May 16, 2015

THE DISCIPLINE OF DEMOCRACY:

Iran maps out plans to revive economy once sanctions are lifted (Najmeh Bozorgmehr and Roula Khalaf, 5/15/15, Financial Times)

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.

The return to alliance with the US removes all the excuses.


Posted by at May 16, 2015 8:16 AM
  

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