Domestic Economy

President Unveils Measures to End Recession

President Unveils Measures  to End Recession
President Unveils Measures  to End Recession

President Hassan Rouhani unveiled the fundamentals of the government’s new economic policies for the second half of the current Iranian year (started March 21) in a televised interview on Tuesday evening.

His speech comes nine days after a letter by the ministers of economy, industries, labor and defense was publicized, in which they openly censured “the discord within the policymaking government bodies” and called for a prompt decision to address problems plaguing the capital market.

The letter had been written in the second half of the Iranian month of Shahrivar (August 23-September 22), but it was not publicized until October 4, Mehr News Agency reported.

Referring to the volatile stock market this year, President Rouhani said the market faces its own challenges, but it holds the promise of a bright future. He described the current state of the stock market as "being in transition”, noting that the whole market is not controlled by the government.

"Iran’ economy has to grapple with two main problems: shortage of working capital and the high cost of supplying resources," he said.

“In the new economic package, the government plans to boost the banks' lending capacity and help those with good records pay less for provision of resources, which would enable them to provide loan applicants with cheaper facilities.”

The president noted that interest rates should decrease in line with the declining inflation rate, which has not happened yet.

"We need to reduce the interest on loans for the production sector," he said.

According to the latest report of the Central Bank of Iran, the goods and services Consumer Price Index for urban areas increased 15.1% in the 12-month period until September 22, compared to the same period of last year.

“The new economic package seeks to safeguard the achievements gained in curbing the inflation, while fighting recession and accelerating economic growth,” he said.

The president went on to say that the government plans to stimulate demand and create conditions for increasing people's purchasing power.

“Around 75,000 billion rials ($2.49 billion) will be allocated to quick return development projects and production sectors in the coming weeks. Some production sectors, particularly those related to non-oil exports, are also receiving subsidies,” he said.

“In a bid to stimulate demand, loans will be offered to people who intend to purchase durable goods. Around 20% of the new resources will be earmarked to people who want to buy commodities. New conditions will be provided such as long-term installments.”

Rouhani said paying off government debts to contractors is another key move in the new package, adding that when the government fails to pay its dues to contractors, they will default on their debts to banks and banks would in turn default on their dues to the CBI.

"In this vicious circle, everyone owes everyone. One way to break this circle is for the government to sell its debts through the issuance of bonds such as sukuk," he said.

A landmark in the domestic debt capital markets took place on September 30 when Iran’s first-ever bond issue in rial, dubbed “Islamic Treasury Bills”, was launched. Modeled after modern economies, the bills were sold at a discount in over-the-counter market, namely Iran Fara Bourse.

Out of the planned sale of 400,000 bills with a one-million-rial ($29.05 at market exchange rate) face value, 384,000 bills were sold at 900,500 rials in early trade though demand sent the bills up to 901,000 rials before the market’s close.

Buyers were mostly institutional, with non-institutional investors taking a less than 2% share of the trade. State-owned Bank Melli and Kardan Investment Bank handled the sale of the public offering. The bills will yield 24.3% per annum, considerably higher than the 20% cap set by the central bank on one year deposits, given the 165 days left to their maturity on 13 March, 2016, which is right before the end of the current fiscal year, according to Pouya Jabal-Ameli, a CBI analyst.

Rouhani later announced that the details of the 30-clause short-term economic package will be outlined by the government's economic team next week.

"As for the CBI, it can act promptly and provide resources for qualified banks. The draft of the bylaws on loans for people will take a couple of weeks. The money ($2.49 billion) will be deposited in government coffers by the end of the week. Therefore, the effect of these moves in the production sector will be felt within the next three weeks,” he said.

President Rouhani also emphasized the importance of "Resistance Economy"–a set of economic principles proposed by the Leader of Islamic Revolution Ayatollah Seyyed Ali Khamenei to protect the country against the impact of sanctions by reducing reliance on oil and promoting domestic growth.