Iranian Rial

[screwball]

2 minutes ago, screwball said:

CBI planned to change the currency in reporting foreign trade statistics from dollar to other foreign currencies at the end of the last Iranian year.

 

Yes oh sir! March 21 st

[screwball]

Bank Melli Iran has recorded a good year in its international dealings with the volume of foreign exchange transactions reaching "about €10 billion" during the previous fiscal year that ended on March 20, BMI's deputy for foreign exchange and international affairs said.

"We can try to absorb more foreign investments and increase the volume of foreign trade in light of establishing more correspondent relations," Gholamreza Panahi was also quoted as saying by Banker.ir.

According to the official, BMI is focused on the reach and variety of services in its correspondent relations and not just on increasing the number of its liaisons.

"For instance, when the Hamburg branch of BIM is connected to Target 2 (the leading European platform for processing large-value payments) and has the ability to move funds in all the countries of the EU bloc, the major part of banking services can be provided through one correspondent bank," he said.

In interacting with other foreign lenders, he added, BMI is currently focused on short- and long-term finance and providing two-way correspondent services to receive letters of credit for non-oil exports.

Noting that his bank has active correspondent accounts with over 170 peers, Panahi added that while banking ties were mostly based on importing goods and services to Iran in the past, "now that non-oil exports have grown significantly, attention must shift to it".

"When a bank agrees to establish correspondent relations with another bank, it is also accepting its risks concerning combating money laundering and financing terrorism. The Iranian banking system must strive to improve transparency and conform to international standards," he said.

Panahi said this will reassure correspondent banks to create links with their Iranian counterparts and help develop the country's trade and interaction at the international level.

[screwball]

The Central Bank of Iran has recently decided to move international settlements from Persian Gulf states to Russia and Turkey, said the governor of CBI.

"The decision is aimed at facilitating banking services and international clearance," Valiollah Seif was also quoted as saying by Mehr News Agency.

The CBI chief noted that international settlements was handled in Persian Gulf countries due to their easy processing and close proximity.

"Under the current circumstances, the settlement will be divided between a number of countries," he added.

Seif noted that a part of international settlements will take place in Turkey while the rest will be processed through countries that have not worked with Iran before.

"There have been negotiations with Russians to handle some settlements through them and their banks are gradually adjusting to the required systems," he said. 

[jaman]

"There have been negotiations with Russians to handle some settlements through them and their banks 

so  Russian Rubil it is 

[screwball]

Iranian-European banks to establish long-term ties soon

Tehran, April 29, IRNA – Long-term relations between Iranian and European banks are expected to develop especially in financing civil engineering and production projects, Governor of Central Bank of Iran (CBI) Valiollah Seif announced.

 

Seif made the remarks in the Fourth Iran-Europe Banking and Business Forum which was held on Saturday at IRIB's International Conference Center, Tehran.

Various banks have held detailed negotiations with Iran’s banking network, he said.

He pointed to the history of Iran nuclear deal which is also known as Joint Comprehensive Plan of Action (JCPOA), saying that it resulted in maintaining economic balance in the country.  

One of the JCPOA's achievements is that CBI and the banking system as well are fulfilling their responsibilities in planning, developing economy, strengthening financial sector, constructive engagement with international financial markets, establishing up-to-date standards, clarifying banking operation system, etc.

He referred to suitable conditions of Iranian banks and international institutions to resume baking ties with Iran, saying that Iran’s economy with unique capacities is one of the best possible alternatives for foreign investment.

Seif underscored the importance of the international cooperation role in revitalizing Iran's domestic economy and in technological development of the country.

[markb57]

On 4/26/2017 at 2:28 AM, screwball said:

Foreign exchange rates should be in line with economic realities but in order to forestall speculative activities, the Central Bank of Iran is keen on curbing the potential volatility that may arise from political events, the governor of CBI said.

"CBI does not predict the currency rates but tries to prevent any shock to the foreign exchange market," Valiollah Seif was also quoted as saying by ICANA.

Iran will hold a presidential election on May 19 in a race where the rivals of incumbent President Hassan Rouhani are attacking his economic record.

Seif noted that it is common in countries with oil revenues to witness shocks in their currency market when the oil price falls, "but we managed the market in Iran to follow a steady trend".

The CBI chief believes that tranquility in the currency market led to a relatively stable economy during the past four years.

"Part of the comments concerning the currency market is a specialized view and acceptable, while others seem to have political motives," he added.

Seif further said CBI's policies are not related to the upcoming presidential elections, but aim to control the market with a reasonable exchange rate.

The Central Bank has managed to control foreign exchange rates and promote stability in the forex market despite a turbulent season that saw the rial drop to historic lows against the dollar.

In the Iranian months of Azar and Dey (Nov. 21, 2016, to Jan. 19, 2017), the currency market witnessed fluctuations that were mainly caused by a peak in seasonal trips (pilgrimages to neighboring Iraq) and the US presidential vote, but the CBI restored stability to the market.

President Hassan Rouhani has described the restoration of market stability after a period of upheaval as the biggest achievement of his nearly four-year tenure that will end in August.

"Although our friends are sometimes divided over the biggest achievement of the government, I believe it's the return of calm and stability to the market," Fars News Agency quoted the president as saying on Feb. 27, 2017.

good grief...they sound just like Iraq. Thinking their toilet paper currency is worth something to leave it be as it is. What are these people thinking? 

[screwball]

Iran Air’s new Airbus A330 performed its first international flight on Wednesday.

The aircraft departed from Tehran’s Imam Khomeini International Airport at 8:02 a.m. and landed at Stockholm’s Arlanda Airport at 10:40 a.m.

According to Flightradar24, the plane is the first wide-body jet Iran Air has been delivered as part of the multibillion dollar deal it signed with Airbus on December 22 last year.

The aircraft was delivered on March 12 and since then has been operating domestic destinations until Wednesday. The flag carrier Iran Air has received another A330 in addition to a single-aisle A321.

Iran’s deal with Airbus pertains to sales of 46 of the narrow-body A320 family that includes the A321 model, 38 long-haul A330s and 16 of Europe’s newest long-range model, the A350.

[screwball]

 

1. Economy
2. Business And Markets

Thursday, May 04, 2017

European Finance Held Up by Banking Issues

 

 

 

German investors received more than $2 billion in loans in 2016 to finance Iranian projects, but these have been held up for various reasons, an official of the German financial regulatory authority BaFin announced.

“Iranian banks have been struggling with many challenges to reconnect to the global banking network, even after more than a year has passed since Iran’s nuclear deal with world powers,” Peter Kruschel, director of BaFin, was quoted as saying by IRNA during the Fourth Iran-Europe Banking and Business Forum held in Tehran this week.

According to Kruschel, this might be due to a significant obstacle in transferring money to and from Iran through the banking system.

In March 2012, the global transaction network SWIFT cut off Iranian banks over EU sanctions, which shut down a major avenue of doing business with the rest of the world.

In February 2016, after the end of a four-year restriction, most Iranian banks regained access to SWIFT.

Iran’s Ministry of Economic Affairs and Finance recently published a report detailing the performance of seven Iranian banks regarding correspondent relations, indicating that the international banking system is gradually warming up to reestablishing ties with the country following the nuclear deal signed in Vienna on 14 July 2015.

Kruschel said Iranian banks have now opened a few branches in European countries, although most banks of these countries are not eager to engage with their Iranian peers and only a couple of small European banks have interactions with their Iranian counterparts.

“This trend is not frustrating, but we must think of quickening the pace of collaboration between banks,” he said.

Governor of the Central Bank of Iran Valiollah Seif had previously said relations between Iranian banks and their counterparts have become more serious than before.

“The central bank’s statistics recorded 633 correspondent banks for Iran in the year to March 2007,” he had said.  According to Seif, the total number of correspondent banks had experienced a downtrend due to the intensification of sanctions, but after the removal of sanctions, the trend has reversed.According to the latest CBI statistics, in the 10 months to January 19, 2017, 234 correspondent banking relations were established by Iranian banks, which are expected to increase in the near future.

[screwball]

 (5951509) | Date: 01/05/2017 | Time: 20:38|

Print Version | Send To Friend

 

Newly-purchased ATR planes to revive half-closed airports

Tehran, May 1, IRNA – Iran’s newly-purchased ATR aircraft are predicted to revive tens of half-closed airports in the country, according to Gholam-Reza Salami, an advisor to the minister of road and urban development.

 

With the arrival of the new planes, each of the half-closed airports will see at least three flights a day, Salami said. 

Apart from a sum of five airports, other Iranian airports are loss-making, the official said, adding that ignoring the government’s major achievements in renovating the country’s air fleet is not fair.  

Noting that the government has purchased 180 passenger planes with a capacity of more than 100 seats, Salami hailed the purchase of 20 planes with a capacity of between 70 and 90 seats to revive the country’s loss-making airports.

9341**2050

 

i thought people buying tickets would revive the transport section...

[blueskyline]

http://www.iraqtradelinknews.com/2017/05/iraq-iran-sign-banking-cooperation-memo.html?m=1......

Friday, May 5, 2017

Iraq, Iran sign banking cooperation memo

 

Teheran/ Iraq TradeLink: Iranian Central Bank announced that talks were held with the Iraqi Trade Bank of Iraq (TBI) to coordinate financial cooperation.

 

In a statement, the two-day talks concentrated on completing the procedures to hold the joint banking committee during the coming two weeks.

 

The meetings were to follow up the cooperation agreement between Iranian and Iraqi central banks signed last year, the statement added.

 

It pointed out that the memorandum stipulated opening accounts in Euro currency and the mechanisms for settlement of financial obligations in local currencies.

 

[Freedomwish]

3 hours ago, blueskyline said:

It pointed out that the memorandum stipulated opening accounts in Euro currency and the mechanisms for settlement of financial obligations in local currencies.

 

Again, Hmmmmmmm...........

[screwball]

Iran is in various stages of integrating its bank card system with five countries for the citizens of both sides to be able to use their bank cards in each other's countries, the head of Information Technology Department at the Central Bank of Iran announced.

"Establishing bank card integration with countries that have a national payment network is a priority, which will create greater ease [of doing business]," Nasser Hakimi also told IRNA.

Hakimi noted that from among the five nations, Russia's bank card integration with Iran is more imminent

Russia has a nationwide payment network as does Iran, and given the geopolitical implications and importance of ties between the two countries, it is a sensible target for establishment of banking ties.

Hakimi said Iran-Russia bank card system integration is to be "finalized in the next few months".

The official referred to Japan as another important target country with which negotiations are in the final stages.

Technical steps needed to connect the bank card systems of the two Asian countries have been completed and the only thing left to do is to formalize it by signing the required agreements.

On linking the bank card systems of Iran with Azerbaijan and Iraq in order to offer banking services to tourists of both sides, the CBI official admitted that progress is coming off slowly as the two neighboring countries are bereft of a nationwide payment network.

China is reportedly on the list of target countries for bank card integration as well.

"Considering that China also has a national payment system, negotiations with the country is on the agenda," he said.

The inability of Iranian banking system to join the international card systems as a result of sanctions had created big hurdles for both foreigners spending money in Iran and Iranians shopping abroad, as the latter had to deal with the hassle of carrying large amounts of cash with them.

Defying Restrictions

After the implementation of the nuclear accord in early 2016, Iran has been formally negotiating with many countries and international companies in order to connect its banking network with the global system and offer Iranian citizens and businessmen broader services.

However, as pointed out by the managing director of payment systems at the central bank, one big and persisting barrier has been sanctions imposed by the US against Iran, which were first imposed after the Islamic Revolution became victorious in 1979 and are in place to this date.

"Many international payment companies are American or have major American shareholders and we cannot work with them because of primary sanctions," Davoud Mohammad Beigi had previously told IRNA.

In order to bypass these sanctions and work with other nations in spite of them, CBI has established case-by-case ties with various countries, especially neighboring countries in the Middle East, instead of directly trying to reconnect with global entities.

On the other hand, Informatics Services Corporation, a leading developer of banking and payment solutions in Iran, launched a formal bid to seek partnership with top payment solution suppliers to develop a national platform for the management of international card payments in October.

These suppliers include Japan's JCB and China's UnionPay in the short term, while Visa and MasterCard have been eyed for long term. 

[screwball]

Majlis Economic Commission coordinated a meeting between a Thai economic delegation and the Central Bank of Iran to inform the former of Iran’s economic regulations and latest statistics.

Chateaudun Naitasiri, the head of Economy and Finance Commission of the National Legislative Assembly of Thailand, headed the Thai delegation that consisted of representatives from the National Legislative Assembly of Thailand and a number of important Thai businessmen.   

Peyman Qorbani, CBI’s deputy for economic affairs, explained Iran’s economic situation to the Thai delegation while referring to the satisfactory economic relations between the two countries and calling for boosting bilateral business ties, CBI’s website reported.

The CBI official talked about Iran’s significant economic growth and its huge potential, such as the 28-million-strong young workforce ready to enter the market.

“In order to comply with global standards, the parliament approved the countering of financing of terrorism law while the CBI ordered banks to report their balance sheets in line with International Financial Reporting Standards,” he said.

The Thai delegation expressed interest in easing the bilateral payment process since tourism ties are developing between the two countries.

The head of Thai delegation also discussed expansion of bilateral relations with Mohammad Reza Pour-Ebrahimi, the head of Majlis Economic Commission, on Tuesday.

The Iranian official said the two countries should benefit from the opportunities emerging after the implementation of JCPOA (the formal name of Iran’s nuclear deal with world powers).

“To boost business ties, the two countries’ private sectors need to have close relations and we, as representatives of people, announce our intention to facilitate the process and resolve legal issues,” Pour-Ebrahimi added.

The head of Thai delegation said tourism, energy and agriculture sectors in Iran have great potentials and Thailand is interested in boosting relations in these sectors.

“Thai investors are eager to enter Iran’s market due to the country’s climatic diversity and frontier market status, therefore hurdles on the way need to be removed,” he added.

Naitasiri noted that banking relations need to improve further to witness a fast and easy money transfer between Iran and Thailand.

[screwball]

As the Iranian presidential election on May 19 draws closer and the bank-based economy has taken center-stage among candidates and the public alike, the Central Bank of Iran in a statement responded to a number of claims made by candidates that questioned the bank’s performance regarding illegal financial and credit institutions.

CBI touts regularizing credit institutions and cooperatives active in the unofficial money market and preventing the formation and development of illegal entities as one of its major efforts during the four-year tenure of of President Hassan Rouhani, a statement published on the bank’s official website said.

In the past few years, a large number of monetary and credit institutions, namely exchange houses, cooperatives, Qarzol-Hasaneh (interest-free) funds and leasing companies, spawned in the Iranian market in light of a banking system that was disrupted by years of sanctions and international isolation.

These organizations, according to CBI, were required to obtain operation license from entities that were not officially in charge of issuing them, namely the National Jewelry and Gold Union, Ministry of Cooperatives, Labor and Social Welfare and the Police Department.

In some cases, “they would be created without a license from any specific entities to work alongside the banking system in violation of the laws and regulations”.

As the central bank points out, these institutions cropped up between 2009 and 2011–when former president, Mahmoud Ahmadinejad, was in office–with the highest presence witnessed in Khorasan Razavi Province.

They expanded unhindered and set up many more branches throughout the country, which compelled the current administration to deal with the abundant problems created in the banking system and the money market.

In collaboration with the judiciary and law enforcement forces, CBI reports, it managed to reduce the share of illegal money and credit institutions from 20% in the past to less than 10% now that the first term of the incumbent government is coming to an end.

 Putting the House in Order

Four years ago, 11 illegal credit institutions with close to 3,000 branches in the country were reportedly active and expanding at a “disastrous” pace.

CBI reports that it has organized more than 1,000 branches of these institutions that operated without any licenses.

It has prevented the activity of illegal cooperatives such as Samen al-Hojaj and Mizan institutions that had 1,100 illegal branches, and “completely stopped” the expansion of illegal credit institutions’ branches.

While exchange houses without any effective online systems were active and had “created much volatility in the foreign exchange market”, CBI formed the Currency Supervision System (aka Sana) to monitor and identify legal moneychangers and implement oversight on their online transactions.

Furthermore, the activities of Qarzol-Hasaneh funds were shrouded in mystery as no credible information was available about them. More than 3,000 such funds were identified during the tenure of the current government and a databank was formed to organize them.

In conclusion, the statement notes that illegal leasing companies were creating “instability and crisis” in the monetary system of the country, while CBI endeavored to promote the work of legal leasing entities and reduce the share of illegal leasing companies in the money market.  

[screwball]

The general outlines of the amended “Sixth Five-Year Economic, Cultural and Social Development Plan (fiscal 2017-22)” bill was approved by the parliament late last year (ended March 20, 2016) and a week later by the Expediency Council.

Tables 1 to 3 exhibit various targets of the plan, according to the Middle East Bank’s latest quarterly report on Iran’s economy.

Among the most important articles in this plan are those aimed at alleviating the problems of the banking system.

Article 14 expands the Central Bank of Iran’s supervisory role in overseeing banking activities beyond those previously granted by the Monetary and Banking Act.

Accordingly, CBI will be able to restrict or ban major shareholders from receiving dividend payments and can also temporarily deprive them of their voting rights. It is also allowed to suspend some or all banking operations, and restrict or ban bonus payments to managers and disqualify the CEO or any member of the board of directors.

Besides, in order to extend CBI’s authority over the money market, it subjects all banking, leasing, foreign exchange operation and investment banks and funds to obtaining CBI permits.

Interest-free institutions (Qard-al-Hasaneh) with annual deposit takings of below 30 trillion rials are exempted from this law.

Although such institutions do not try to attract deposits by offering higher interest rates, they do contribute to money creation and they should be under CBI supervision.

On the membership of Money and Credit Council, Article 15 of the plan specifies its members and undermines CBI’s independence. The Guardians Council had earlier ruled that membership of individuals outside the executive branch would violate Article 60 of the Constitution.

Nearly all members are principally sympathetic to loan seekers and are prone to favor lower interest rates, regardless of the economic conditions.

[blueskyline]

http://www.tehrantimes.com/news/413161/Tehran-Baghdad-sign-banking-MOU......

Tehran, Baghdad sign banking MOU

1. Economy

May 6, 2017

 

TEHRAN- Iran and Iraq signed a banking MOU focusing on brokerage relations between the central banks of the two countries, the official website of the Central Bank of Iran reported.

As reported, the advisor of the governor of the Central Bank of Iraq and the chairman of the board of Trade Bank of the country visited some top officials of the Central Bank of Iran in Tehran to sign the MOU and also to implement the previously accorded agreements.
In their meeting, Iranian and Iraqi banking officials decided to hold a joint baking committee within a week in Tehran, comprised of representatives from both countries’ private and state-run banks.

HJ/MA

 

 

[Freedomwish]

11 hours ago, blueskyline said:

In their meeting, Iranian and Iraqi banking officials decided to hold a joint baking committee within a week in Tehran, comprised of representatives from both countries’ private and state-run banks.

 

Yup.......I sense both currencies may both pop at the same time if not, close to it....just a matter of "when".......yup.

[millionaire in training]

I believe that has been the plan all along.  

[Freedomwish]

21 hours ago, millionaire in training said:

I believe that has been the plan all along.  

[blueskyline]

Minister: Iran Resumes Exporting Electricity to Iraq

TEHRAN (FNA)- Iran started exporting electricity to Iraq after the Baghdad government agreed to pay its arrears in different installments, a senior energy official announced.

"Iran's export of electricity to Iraq stands at about 1,500 megawatts and the figure will fluctuate in different seasons as a result of change in temperature," Iranian Energy Minister Hamid Chitchian told reporters.

The Iranian energy minister reiterated that the export of electricity to Iraq was halted in late December 2016 immediately after termination of their contract with the Islamic Republic of Iran.

In relevant remarks in early January, Managing Director of Tavanir Electricity Generation, Transmission, and Distribution Company Arash Kordi announced that an Iranian delegation was in Baghdad to renew the contract on Iran's electricity sales to that country.

"The electricity exports were brought to a halt due to the expiry of the contract and the resumption of the process would require a new amendment to the contract," Kordi told reporters.

He reiterated that the new agreement needs to be modified in accordance with the current circumstances and the changes in currency prices among other major issues.

Asked about the possibility of an uplift in the volume of electricity exports to Iraq, Kordi said that general conditions had been laid in that regard though the issue would become clear once negotiations become finalized.”

[screwball]

Iran, Japan Expanding Banking Ties

1. Economy
2. Business And Markets

Saturday, May 13, 2017

Iran, Japan Expanding Banking Ties

 

 

 

Economic relations between Iran and Japan will enter a new phase after a planned $10 billion credit line is opened, said a senior assistant to the dean of Asian Development Bank Institute in Japan.”Three Japanese big banks, namely the Bank of Tokyo-Mitsubishi UFJ, Sumitomo Mitsui Bank and Mizuho Bank, have started interactions in the form of telegraphic transfer—an electronic method of transferring funds—and L/C at sight  with a number of Iranian banks. These banks’ transactions are taking place through Japanese yen, which reduces the risk of transaction,” Farhad Taqizadeh-Hesari was also quoted as saying by ISNA. Taqizadeh-Hesari said Japan’s crude oil imports from Iran witnessed a growth of 130% in the wake of the nuclear deal, while adding oil products to Iran’s export basket to Japan.

[screwball]

On 07/05/2017 at 2:58 PM, millionaire in training said:

I believe that has been the plan all along.  

Yes believe Iran will go under the cover of Iraq...

[screwball]

President Hassan Rouhani has been successful in focusing on small businesses as the volume of bank guarantees in their support has witnessed a significant rise, a report published by the Ministry of Industries, Mining and Trade showed.

As small businesses play an important role in generating jobs, backing these ailing enterprises has been a priority for the current administration by strengthening investment guarantee funds as one of the main ways of doing so.

“Reviewing the performance of the fund to support investment in small businesses from the start of the fiscal March 2013-14 until the end of the previous year (March 20, 2017) shows that many indicators regarding issuance of bank guarantees have had a dramatic growth during the tenure of the current government,” cites the report according to IRNA.

During the aforementioned period, a total of 727 bank guarantees were issued or extended which, in comparison with the period from the start of the previous government (2010) until September 22, 2013, when the number of issued or extended bank guarantee stood at 404, indicate an 80% increase.

At 3.37 trillion rials ($89.8 million), the value of guarantees shows an 85% increase compared to the same period.

In its performance report, the fund has announced that from March 2010 until March 2017, 903 bank guarantees were issued for small businesses with a combined worth of 4.1 trillion rials ($109.3 million), 551 of which worth 2.5 trillion rials ($66.6 million) were issued by the current government.

The government focused on small businesses that were already active when it came to office by issuing 106 counts of guarantees to support development plans in the 42-month period leading to the end of the previous fiscal year. The total worth of these guarantees stood at 418 billion rials ($11.1 million).

The previous administration headed by Mahmoud Ahmadinejad issued 24 guarantees worth 108 billion rials ($2.87 million) during the same period, which shows a 342% growth in the number of guarantees issued and a 287% increase in volume for the Rouhani administration.

 Guarantee Fund Improvement

According to the report, the current administration has also improved the fund’s overall performance during its tenure. In the previous year, 234 guarantees were issued at a total worth of 1.2 trillion rials ($32 million), indicating a 25% and 66% growth respectively in terms of number and volume compared with the year before.

During all the years the fund has been active, it has issued and extended 1,174 counts of guarantees worth 5.3 trillion rials ($141.3 million).

Rouhani’s government has been responsible for generating one-fourth of all these guarantees.

During the previous fiscal year, 31% of guarantees were issued for establishing new businesses, 29% were allocated to working capital, 11% were for development projects, 8% were for the purpose of pre-payment and purchase credit, 9% were issued because of the successful fulfillment of previous commitments and 12% were allocated for participating in tenders.

Bank Sina, Bank of Industry and Mine, Agriculture Bank, Bank Melli, Bank Sepah and Karafarini Omid Fund paid the highest amount of loans through guarantees issued by the fund last year.

According to the CEO of Iran Small Industries and Industrial Parks Organization, bank guarantees are issued to small businesses with a fee of 0.5 -2% and without collaterals for loans up to 5 billion rials ($133,000.).

“These bank guarantees will only be issued by providing checks and promissory notes and the title deed for the place where the project is being executed will be used as guarantee,” Ali Yazdani also told IRNA.

[screwball]

The economy minister in his latest press conference elaborated on the country’s oil income and banking system partly in response to the claims of candidates running for president in the May 19 elections.

“In the previous fiscal year (ended March 20, 2017), when all the sanctions were removed and we reached the height of our exports, our oil income was 720 trillion rials ($ 19.2 billion),” Ali Tayyebnia was also reported as saying by Mehr News Agency.

According to the minister, the country must invest three times the amount of that oil income to increase cash subsidies, which would entail a threefold increase in taxes.

If that were to happen, it “would exert a negative effect on the livelihood of the people and manufacturing units, will bankrupt everyone and will increase unemployment”, he added.

His remarks were in response to claims by principlist candidate Ebrahim Raeisi who had said in the latest presidential debate that the country is unable to receive its oil income and he also promised to increase subsidies allocated to the lowest-income deciles of the country by three times.

The economy minister noted that the national income had dwindled by 20% in 2013 and the public felt the hardest blow. This led the government to focus on incomes, but it had to be done by creating stability in the economy and the currency market.

According to Tayyebnia, 950,000 new jobs must be generated annually and this requires an 8% GDP growth that can only be realized when the government and the private sector jointly invest 7.7 quadrillion rials ($) per year.

He underscored the importance of annually attracting foreign investments worth $65 billion and said the confidence of private sector investors and trust of foreign investors must be boosted and coupled with widespread reforms in the banking sector.

The Iranian economy’s government- and oil-centered basis was criticized by Tayyebnia who said these hinder the country’s success in reaching its 8% GDP target.

The administration of President Hassan Rouhani has been emphasizing the necessity of generating tax revenues to replace oil income and lower oil dependency, with Tayyebnia calling it “the most important project implemented in the country” in his press conference.

General reforms in the Iranian banking regime was also a hot-button topic, a main propeller for which have been intertwined with government plans to increase the capital of banks and repay its debt to them.

With the implementation of the plans, “the capital of the government in state-owned banks, which was 112 trillion rials ($) in 2012, has now reached 540 trillion rials ($)”, he said.

“That is because we know that with every single rial of capital increase in the banking system, the lending power of banks is increased by 12 times.”

As outlined by the economy minister, 130 trillion rials ($) of government debts to the banking system were cleared during the previous fiscal year, with a further 100 trillion rials ($) earmarked for the current year.

The minister of economy said the ratio of non-performing loans to total loans has dwindled from 14% four years ago to 10% at present, saying a number of banks have managed to reduce it to 7%.  In response to Raeisi’s claim that the Iranian banking system is still cut off from international banks, Tayyebnia said 250 correspondent banks are now working with Iran, while their number stood at 40 in 2012.

“This is while one of these banks alone has correspondent relations with more than 1,000 banks,” he said.

[screwball]

f Throwing Money at Economy

 

A500,000-rial ($13.3) rise in cash subsidy payments for each Iranian will result in a 6.4% increase in consumer price index the following year, pushing up the inflation rate from 11.2% to 17.6% by the end of the current Iranian year (March 20, 2018).

This was announced by Majlis Research Center in a report titled “Throwing Money at Economy: Basics and Consequences”.

The report is seemingly released to shed light on the consequences of campaign promises made by two presidential candidates, namely Mohammad Baqer Qalibaf and Ebrahim Raeisi. Highlights of the Persian report follow:

Despite their limited fiscal room (the flexibility of a government in spending choices), some governments might be willing to increase their spending well below their potential to serve either economic purposes (e.g. raising inflation and output in the economy), or political objectives (showering their citizens with money and gift to win them over at the time of elections.)

The fiscal deficit created as a result of such measures might be financed through different means, including debt creation by issuing bonds, direct borrowing from the central bank (either quantitative easing or helicopter money), increasing currency rates, raising prices of commodities provided by the governments (namely energy carriers and fuel) or raising tax revenues.

Most of the above approaches, particularly direct programs undertaken by central banks, are examples of throwing money at the economy.

The money borrowed from the central bank could have different effects on the economy, depending on the state of the economy. For example, the consequences of carrying out quantitative easing wherein the central banks buy assets that the government has to pay back are different from helicopter money, which is not an interest-free loan to the government and is in fact a gift.

According to Investopedia, helicopter money implies free and irreversible distribution of money to end-consumers. It can be achieved by literally transferring money to individuals’ accounts for free or by reducing taxes universally to all households enabling more disposable money in their hands.

Such measures are utilized when the economy is facing a slowdown or in recession and interest rates are hovering around zero or even turning negative and the central banks are willing to get higher inflation and stronger growth.

This monetary tool should not be used in countries grappling with high inflation rates or interest rates.

  Macroeconomic Populism

Macroeconomic populism is an approach to economics that emphasizes growth and income distribution and deemphasizes the risks of inflation and deficit finance, external constraints and the reaction of economic agents to aggressive non-market policies.

It originally refers to the policies by many Latin American administrations by which government spending and real wages increase in a non-sustainable way leading to inflation, stagflation and ultimately an economic collapse that lowers real wages below the level prevailing before the populist move.

A populist cycle generally follows a stabilization program. The economy has idle capacity and the external balance has room for an expansionary policy.

Phase I includes a high increase in public spending, real wages and employment. Gross domestic product increases and there is low impact on inflation. Shortages are alleviated by imports and there is a reduction in reserves or debt default.

Phase II includes an increase in inflation, although wages rise. Bottlenecks lead to price and exchange controls. The budget deficit increases considerably as a result of subsidies and the economy runs into stagflation.

Phase III is characterized by shortages, extreme acceleration of inflation (possibly hyperinflation) and capital flight. A decline in tax revenue combined with high inflation results in an increase in budget deficit. A stabilization attempt by reducing subsidies and devaluation leads to a drop in real wages. It becomes clear that the government has lost out.

In Phase IV, a new government implements orthodox policies to stabilize the economy. Once the economy is stabilized, real wages will have fallen lower than before Phase I began.

  Scenarios for Iran’s Economy

To study the consequences of throwing money, imagine each unit of money injected in to the economy equals 500,000 rials ($13.3) and the government is willing to carry out a plan on a 500-trillion-rial ($13.33 billion) budget deficit.

It needs to be mentioned that the inflationary effect of distributing 500,000 rials per head will depend on where these resources come from.

Choice 1: If the government intends to receive the fund from the Central Bank of Iran, monetary base in the fiscal March 2017-18 will see a 27% rise and this policy alone will bring about an inflationary effect of around 6.4% this year.

In other words, the inflation rate will rise from 11.2% to 17.6%. Given the growth of monetary base and liquidity, the inflationary effect will be significant in the following years.

Choice 2: Increase in energy prices, for example, raises gasoline prices to 27,000 rials (72 cents) a liter from the current 10,000 rials (26 cents) per liter, which translate into a 6.9% rise and an inflation rate of over 18% in 2017-18.

Choice 3: Should the government decide to borrow its needed money from sources other than CBI (such as selling debt bonds), a 5.5% increase in inflation is on the horizon.

Choice 4: If the government raises the currency rate to 61,000 rials per US dollar, inflation will jump by 6.8%.

An average increase in inflation rate is estimated to reach 6.4% in the first year after raising cash subsidies by one unit (500,000 rials).