The Majlis Research Center (MRC), the parliament’s think tank, says the National Development Fund of Iran must resist calls for partial payment by all those who have taken out forex loans.
In a report posted on its website, the MRC said collecting forex debt has long been a big challenge for the sovereign wealth fund.
The bad situation has become worse due to the sanctions-plagued economy and huge fluctuations in currency rates in the past decades. Over the past few months forex rates have jumped to historic levels.
NDFI is independent of the government and was set up in 2011 to curb dependency on oil and save a percentage of the earnings from oil and gas exports for future generations.
The fund lends to nongovernment public sector, private firms and cooperatives in need when government revenues are low.
In recent weeks, the repayment of forex loans given years ago has become a topic of intense debate among private companies and the NDFI.
Debate over how to reimburse the billions in NDFI forex debt took a new dimension in 2018 when most of the loans matured and borrowers found themselves facing staggering rises in currency rates compared with the rates at the time they borrowed.
Reviewing opposing views on how to deal with this major constraint, the MRC referred to several of them who say that the borrowers must settle the debt either in rial or at exchange rates at the time they took out the loan(s).
However, this approach has been dismissed by a more powerful group who argue that giving debt relief to defaulters is tantamount to violating the rights of the people.
Most private sector defaulters claim they simply cannot repay at current exchange rates because of the long government policy of intervention in their business.
They say they failed to remain financially relevant either because of export bans imposed by the government or mandatory pricing set by the domestic market regulatory bodies on their goods.
Rejecting these arguments, the MRC said the borrowing companies are and should be held responsible for managing risks of forex rates and risks related to the government interventions, recalling that none of these are new or unprecedented.
“Even if these claims are valid, it is the government that should be held responsible for its actions that harmed the companies, not the lender,” the MRC said, pointing to the articles of association of the NDFI based on which clearly states that repaying forex loans in national currency is prohibited.
Pause for Thought
The expert wing of the parliament is of the opinion that the wealth fund needs to take different approaches toward borrowers based on nature and financial status of their business.
First, it says the NDFI and banks must investigate whether or not the borrower is an exporter. Second, it must look into the value of their assets to determine whether they have increased in value in proportion to inflation that was a result of the steep rise in currency prices.
The NDFI is also required to examine the maturity of its loans and see whether the loans matured after or before the shocks emerged in the currency market in 2018.
Taking into account any of these conditions, the sovereign wealth fund may approach the borrowing companies on a case by case basis.
To minimize the risks of defaulting on future loans, the MRC recommended bans on NDFI forex loans to firms unable to generate forex revenue.
In addition, the capital adequacy of agent banks must be assessed to ensure that they are able to cover the risks and guarantee the loan repayments.
Position of the Private Sector
In response to the NDFI demand for reimbursing forex debt at current market rates, the Iran Chamber of Commerce, Industries, Mines and Agriculture (ICCIMA) in a statement earlier recalled that “most private company borrowers are power plants that are banned from exporting electricity and generating foreign currency”.
“Moreover, they are barely surviving because governments intervene in their pricing mechanism forcing them to sell at heavily subsidized rates (up until the last fiscal year in March).”
The chamber said 84 companies have taken $2.2 billion from the NDFI and utilities (gas and electricity producers) account for $1.05 billion of the total.
Referring to the law, the ICCIMA said it requires the government to support such businesses against unforeseen risks such as the steep rise in forex rates.
Earlier in the month, the NDFI chief, Mehdi Qazanfari said repayment of loans given by the sovereign wealth fund has gained pace in recent months.
“Since the beginning of the last fiscal year [March 2021] up until now, we have collected debts three times more than the same period in the previous year,” he told IBENA.
He estimated the repaid debt in cash at $2 billion in five months, adding that there were payments in other forms.
“We signed an agreement with one big debtor in the oil sector, which owed about $4 billion, to receive its shares worth $3 billion,” he was quoted as saying. He did not name the company.
