TEHRAN, Aug 17 (AFP) - Plans to reform Iran's largely state-run economy have suffered a major setback after the conservative-dominated parliament blocked reforms aimed at opening up the economy to much-needed foreign investment.
The parliament, or Majlis, on Sunday voted down plans put forward by its reformist-controlled predecessor allowing the privatization of Iranian banks and the presence of foreign banks in the Islamic republic.
To "prevent foreign dominance of Iran's economy", MPs also voted against a proposal that would have allowed oil prospectors to exploit their own finds. Instead, successful prospectors must bid against competitors in a state-run tender.
The conservative-run Majlis took office in May after the Guardians' Council, a hardline unelected political watchdog, barred most reformists from contesting elections last February.
MPs Sunday endorsed the rejection by the Council, which also vets legislation, of the last parliament's moves to stimulate the lumbering state economy through a combination of foreign investment and privatization as part of the 2005-10 five-year plan.
According to Hamid Reza Hajibabaie, a conservative MP, the development plan "was not based on social justice but on excessive capitalism and privatization".
Several foreign banks had reportedly expressed interest in setting up branches in Iran.
Britain's Standard Chartered bank planned to open a branch in one of the country's free trade zones in October -- the first such venture since the Islamic revolution 25 years ago.
Abdollah Ramezanzadeh, spokesman for the government of pro-reform President Mohammad Khatami said that the aim of the rejected plan had been to achieve eight percent growth and decrease the gap in per-capita earnings with other developing countries.
And he added that with the changes "the government will not accept any responsibility for any future shortcomings in peoples' livelihood."
Deputy oil minister Mahmoud Astaneh added that MPs had also effectively cut state revenues by more than 80 billion dollars (65 billion euros), thus making it impossible to develop Iran's oil and gas sectors.
Iran wants to double its oil production to eight million barrels a day within the next 15 years, and the move will "undoubtedly create enormous problems in future", he said.
Financial analyst Saeed Leylaz told AFP that "the Majlis's move is more political than economic, and goes against all three previous development plans (1990-2005), which advocated economic liberalisation... basically it is a strategic retreat."
"This move is also in line with anti-detente policies currently being followed" by the conservative camp, he said, adding, "the conservatives are not looking for economic transparency, so a state-run economy is in their favour."
The Iranian economy is around 85 percent state-run and its infrastructure has suffered greatly because of the eight-year Iran-Iraq war as well as US-imposed economic sanctions.
The Majlis' decision virtually puts paid to Khatami's efforts to revive the economy through legislation, which he had seen regularly blocked by the Guardians Council, and leaves him a lame duck president until elections next year.
The Majlis has also decided that the state will retain 51 percent of the ailing national airline, Iran Air, in order to "prevent the private sector from taking over the majority", press reports said Tuesday.
The remaining 49 percent will be sold off, while parliament approved the flotation in its entirety of Iran Air Tours, an Iran Air subsidiary that handles around 30 percent of domestic flights.
Shares in Iran Air will not be easy to sell, as the company is thought to have suffered losses of some 122 million dollars (100 million euros) from 2002 to 2003 and private investors would be reluctant to invest in a company while the government retains majority control.