Iranian Rial

screwball · August 27, 2017

In line with the general policy of conducting foreign exchange transactions through the banking system rather than exchange shops and stabilizing the market, the Central Bank of Iran is allowing lenders to purchase the hard currency of exporters at open market exchange rates, CBI’s head of exports department said.

“Non-oil exporters can sell their forex export revenues to the banks, making use of correspondent relations between lenders,” Samad Karimi was also quoted as saying by CBI’s official news website.

“Should the agent banks face a deficit in rial resources, the central bank will move to purchase the forex assets of exporters at open market rates,” he added.

Banks are able to purchase the forex revenues of exporters based on a directive issued by the central bank in early August last year, decreeing that “banks are hereby allowed to purchase forex revenues from non-oil exports of real and legal entities, which enter the country through diplomatic representatives and foreign investors at open market rates”.

The directive also allowed lenders to sell the purchased currency to other banks and bureaux de change.

The goal of the directive is to redirect to the banking system forex operations that were transferred to moneychangers as a result of sanctions that targeted the Iranian financial system.

Another measure in line with this, as elaborated by Karimi, was another edict issued about three months later that allowed the banks to purchase their required currencies from the central bank itself in case they face any deficit.

Based on that directive, lenders were permitted to purchase their forex requirements at unofficial market rates.

screwball · August 27, 2017

One bill down

In case of disagreement between the Central Bank of Iran and the Audit Organization of Iran over who gets to set financial reporting standards for banks and credit institutions, which issue has already borne significant costs for lenders, the parliamentary think tank has ruled in favor of the central bank.

Majlis Research Center, the parliament's research arm, has now released its analytical report on its website, reviewing the case and lending its support to the central bank.

For years, as the country was grappling with the heavy pressure exerted by international sanctions on the Iranian financial system, banks were the most isolated even as the international banking system was undergoing groundbreaking changes in terms of upping its standards in the aftermath of a global financial crisis.

This caused the balance sheets of Iranian lenders to be overwhelmingly outdated and remains one of the most significant obstacles to their reconnection with their international counterparts.

However, an internal disagreement between the two major organizations created further confusion and delay in their conformity to the International Financial Reporting Standards, a set of globally accepted accounting standards development by the independent, not-for-profit organization International Accounting Standards Board.

Less than two years ago, the central bank devised its own set of standards and templates, and obligated banks to adhere to them to get closer to IFRS. However, the audit organization, affiliated with the Ministry of Economic Affairs and Finance, rejected CBI's claim and was backed by the Securities and Exchange Organization of Iran who bound the banks to devise their balance sheets in conformity with standards dictated by the audit organization.

This forced the embattled lenders to devise two sets of balance sheets to appease the deciding entities.

Nevertheless, the research center advises that "legal ambiguities must be resolved and the central bank must be introduced as the legal entity for devising financial reporting standards for banks and credit institutions".

This ruling has been made in light of CBI's intrinsic supervisory mandate and the commendable efforts it has undertaken in the past few years in line with IFRS conformity.

MRC concedes that "the templates released by the central bank are still not completely in concordance with IFRS", but adds that the templates are the first step in fully adhering to international standards, as it will be a lengthy and gradual process just as it has been for other countries.

The complete implementation of IFRS could potentially create overwhelming changes in the financial statements of lenders, so it must be done with much forethought and preparation.

Compared with previous balance sheets, MRC notes, the templates released by CBI are different in 169 cases, "16 of which are fundamental changes that are also in line with Usury-Free Banking regulations" that are being altered for the first time in the past 32 years.

There are also 100 minor changes related to improving transparency and disclosure of information while 53 changes made in the new templates are direct measures made in line with IFRS conformity.

As MRC also outlines, the disagreement between the central bank and the audit organization has led to difficulties in holding the annual general meetings of banks and credit institutions.

As was recently reported, after a significant number of lenders failed to hold their shareholder's meeting last year, by the end of the first month of summer on July 22—the deadline for holding meetings this year, nine online banks managed to adhere to CBI templates and held their meetings.

However, 20 banks and credit institutions, including some of the biggest names in the banking system, are still lagging behind.

The parliamentary research center noted that by electing the central bank as the official entity in charge of balance sheets, these problems would be resolved and that the CBI has the right legal claim.

In fact, regulations cited in the Fifth Five-Year Development Plan that authorized CBI to devise reporting standards are more recent than those permitting the audit organization while regulations in favor of CBI are more specialized while the ones allowing the audit organization are more general in nature.

In its proposals, MRC recommends the central bank and the audit organization jointly devise accounting standards that would improve the performance of auditors "in proportion with the needs of the central bank".

What is more, the think tank calls on CBI to form a committee tasked with undertaking serious and unwavering oversight over the performance of auditors.

Owing to the fact that in recent years a significant portion of banking assets has been locked away in the form of non-performing loans, MRC directs CBI, the audit organization and independent auditors to act in unison in implementing the CBI directive on categorizing the assets of banks and how their NPLs are calculated.

Lack of sufficient provisions for NPLs in the balance sheets of lenders has been identified as a significant challenge for IFRS conformity and another reason behind the delay in convening shareholder's annual general meetings.

In conclusion, the parliamentary think tank calls for "stricter auditing of the deals made by banks" so that any profit generated by them in contrast with accounting standards and CBI regulations would be identified and tackled.

screwball · August 27, 2017

The Central Bank of Iran has finally stepped in and put a stop to the trading of the so-called Sakhab bonds by banks and delegated them to the Securities and Exchange Organization.

Sakhab is one of the many types of debt securities issued by the government meant to clear its debts to contractors. It matures in a year and is priced at 1 million rials ($26.1) per bond. It could only be traded in certain branches of Bank Melli Iran.

Things seem to have come full circle, considering that the SEO had previously refused to accept more Islamic treasury bills in the capital market in March and the government decided to sell them through banks. Consequently, the only result so far has been to antagonize investors and playing into the hands of middlemen who benefit from lack of transparency in an unregulated market.

In a letter publicized on Tuesday, CBI’s head of Credit Department, Ali Asghar Mirmohammad-Sadeqi, announced that “banks and credit institutions are no longer allowed to participate in the secondary trading of sukuk”.

The new Minister of Economic Affairs and Finance Masoud Karbasian also echoed similar remarks during his inauguration ceremony on Wednesday, vowing to stand against the issuance of any bond issued by the government outside the capital market.

The government started issuing bonds for its debts to contractors in 2015 and they were exclusively traded on the over-the-counter market Iran Fara Bourse. But that was only until this year’s March when the bonds’ high rates and low risk made them rival equities and the government was pressured to refrain from issuing more.

According to a report published by the Ministry of Economic Affairs and Finance, the return on one-year bonds stand at about 27-29%, while the rate is down to 20-23% for bonds maturing on more than a year.

In a controversial move, the government issued 120 trillion rials ($3.13 billion) of Sakhab bonds late March and handed over the secondary trading to the banks. The opaque condition of secondary trading prompted the mushroom-like growth of a black market and eventually gave rise to a more severe condition.

Cash-starved contractors predominantly cannot afford to wait for the bonds to mature so they start looking for someone to sell at a discount. Then comes along shady dealers, buying them 30-37% lower than their face-value and either selling them at higher rates or cashing in on their yields.

“The unofficial bond market has caused rates to spike and reach unreasonable levels. They are going to be controlled through careful planning,” chief executive of SEO, Shapour Mohammadi, was quoted by Securities and Exchange News Agency as saying.

Market experts have long raised concerns about a deepening gap between the equity and debt markets, and further channeling capital toward low-risk, high-return bonds.

“These rates do not reflect the actual reality of our economic condition and they will make investors shy away from the risk of investment in the equity market,” Ali Nikoogoftar, a senior market analyst at Bazar Saham Brokerage, told Financial Tribune.

However, others warn that taking up arms against the bond market will not solve the equities’ woes, and that investment in the equity market must be made more attractive so it can compete for the limited liquidity in the economy.

screwball · August 28, 2017

Atotal of 150,000 residential units in rural and urban areas will be built for the poor as part of policies set in the Sixth Five-Year Development Plan (2017-22), a deputy at the Housing Foundation of Islamic Revolution announced.

“The plan would be financed by the government and public donations,” Hadi Derafshi also said on the sidelines of the inauguration ceremony for the new HFIR director in Khuzestan Province, Mehr News Agency reported.

According to the plan, the bulk of houses will be built in the countryside and small towns, though “there is no obstacle to their construction in big cities”.

Noting that two million rural houses are in need of renovation, Derafshi said based on the scheme, at least 200,000 of them should be renovated annually.

The official also referred to the national initiative for the renovation of old rural texture, which kicked off 12 years ago, and said 1.6 million residential units in these areas have been built and 1.8 million are under construction.

“The ceiling of loans for refurbishing the houses in rural areas has increased with an interest rate of just 4%,” he said.

Derafshi also announced that an agreement has been reached between the Ministry of Agricultural Jihad and HFIR for rural empowerment.

screwball · August 28, 2017

As the Central Bank of Iran issued a new directive on Aug. 23 setting a deadline for banks to reduce their deposit interest rates to 15%, the Iranian private sector demands strict oversight over the implementation of rate cuts since banks are already trying to find a way out of it.

Gholamhossein Shafei, the head of Iran Chamber of Commerce, Industries, Mines and Agriculture, noted that although CBI's supervision has improved, banks do not adhere to the directives and are looking for a way to ditch the regulations.

"We solemnly ask CBI to utilize its full strength to supervise the banking system," Shafei said, adding that the CBI should not have any considerations in punishing undisciplined banks.

In June of last year, the Money and Credit Council, the highest policymaking body of CBI, had approved the 15% deposit rates and 18% interest rates that had been earlier agreed upon by bank CEOs. But due to a variety of factors that keep challenging the embattled banks, including a hefty credit crunch, lenders were unable to stick to the rates and continued to offer interests higher than 20% on deposits.

According to the new directive, the implementation of which is mandatory as of September 2, banks and credit institutions are obligated to adhere to long- and short-term deposit rates set respectively at 15% and 10%.

However, according to ICCIMA's reports, banks are already taking different measures to retain their higher deposit rates at least for one more year.

While automakers, investment funds and government participatory bonds offer interest rates even higher than 20%, it's going to be tough for CBI to convince the banks not to offer interest rates higher than 15%.

CBI's new directive has also worried bank depositors and made them look for ways to acquire more profits.

According to ICCIMA's report, banks are asking depositors to close their previous accounts and open new ones to get higher interest rates for at least one more year.

The report indicates that some banks have also sent text messages to their depositors, asking them to come to the bank to get informed of the new regulations. That is while in fact, banks wanted to offer them new contracts before the CBI's deadline so they could protect their deposits and prevent any possible withdrawals.

CBI has finally managed to end the crisis of shadow banks that offered sky-high rates to absorb deposits. The bank has also convinced the government to reduce the rate of participatory bonds so most of the banks' excuses for violating the regulations of interest rates are eliminated, but they also ask CBI to curb automakers' interest rates.

That is a demand that has yet to be realized since currently, the biggest automakers in the country are offering 22% plus pre-sale interest rates.

However, the Ministry of Industries, Mining and Trade and CBI have jointly issued a mandate that requires automakers to reduce their interest rates for pre-sale deals.

According to the new mandate, pre-sale interest rates will decline by 7% to reach 18% from the previous 25%. Automakers are obligated to implement the rate cuts as of January 2018.

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pokerplayer · August 30, 2017

On 8/27/2017 at 5:01 AM, screwball said:

The directive also allowed lenders to sell the purchased currency to other banks and bureaux de change.

bingo....

This statement says volumes and surprises me with so few comments. Think about it in terms you can see............I sell Canadian $ to bank for US$, Canada sell $ to bank for Riels. This is International, this speaks volumes, IMO that a rate increase is at least being discussed for this to happen. The amount of increase ? No Idea, but I think Iran knows and will throw the switch when ready.

Just my

pp

screwball · August 30, 2017

2 hours ago, pokerplayer said:

This statement says volumes and surprises me with so few comments. Think about it in terms you can see............I sell Canadian $ to bank for US$, Canada sell $ to bank for Riels. This is International, this speaks volumes, IMO that a rate increase is at least being discussed for this to happen. The amount of increase ? No Idea, but I think Iran knows and will throw the switch when ready.

Just my

pp

Not many of us can see the forest through the trees...they have probably sold...or should sell! Sell!sell!

screwball · August 30, 2017

Foreign finance deals worth about $30 billion will be clinched soon, the head of the Organization for Investment, Economic and Technical Assistance of Iran announced at a major economic event.

"Deals worth $29 billion to $30 billion will be signed with four European countries and an Asian country by next month," Mohammad Khazaei also said atthe 28th Annual Islamic Banking Conference held in Tehran on Tuesday.

The official, who is also a deputy economy minister, reassured that the country will not be heavily indebted as a result of these deals.

On the sidelines of the event, Khazaei added that the funds will be attracted from Austria, Denmark and Italy, while negotiations with Japan "will most probably lead to a deal in the next few months".

He stressed that to facilitate these deals that would be highly consequential, especially at a time when the US is still trying to pressure the Iranian banking system, ties with international lenders are of utmost importance.

Key Parameters

Another keynote speaker at the confab, which is the oldest event of its kind, was the newly-appointed Economy Minister Masoud Karbasian who also emphasized the importance of establishing correspondent relations with major international banks to absorb foreign finance.

"Under the current circumstances, one of the most important parameters exerting an effective influence on the process of attracting foreign finance is how much our banking system is ready to engage in international interactions," he told an audience consisting of top-tier officials, executives and pundits, Financial Tribunereports.

Karbasian noted that in order to establish constructive ties with international counterparts, the Iranian banking system must work hard to increase its stability and health.

He also called for "facilitating policies" that would make it easier for other nations to allocate funds to Iranian projects.

Karbasian also discussed the importance of improving economic transparency, supporting production mainly by reducing interest rates, upgrading the capital adequacy ratio of banks by raising their capital, reducing the government's hold on banks and developing the debt market.

The minister, who recently enjoyed a strong vote of confidence by parliamentarians, called for cooperation among his ministry, the Central Bank of Iran and the Audit Organization of Iran in devising financial reporting standards, based on which lenders will draft their balance sheets.

The disagreement over the issue plaguing the banks, which have been forced to come up with two balance sheets, has prevented many of them from holding their shareholders' annual general meetings on time.

CBI Governor Valiollah Seif took to the podium to outline major economic points of interest, issues facing the banking system and efforts undertaken.

He pointed to last year's strong GDP growth and said non-oil sectors will play a strong role in promoting economic growth, predicting a single-digit inflation rate for the current fiscal year.

"In its future plans and in line with establishing the necessary conditions for a complete implementation of the plan to unify the [dual] foreign exchange rates, CBI still emphasizes on maintaining market stability and devising regulations to oversee the market," he said.

The monetary policymaker said "no illegal credit institutions are now active" while referring to high interest rates offered by these institutions as the embodiment of all that has gone wrong in the banking system.

However, Seif remains optimistic of future endeavors to fix the beleaguered banking regime, i.e. the administration's central agenda to reform the system through its Banking Reform Bill and Central Bank Bill.

GDP Target

Mohammad Baqer Nobakht, the head of Management and Planning Organization, referred to the 8% GDP growth rate earmarked for the current fiscal year to March 2018 and what is required to realize it.

"One of our goals in the Sixth Five-Year Development Plan (2017-22) is to improve employment that calls for 955,000 job opportunities and 7.7 quadrillion rials ($200 billion) of investments," he said.

He noted that the number is twice the 3.35 quadrillion rials ($100 billion) earmarked for the previous year and requires cooperation between the economy minister, CBI and the Management and Planning Organization.

The official stressed that the administration must do its best to invest 990 trillion rials ($26 billion) in construction projects of provinces.

In conclusion, Nobakht emphasized that the administration will continue to support state-owned banks by gradually clearing its debts to them by raising their capital.

screwball · August 30, 2017

In its future plans and in line with establishing the necessary conditions for a complete implementation of the plan to unify the [dual] foreign exchange rates, CBI still emphasizes on maintaining market stability and devising regulations to oversee the market," he said.

The monetary policymaker said "no illegal credit institutions are now active" while referring to high interest rates offered by these institutions as the embodiment of all that has gone wrong in the banking system.

However, Seif remains optimistic of future endeavors to fix the beleaguered banking regime, i.e. the administration's central agenda to reform the system through its Banking Reform Bill and Central Bank Bill.

screwball · August 30, 2017

Euro kept gaining against rial in Tehran’s forex market on Tuesday to continue its bull run that started about eight days ago. According to Tehran Gold and Jewelry Union’s website, the European currency changed hands for 47,460 rials in Tehran’s market on Monday, marking an increase of 1.39% or 650 rials compared to Monday’s close. This is the highest value of euro in Iran’s market since June 11, 2013. On August 21, the euro was traded for 45,360 rials in Tehran’s market, which shows that it has gained more than 2,100 rials during the recent rally. This is while the US dollar, the most widely traded currency in the Iranian market, also gained against rial on Tuesday. The greenback changed hands for 38,630 rials, indicating a 50-rial growth compared to Monday’s close.

screwball · August 30, 2017

Five years ago Iran was in deep international isolation, as the US and European sanctions had largely blocked foreign investment, plunged the country into recession and increasingly increased its dependency on Chinese economic and diplomatic ties to keep itself afloat.

Long and tortuous negotiations resulted in a new agreement signed in 2015 when Iran agreed to limit the scope of its nuclear program in exchange for the lifting of economic sanctions and this grand diplomatic bargain is now beginning to bear fruit, reads an article published in Rising-powers.com. Excerpts follow:

International investors are once again flying to Tehran to talk business and investment. Many are still wary and unwilling to commit to investing straight away while others are eager to cut deals quickly.

Tehran’s stock market is nearly all domestically held and despite years of economic strife and isolation is worth a hefty $100 billion. Tehran Stock Exchange and the country’s economy as a whole represent the world’s biggest untapped frontier market opportunity. Other small countries like Cuba are also opening to investors, but with an 80 million population and half of those under 30, Iran has the demographics and a large consumer market on its side.

Iran may be classed as a frontier market, but it is a relatively wealthy one, with a per capita income of around $5,000 or $16,000 using the purchasing power parity method.

Diverse Economy

Surprisingly, it also has a relatively diverse economy, not the oil and gas mono-focused economy that many assume and which characterizes many of its Arab neighbors. Another interesting signal of a fast changing economy and perhaps society is the rapid uptake of smartphones, from 2 million handsets in 2014 to 48 million phones presently, meaning well over half the country now own one.

For foreign investors, traditional sectors like petrochemicals, mining and finance are currently the most alluring in terms of placing funds, but in the longer term other areas like pharmaceuticals, fast-moving consumer goods and tech-related ventures could be the long-term winners as these are more dependent on long-term demographics and middle class demand rather than commodity cycles and less likely to face government interference.

Tehran Stock Exchange is open and ripe for new investment and the country’s companies and people are eager to take on funding, new ideas and foreign partners.

Trump’s Shadow

Unfortunately, a shadow lies over the country as the Trump administration appears eager to use any excuse to end the nuclear deal. It remains to be seen whether Trump’s bark is worse than his bite, but if the US does push for a full resumption of sanctions, it may struggle to bring its European allies on board, forcing the US to act alone, thus potentially weakening the power of any new sanctions.

Geopolitics is the obvious risk for any investor considering investing in the country, but there are some other issues that should be considered before rushing to place funds in Iran.

Iran’s lengthy disconnection from the international banking system means that it lacks access to modern financial custodial services, the nation’s banking sector is behind its international peers in areas like know your customer processes and most firms do not yet adhere to international accounting standards.

The country also still lacks an efficient foreign exchange market and for a fund like Tundra that trades daily, the ability to move money in and out of a country with ease and low cost is vital.

All of these issues make it impossible for many to do business in the country yet, but it is hoped that the relaxation of sanctions will allow the Iranian financial sector to catch up with the rest of the world.

The Iranian banking system as a whole also faces major challenges, as it has long suffered from an unhealthy level of nonperforming debt and excessive government intervention in its lending policy, all of which is acting as a drag on the economy as a whole.

China: A Major Fixture

China has been a major fixture in Iran for many years; a close ally that largely ignored the western sanctions regime. While European and US firms fled, Chinese companies moved in to fill the gap heavily investing in the oil and gas sector, as well as many other areas of the economy. As a result, China is now Iran’s main trade partner and number one foreign investor.

Iran is a central part of China’s Belt and Road Initiative, a rail route that now runs from Tehran to Urumqi in western China and there are plans for Chinese-backed high-speed rail lines across Iran. However, many Iranians fear that China has become over dominant and traders grumble that Chinese goods are of poor quality in comparison to European equivalents and there is a belief that Iranian companies were sold too cheaply to Chinese firms in the past.

Iran has looked to rebuilding relations with the West as part of a rebalancing act. The government is also shrewdly forging closer ties with India, which has invested heavily in Iran’s Chabahar Port that will also give India easier access to Central Asian gas and oil.

Geopolitical flashpoints aside, Iran represents a sweet spot in terms of opportunity among frontier markets, bright demographics, largely untouched by foreign investors and with large relatively liquid stock exchange. If the country can overcome internal economic problems and keep its foreign relations on an even keel, it can crystallize into the economic powerhouse it has long promised to become.

screwball · August 30, 2017

After a lengthy negotiation, the Renault Group finalized a contract for a joint venture with Iranian carmakers on August 7.

According to the terms of the contract, 60% of the shares of the company created will be held by Renault, as the Iranian state company IDRO (Industrial Development and Renovation Organization of Iran) will hold 20% and 20% will go to Negin Khodro–the official dealer of imported Renault cars in Iran. The stated objective is to increase the production of different models of Renault vehicles to 150,000 units per year.

This contract is in addition to the long list of transactions of French companies with Iran in the period following the nuclear agreement, formally called the Joint Comprehensive Plan of Action, with six world powers, concluded in July 2015. At that time, Iran’s President Hassan Rouhani, accompanied by Mohammad Reza Nematzadeh, the then industries minister, went to Paris.

On the French side, two foreign ministers, Laurent Fabius and Jean-Marc Ayrault, as well as ministers of economy, transport, foreign trade, agriculture and higher education, traveled to Tehran, reads an article recently published on the website of French weekly Economie Matin. A translation of excerpts follows:

In terms of economic relations, according to a report by Muriel Penicaud, former director of the French Agency for International Investments, since the signing of the nuclear agreement, officials from more than 300 French companies visited Iran and more than 2,000 companies expressed their wish to work with Iranian partners.

The biggest contract was signed by the oil giant Total: a more than 50% stake in an investment of about $4.8 billion for the development of an offshore gas field on the Persian Gulf. Other important contracts have also been signed or are under negotiation: The sale of more than 100 Airbus aircraft, ongoing negotiations for the sale of about 40 medium-haul aircraft, PSA (Peugeot-Citroen) contracts with top Iranian automakers Iran Khodro and SAIPA, that of Alsthom with the Iranian companies IDRO and IRICO railcars, among many other joint venture contracts in various fields.

The result has been a 235% increase in trade between Iran and France in 2016, according to Michel Sapin, former economy and finance minister, in an interview with the Iranian daily Donya-e-Eqtesad in its issue of March 4, 2017.

With its 80 million population and an eager market, Iran has favorable conditions for business, but there are also risks and obstacles to this enticing picture that could act against the current process.

Internationally, the intransigence of US President Donald Trump against Iran by imposing new sanctions is a major handicap for potential investors.

A US Congress measure against the Iranian Revolutionary Guard Corps passed in July 2017 prevents major European banks from financing transactions with Iran for fear of US retaliation.

A political logic, not merely a commercial one, is at the origin of contracts signed by French companies with Iranian companies. A close and case-by-case analysis of these transactions clearly shows that it is the French side that benefits most and not the Iranian side. For political reasons, the Iranian government insists on the multiplication of such contracts to encourage the European Union, and more particularly France, to remain on its side facing the United States.

Thus, if the situation of Iranian power on the domestic and foreign scene improves, these contracts will undoubtedly be called into question. Conversely, if the Iranian situation deteriorates and its confrontation with the United States is exacerbated, French transactions will also fall under US sanctions. In light of these facts, French companies have shown great courage in doing business with Iran. But this remains an extremely risky bet.

Nonetheless, the European Union, including France, still seems to favor the moderate faction headed by President Hassan Rouhani. It is with this vision that the EU has invested in economic relations with Iran in the hope of seeing internal and international developments go in the direction of strengthening the position of Rouhani.

screwball · August 30, 2017

Thursday, August 31, 2017

Iran Yet to Realize Full Economic Potential in Post-Sanctions Era

When Iran signed an agreement with world powers to limit the scope of its nuclear program in 2015 in exchange for the lifting of international sanctions, President Hassan Rouhani’s administration believed the deal would usher in badly needed foreign direct investment to relieve Iran’s economic woes.

Two years on, the promise of economic renaissance has not fully panned out.

In an interview with World Politics Review, Sanam Vakil, professorial lecturer at the Johns Hopkins University SAIS Europe in Bologna and associate fellow at Chatham House in London, discusses what Iran has achieved since the sanctions were lifted. Excerpts of the interview follow:

WPR: What has been the extent of foreign investment and deals procured by Iran since the end of sanctions, and how do they compare to expectations? What opportunities and obstacles can be expected going forward?

SANAM VAKIL: There has definitely been a large gap between expectation and reality regarding the level of foreign investment in Iran after the nuclear agreement, known as the Joint Comprehensive Plan of Action, was signed in July 2015. In order to increase internal support for the deal…, President Hassan Rouhani’s administration oversold the prospects and opportunities for investment in Iran without addressing the limitations and challenges.

Rouhani called for over $150 billion in foreign investment in diverse domestic industries, believing that investment would not only revive the Iranian economy, but also protect the Islamic Republic by creating a diversified economy that provides greater employment opportunities for its citizens. The obstacles, however, have far outweighed investment prospects and include continuing US sanctions on Iran, which prevent American citizens and companies from engaging in any business in the country.

Moreover, a shift in US policy under the Trump administration … has resulted in greater uncertainty regarding the American commitment to the nuclear agreement. This has increased the investment risk for international companies and specifically for international banks that remain concerned over the long-term viability of the deal and the return of sanctions. In Iran, … macroeconomic and domestic structural challenges have also impeded investment progress. Together, these challenges have limited Iranian investment significantly.

To date, while a number of multinational companies have engaged in large-scale investment in Iran, including Boeing, Airbus, Volkswagen, Vodafone, Renault, CNCP, Siemens, GSK and Total, most of the international agreements signed have been limited to memorandums of understanding, which require months of negotiation before they proceed. Going forward, Rouhani must urgently address economic reforms such as banking sector transparency and exchange rate unification … It will not be an easy job.

What has the domestic political impact of these deals been thus far, and how have they played out in the context of factional disagreements over the need for foreign direct investment and the desire to maintain independence?

As opposed to Rouhani … the Revolutionary Guard are fearful that significant investment and reliance on the West will weaken the Islamic Republic ... This group has limited trust in American intentions... Moreover, because the Revolutionary Guard has significant investments in the Iranian economy, they too have sought to protect their interests and preferential access to government contracts … the Revolutionary Guard are not totally opposed to outside investment. Rather, in order to protect the economy as well as national security from too much western interference and dependence, they seek investment from a diverse array of international investors and countries.

How likely are the increased economic ties we have seen to have a long-term moderating influence, and what factors could help or hinder that effect?

Here there are a number of interconnected issues that one must consider. First, it is important to remember that the agreement signed in July 2015 is only two years old. In the current climate, it still remains a very fragile agreement. With the change in US administration, any previous trust or goodwill built between Washington and Tehran through the two-year negotiation process has gone to the wayside as ideological rhetoric, contending national interests and mutual suspicion continue to drive tensions.

Conservatives in both capitals remain unwilling to bridge the four-decade long divide, thereby adding domestic politics into the mix of regional tensions. In the Middle East, Washington and Tehran share the same goal of expelling … terrorism in countries like Iraq and Syria, but they differ on the means to do so. Tehran sees its actions as defensive … This strategy has put Iran at further odds with America’s traditional regional allies ... With so many interconnected issues at play, it is hard to imagine any short-term moderation.

In the future, any moderating effect from the nuclear deal would not reveal itself immediately, but over time as the impact of trade, foreign direct investment and trust between Iran and the international community grows. Just because this has not happened to the extent that was expected in Tehran, we should not write this effect off just yet. Going forward, we should watch for … a shift in regional political circumstances that could create the conditions for greater regional cooperation.

Rouhani’s vision of an interconnected, economically integrated Iran can help create stronger international bonds that would necessitate moderation.

Ultimately though, it is important to remember that moderation would not necessarily result in pro-American or pro-western policies. The Islamic Republic is built on an ideological foundation of independence, … stability and security. Protecting those ideals will most likely result in differing visions of moderation in Tehran.

screwball · August 30, 2017

he Central Bank of Iran has outlined measures to enhance banknotes’ security features, CBI’s official website announced. “In the wake of the nuclear deal with world powers, CBI has managed to equip the Organization for Printing Banknotes and Coins with the latest technologies,” the report said. According to the report, Iran was denied access to advanced technologies during the sanctions era, especially in printing new banknotes, which could have thrust the country into a crisis. “However, CBI could handle the situation,” it said. The central bank also noted that in support of national production, CBI signed an agreement with Shahid Bahonar Copper Industries Company in order to meet all of its requirements for minting coins. This led to a halt in the import of required alloys from overseas. Augmented Reality used in a new application designed by CBI was another hallmark in the report. With the help of the new application, people can verify the authenticity of banknotes.

screwball · August 30, 2017

Banking Reform Takes Center Stage Once Again

Reforming the Iranian banking system, whose representatives have been grappling with a variety of issues, has once again come to the fore of national dialogue at a time when the Central Bank of Iran is trying to enforce lower interest rates.

President Hassan Rouhani was on state television to address the woes of banking system among other things and outlined what his administration plans to do in its second term that started this month.

“We have to overhaul the economy,” he said, referring to CBI’s plans to allocate 300 trillion rials ($7.7 billion) in loans to small- and medium-sized enterprises to assist production and boost job creation.

Support for SMEs holds significance, especially since the administration needs to create close to a million jobs during the current fiscal year ending in March 2018.

As Rouhani said, “The role of banks in this regard will be great.”

But for lenders to be able to support production, they will need backing from the administration since, as the president notes, “their primary problem is that they are low on capital, so we need to boost their capital”.

Their second major hurdle is the “unhealthy competition” taking shape in the banking sector, which the president says must end. He added that at present, a number of banks secretly offer higher interest rates to attract more deposits.

He also pointed to illegal credit institutions and said “we still need to take steps to complete what has already been done”, in reference to CBI efforts to resolve the problems of illegal institutions.

According to the president, another detrimental activity in which Iranian banks dabbled was their speculative activities, especially in the real-estate sector.

“They must put an end to these activities and sell their stagnant assets so they can begin to circulate again,” he added.

He referred to high interest rates as “the big dilemma of our economy”, asking how “investors can stay afloat when the interests on their loans are up to 20%”.

Rouhani pointed out that the inflation rate stands below 8% for the current month, which would render interest rates of around 11% acceptable.

“[A difference of] two to three percentage points between deposit rates and interest rates will be agreeable,” he added, meaning that his target for interest rate would be about 14%.

screwball · August 30, 2017

Economy, Business And Markets

Thursday, August 31, 2017

CBI Buttressing Banknotes’ Security

The Central Bank of Iran has outlined measures to enhance banknotes’ security features, CBI’s official website announced. “In the wake of the nuclear deal with world powers, CBI has managed to equip the Organization for Printing Banknotes and Coins with the latest technologies,” the report said. According to the report, Iran was denied access to advanced technologies during the sanctions era, especially in printing new banknotes, which could have thrust the country into a crisis. “However, CBI could handle the situation,” it said. The central bank also noted that in support of national production, CBI signed an agreement with Shahid Bahonar Copper Industries Company in order to meet all of its requirements for minting coins. This led to a halt in the import of required alloys from overseas. Augmented Reality used in a new application designed by CBI was another hallmark in the report. With the help of the new application, people can verify the authenticity of banknotes.

Iran to secure $30 billion of credit line next month

Tue Aug 29, 2017 10:23AM

The Iranian government plans to attract $65 billion of foreign investment during the sixth five-year development plan.

Iran will finalize financing contracts worth $30 billion within the next month, head of the Organization for Investment, Economic and Technical Assistance Mohammad Khazaei says, dismissing claims that the credit lines will leave the country in the red.

“These finances do not mean putting the country in debt, but they will give a capability to the economy, the plans and projects to benefit from the funds,” he told an Islamic banking conference in Tehran Tuesday.

The official was apparently responding to an article in the Iranian daily Kayhan which criticized pro-government media for celebrating the country’s biggest credit line deal in recent years with South Korea’s Eximbank, contending that it would only bring about financial liability for the country.

Khazaei said international financial standards must be applied in the banking system and made transparent, “because without interacting with other banks, there can be no communication or transfer of resources.”

Foreign banks have been skittish about carrying out Iran-related transactions despite a nuclear accord which lifted most sanctions on the country early last year.

While remaining US sanctions are mostly blamed for frightening away trade partners, other people say systematic problems plaguing Iran’s banking system provide the added drawback.

The Iranian government plans to attract $65 billion of foreign investment during the sixth five-year development plan (2016-21), of which $30 billion is about to come in finance, $20 billion in economic partnership and $15 billion in direct investment.

Iran secured its first credit line of $10 billion from China in 2015, while Austrian Finance Minister Hans Jörg Schelling said during a visit to Tehran that his country had allocated a credit line of €1 billion for a major steel production project in southern Iran.

Iran's Mohammad Khazaei (L) shows the way to Austrian Finance Minister Hans Jörg Schelling (C), with Iran's former Economy Minister Ali Tayebnia standing by.

And on Friday, Iranian banks signed a framework agreement with Korea Eximbank, under which the Korean side will provide an 8 billion euro ($9.4 billion) loan to finance various projects by South Korean companies in Iran.

“The 8 billion euro finance by the Koreans will break a big barrier. Those banks that were afraid of cooperating with Iran can now finance Iranian projects,” the state news agency IRNA said on Saturday.

“It is expected that after the Korean banks, Japanese banks and later European banks will be more comfortable working with Iran,” it added.

Governor of Central Bank Valiollah Seif said the loan was a sign of “return of global trust in Iran’s banking system.”

screwball · August 31, 2017

September or October...

pokerplayer · August 31, 2017

Totally agree SB. doing more due diligence as one should and everything I see and read points to those dates as serious contenders for the dropping of zeros. Will it happen ? I think so but again never invest what you cant afford to lose.

pp

15 minutes ago, screwball said:

September or October...

screwball · August 31, 2017

Iran’s Kish Airline to buy Boeing, Airbus planes

Mon Aug 28, 2017 6:25PM

Iran’s Kish Airline has announced an ambitious plan to purchase over a dozen new planes from global aviation giant Airbus and Boeing.

Kish Airline CEO Mohammad Taqi Jadidi was quoted by the domestic media that the plan envisaged buying 10 planes from Boeing and 6 more from Airbus.

Jadidi told Iran’s IRNA news agency that the new Airbus planes would be added to his company’s fleet before the end of the current Iranian calendar year (21 March 2018).

He added that Boeing planes would be purchased in the next Iranian year.

Nevertheless, the official did not specify which specific models the purchases would involve.

Kish Airline belongs to Kish Free Zone Organization and currently has 14 planes, including 2 Airbus-320, 2 Airbus-321, seven MD planes and 3 Fokker-100 planes, IRNA added in its report.

Airbus has already sealed deals to sell a total of 173 new aircraft to Iranian airlines with a collective value of tens of billions of dollars.

On the same front, Boeing had accrued orders and options for 140 planes, while the smaller European turboprop-maker ATR attracted orders and options for 40 aircraft.

Iran Air – the country’s national flag-carrier airline – appears to be the most active buyer of new planes. The company would buy a total of 220 new planes from Airbus, Boeing and ATR, covering both wide and narrow-bodied jets as well as turboprops. Airbus and ATR made their first deliveries of several planes over the past few months but Boeing deliveries would start in 2018.

Among the country’s smaller carriers, Iran Aseman Airlines would buy 30 new Boeing 737 Max 8 jets, with options for 30 more.

Iran Airtour would also purchase 45 Airbus A320neo aircraft.

And Zagros Airlines would acquire 28 Airbus aircraft, including 20 of its A320neo model and eight of its larger A330neo.

screwball · August 31, 2017

News ID: 199656

Published: 0224 GMT August 30, 2017

CBI: Foreign banks to open L/Cs for Iran

Governor of the Central Bank of Iran Valiollah Seif announced that foreign banks will allocate credit lines for Iran to implement projects in different fields.

"A sum of €22 billion will be considered for Iran to boom its economy," Seif was quoted as saying by Fars News Agency.

The CBI governor noted that Austria, Denmark, Italy and some other countries will open lines of credit for Iran in coming weeks.

He recalled that a separate €8-billion L/C was recently signed with South Korea indicating that the measure would lead to further investment and a rise in production and employment.

CBI governor also underlined the need to follow up the compliance of Iran's economic activities with international standards referring to adequate international banking ties as a necessary prerequisite for this.

In relevant remarks earlier on Tuesday, Deputy Economy Minister Mohammad Khazaei said that foreign investors are likely to make huge investments in Iran's development projects.

"A sum of $29-30 billion will be invested in Iran in the near future," Khazaei said, addressing the Islamic Banking Conference in Tehran.

The Iranian deputy economy minister said that the country has allocated $30 billion for its economic growth.

"Negotiations leading to these contracts have been underway for a long time and the Central Bank of Iran has been meticulous about every single word mentioned in the contracts," Khazaei said.

"However signing these contracts doesn't mean that our country will be in debt. We have signed a line of credit agreement with Exim Bank of South Korea, an Austrian bank and the national bank of Italy," he said.

In a relevant development in early August, Chairman of the French-Iranian Trade Promotion Center (CPCFI) Mohsen Rashidi announced that a large number of French companies have shown interest in investment in Iran's economic development projects.

"French companies are eagerly looking for investment opportunities in the Iranian market, as the country today is in a position to choose from an array of trade offers," Rashidi said.

He reiterated that since the implementation of the nuclear agreement between Iran and the major world powers, known as the Joint Comprehensive Plan of Action (JCPOA), numerous French enterprises visited Iran.

"Under such circumstances, it is possible for Iran to establish effective relations with the world and take advantage of the available grounds to fully expand ties in every sector," Rashidi added.

"Before the nuclear deal, the French businessmen used to prefer Qatar to Iran," the chairman of the French-Iranian Trade Promotion Center added.

Iran and the six world powers (the US, Russia, China, France, Britain and Germany) signed the nuclear agreement in Vienna in July 2015, under which Iran accepted to curb its nuclear program in return for lifting the related sanctions.

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Iran Yet to Realize Full Economic Potential in Post-Sanctions Era

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Banking Reform Takes Center Stage Once Again

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CBI Buttressing Banknotes’ Security

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Iran to secure $30 billion of credit line next month

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Iran’s Kish Airline to buy Boeing, Airbus planes

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Governor of the Central Bank of Iran Valiollah Seif announced that foreign banks will allocate credit lines for Iran to implement projects in different fields.

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