UPDATE 2-Iran parliament may halt Ahmadinejad economic policy

* Parliament to consider suspending subsidy reform

* MPs blame rising inflation, collapse of rial

* Parliament to question ministers, possibly Ahmadinejad

* President offers no solution to rial drop in speech

* Money changers refusing to sell dollars

(Adds parliament to grill officials, price details, analysis)

By Yeganeh Torbati

DUBAI, Oct 7 (Reuters) - Iran's parliament voted on Sundayto consider suspending plans for further reform of the country'sfood and fuel subsidies, with legislators citing economic paincaused by the plunge of the rial currency.

Subsidy reform has been a centrepiece of the economicpolicies of President Mahmoud Ahmadinejad, so parliament's votewas a political blow to the president at a time when he facesgrowing public discontent over the rial's slide.

Of 240 members of parliament present, 179 voted to considerwhether to halt the second phase of subsidy reform, according tothe Iranian Labour News Agency. It did not say when the decisionwould be made.

The reform aims to ease pressure on state finances bycutting tens of billions of dollars from the amount which thegovernment pays to subsidise low consumer prices for food andfuel, while offsetting the impact on Iran's poorest citizens bygiving them monthly cash payments.

"In conditions in which the inflation rate is increasing andthe currency market is in disorder, the second phase of this lawmust be stopped," said Gholamreza Mesbahi-Moghaddam, head ofparliament's budget and planning committee and author of themotion, according to parliamentary news agency Icana.

The government introduced the first stage of subsidy reformin late 2010. At the time, Ahmadinejad called it the "biggesteconomic plan of the past 50 years".

But domestic critics including many members of parliamentsay the reform has contributed to soaring inflation, which isofficially running at around 25 percent, and charge that theplan has been used by Ahmadinejad for his own political benefit,because he can control welfare payments under the scheme.

Parliament's vote on Sunday was a fresh sign that Westernsanctions against Iran, imposed over its disputed nuclearprogramme, are having a fundamental impact on its economy.

Last week police clashed in Tehran with protesters who wereangered by the collapse of the rial, which lost a third of itsvalue against the U.S. dollar over 10 days as the sanctions cutthe country's ability to earn hard currency from oil exports.


Ahmadinejad's term as president ends in mid-2013 but someanalysts think Supreme Leader Ayatollah Ali Khamenei couldremove him before then if public discontent continues to worsen.

Jafar Qaderi, spokesman for a parliamentary committee formedto support producers of goods, told Icana the committee wouldcall central bank governor Mahmoud Bahmani and the industry andoil ministers for questioning about the rial crisis on Monday.

Parliament members also want to summon Ahmadinejad forquestioning about the rial, but their request must still beapproved by a parliamentary supervisory board.

In a speech on Saturday, Ahmadinejad referred to thecurrency crisis but did not offer solutions.

"Messing up the market...and the efforts by some toundermine the morale of the people are devilish acts," he said,according to Fars news agency.

The rial's drop is pushing down living standards. AlthoughIranians say there are no significant shortages of dailynecessities, imported goods, including food and some medicines,have rocketed in price or become difficult to find.

"The situation is getting really bad in Iran because of ourcurrency," said Saleh, a 48-year-old Iranian sailor whose woodendhow was visiting Dubai to trade. He declined to give his fullname because of the political sensitivity of his remarks.

A 40 kg (88 lb) bag of imported Indian basmati rice, whichcost around 800,000 rials in Iran three months ago, now costs1.7 million (roughly $45 at latest exchange rates), he said.

"People are frustrated, I'm frustrated. I have problemstaking care of my family now. Food is expensive but we have nochoice but to buy it," said the father of four.


The government has tried to boost the rial by pressuringdealers to trade at certain rates and by arresting moneychangers whom it blames for speculating against the currency.

Tehran's prosecutor, Abbas Jafari Dowlatabadi, said 30 "mainsuspects" had been arrested for meddling in the currency market.They were found with large amounts of foreign exchange and goldcoins bought illegally, Dowlatabadi said, adding that morearrests were expected, according to Fars.

But so far official pressure seems to have backfired. Manymoney changers in Tehran are not willing to trade at state-setrates and too frightened to trade at black market rates.

This is depriving many Iranians of access to hard currencythey want for overseas travel and foreign study, and to protecttheir savings against inflation. The Iranian Students' NewsAgency said dealers in Tehran's Ferdowsi Avenue and Istanbulintersection were not selling dollars at any rate on Sunday.

(With additional reporting by Amena Bakr, Writing by AndrewTorchia; editing by Ron Askew)

((yeganeh.torbati@thomsonreuters.com)(+971 50 698 8495)(ReutersMessaging: yeganeh.torbati.thomsonreuters.com@reuters.net))