Economists and financial analysts have reacted positively to President Hassan Rouhani’s recent directive, calling for comprehensive reforms in the country’s financial and banking systems. The experts have widely regarded these much-needed reforms “crucial” to preserve the economic accomplishments of the Rouhani administration and improving the manufacturing climate.
Rouhani issued a decree on Saturday ordering his first deputy Es’haq Jahangiri to help implement a series of reforms in the financial system.
In his directive, the president emphasized that reforms are needed to help promote the economy in accordance with advancements in the area of foreign policy.
Reforms, he wrote, are necessary to remove obstacles in the way of the competitive industrial output and also to enhance the efficiency of the overall financial structure.
Rouhani warned that banking and financial sanctions against Iran had further complicated the economic conditions.
The Iranian president has accordingly called on Jahangiri to devise a comprehensive financial reform plan that could help banks prevent a crisis, develop the capital market and organize the government’s debt.
Ad Hoc Committee
Lotfali Bakhshi, a professor of economics, believes the president has touched upon crucial problems facing the economy, saying the creation of an ad hoc committee to follow up on his order would be helpful.
Bakhshi cautioned that many official directives lose their effects with the passage of time, saying that competent individuals should take the reins to implement Rouhani’s ruling with enough authority bestowed upon them, the website Banker reported.
“Banking system woes have always been one of the fundamental challenges for our economy and certain people have a vested interest in this,” Bakhshi emphasized. “Powerful and well-connected cliques are the ones that benefit from a dysfunctional banking system and thus great determination is needed to oppose them.”
Better Prospects
Mehdi Taqavi, an economist, blames much of the existing economic problems on the former administration and hopes the new policies would address some of them.
“A drop in Tehran Stock Exchange’s main index due to the economy’s negative growth and the ensuing recession were the direct results of the former government’s wrong policies,” Taqavi maintained. “The banks’ problems, especially their subsiding lending power, could also be traced to the recession.”
Taqavi expected that with the decline in inflation, people would be able to make more deposits in banks and hence increase lending. He urged the government to focus on enhancing fiscal discipline.
He opined that easing of political tensions between Iran and its international partners, improved relations with other countries, and nuclear talks have already led to a relative economic stability.
Iran is in talks with the United States and five other powers—Britain, China, France, Germany and Russia—on an agreement to curtail its nuclear program in exchange for relief from sanctions.
The negotiators missed a June 30 deadline for a final agreement but have given themselves until July 7 to reach a permanent deal.
Missing Piece
Ali Maziki, an economist and university professor, said the president, in his letter, pointed to reforming the banking system, expanding the primary market and addressing the rising non-performing loans.
What is missing in his decree, Maziki said, is the issue of benchmark interest rates.
“The problem is that interest rates are being set through top-down government rulings whereas it should be determined by market forces,” Maziki complained.
He offered to set up a market to determine deposit rates so that manufacturers would have better access to financial resources.
“One concern for this administration is to support manufacturers but as long as lending rates are ridiculously high in some cases, manufacturers will continue to struggle,” he maintained. “Before embracing banking reforms, interest rates should be relegated to the free market since different parties would have conflicting interests in seeing the rates hike or drop.”
Farshad Momeni is another economist who wishes deeper issues could have been addressed in the Rouhani’s missive.
“It would have been becoming if the president had elaborated on the shortcomings of the central bank in failing to live up to its regulatory duties,” Momeni said in an interview with Sharq newspaper.
“As long as there are 7,000 uncertified financial institutions in the country, which receive support from aspects of the power system, a relief from a thaw in relations with other countries cannot be expected,” he added.
Momeni noted that banks’ business interests have turned them into monopolists, which are making the playing field ever more inhospitable and unfair to manufacturers.
“What we need first and foremost is to reform a structure that punishes manufacturers and entrepreneurs and rewards speculators and rent-seeking entities,” he said.
