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Iranian President Hassan Rouhani’s economic team has started planning for a post-sanctions environment as officials look to rescue the battered economy from years of stagnation and mismanagement.
In a rare interview, Valiolah Seif, the central bank governor appointed by Mr Rouhani, said the government was mapping out strategies to channel funds and accelerate development of key sectors, including oil and gas, tourism and IT.
“We’re doing a lot of feasibility studies,” he said in his Tehran office. “Iran’s investment attractions are quite clear.”
Mr Seif expects financial sanctions, which have blocked tens of billions of dollars of its oil revenues in overseas accounts and crippled access to international banks, to be lifted a few months after a nuclear agreement. Iran and world powers are looking to conclude a comprehensive accord by the end of June.
But he cautioned against expecting an immediate impact on Iran’s economy, estimating that the removal of sanctions will not be felt before the Iranian year ends next March.
A senior banker who has managed some of the country’s biggest institutions, Mr Seif faces an uphill challenge in restoring stability and credibility to the central bank. Under the previous government of Mahmoud Ahmadi-Nejad it was treated like a cashier and forced to finance the president's populist policies, including massive housing projects for the poor.
Mr Seif has hired back some of the country’s most prominent economists and the Rouhani government has brought down inflation from over 40 per cent to 15.5 per cent in less than two years. Wild fluctuations in the rial, the local currency, have also been halted.
A much-needed overhaul of the ailing banking sector has also started, with the central bank working on defining standards and restoring financial discipline. Mr Seif said banks needed capital injections, management restructuring and improvements in corporate governance.
The banking sector, most of it privately owned in name but with strong affiliations to state bodies, has been ravaged in recent years, with a non-performing loans ratio now reaching 14.5 per cent according to Mr Seif. Other bankers say the rate probably exceeds 20 per cent.
Mr Seif said he has been approached by European and Arab investors interested in the banking sector. “They are asking whether they can get licences to establish new banks, buy stakes in existing private banks, and whether they can open up branches,” he said.
Foreign banks are allowed to take a 40 per cent stake in a local bank but the central bank is reviewing regulations to provide banks with easier terms in free trade zones.
Mr Seif said Iran needed not only capital but also technology and know-how. “For all requests, we will review the background of the institutions in their home country and our relations with those countries will also be looked into,” he said.
As the government struggles to bring back some normality to a dysfunctional economy, ordinary Iranians and businessmen complain that they have yet to feel the results. The pressure on the government to deliver tangible benefits will grow only if and when a nuclear accord is struck.
Acknowledging the expectations, Mr Seif called for patience, adding that the government’s policy to bring about sustained economic growth and bring down the inflation to a single-digit rate will be “strongly pursued”.
But he said the country was out of recession, with real economic growth likely to reach 3 per cent this Iranian economic year.
One of the main challenges facing the central bank is how to bring under control the so-called credit and financial institutions, which are affiliated to political, military and religious power centres including the elite Revolutionary Guards. These institutions mushroomed under the Ahmadi-Nejad government and have been operating outside the central bank’s supervision, even though they account for about a quarter of the country’s banking activities.
Mr Seif said some were seeking permission to fall under the monitoring of the central bank but most of them will have to stop operating.
“They [the credit and financial institutions] have taken big risks and are endangering people’s deposits. They give interest rates that run up at 28 per cent when the inflation [rate] is 15.5 per cent,” he said.
In an attempt to instil financial discipline and prevent banks from competing with these institutions, the central bank this month prevented banks from offering interest rates above 20 per cent on one-year deposits.
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