

Oil economy

The rejected measures formed a central plank of an ambitious five-year reform plan aimed at stimulating Iran's battered economy by privatising some state-owned companies, and attracting more foreign investment.

Analysts say that without foreign money, Iran is unlikely to achieve its objective of doubling its oil output to 8 million barrels a day by 2020.

Foreign oil firms had welcomed the proposal to give exploration companies the automatic right to exploit reserves they discover.

At present, successful exploration companies must enter a state-run tender to develop their discoveries, with no guarantee of success.

The failure of the proposed overhaul of the banking sector looks set to scupper tentative plans by some western banks to set up shop in Iran.

Standard Chartered and HSBC are among big-name banks thought to have expressed an interest in opening branches in Tehran.

Foreign influence

Mohammad Mir-Mohammadi, a conservative member of parliament, said the vote had prevented "foreign dominance over Iran's economy".

Iran is under pressure to maintain high rates of economic growth so as to provide employment for its large and fast-growing workforce.

High oil prices have fuelled strong expansion in recent years, but economists say the country urgently needs to reduce its dependence on oil.

The Iranian economy is dominated by the state and its infrastructure, battered by the Iran-Iraq war and starved of investment as a result of US-imposed economic sanctions, is in urgent need of upgrading.

Iran's reformist president, Mohammad Khatami, has championed efforts to modernise the economy and attract foreign investment since taking office in 1997.

But in February, his followers in parliament lost their majority to conservative hardliners after voters became disillusioned with a lack of economic progress.





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