A substantial part of the released assets frozen abroad and the potential increase in oil revenues will be used to promote banking and financial reforms, Minister of Economic Affairs and Finance Ali Tayyebnia said on Friday.
"Wisdom would demand that we invest the freed funds in areas that multiply our wealth and maximize profits; this can apparently best be achieved through the banking system," he said at the annual assembly of Bank Sepah, AkhbarBank website reported.
Tayyebnia said a new international venue is opening up for the economy which would make it essential to "decide on effective ways to utilize the funds. He was referring to the billions of dollars in Iranian assets expected to be freed following the agreement between Iran and the six world powers over Tehran's disputed nuclear energy program.
A senior official at the Central Bank of Iran announced on Saturday Iran expects about $29 billion of funds to be unfrozen and repatriated to the CBI by next January.
“It will be around that time," Gholamali Kamyab, CBI vice governor for foreign exchange affairs told Bloomberg on the sidelines of an investment conference in Geneva.
The event was the first of its kind to take place after the nuclear accord survived a 60-day US congressional review because Republican senators failed to muster enough votes to challenge it.
Planned release of the funds has become a focal point for U.S. critics of the pact. Some in the congress suspect the money could be used to bolster Iranian allies hostile to the US and its friends in the region. Iran says the funds will be used for economic development, namely infrastructure, petrochemicals, natural gas, mining, roads and construction.
Funds are currently being held in several countries and the total could exceed $29 billion, Kamyab said. “There could be other figures, but that’s most of it,” he added.
Holdings include $23 billion in foreign exchange belonging to the central bank and another $6 billion of government money, according to a recent report on state TV. Iran has no gold held overseas, according to Kamyab.
The minister of economic affairs stated that the return of blocked assets should be managed carefully.
"By assigning the repatriated funds to the banking sector, the government can repay its outstanding debts to banks and raise the capital of state-owned banks. The banks' increased capital would impact the demand and supply cycle to a great extent and facilitate growth of the private sector which by extension will pave the way for curbing dependency on oil revenues and reduce government role in the economy."
He elaborated on the banking system's faults, saying a shortage of liquidity is among the major difficulties. Banks' dwindling assets erode their lending power and escalate the demand for loans as well as an unreasonable increase in lending rates.
Not by Fiat
Efforts should focus on increasing the capital of banks because deposit rates do not fall by pressure tactics or official decree, news outlets quoted him as saying.
"Currently interest rates are not compatible with real economic indices or the level of profits of financial firms and other market indicators including the equity market. Unjustifiably high interest rates have put economic sectors in dire financial straits…But the problem cannot be solved through government meddling."
Commenting on the financial health state of the government-owned Bank Sepah in 2014, Tayyebnia said Sepah was among lenders that performed well in the face of sanctions as is visible from the banks' financial statements.
"Sanctions created lots of difficulties, especially economic ills, but the main pressure was on banks, namely on the CBI as it was among the few central banks ever to be sanctioned." Most banks did relatively well given the magnitude of their problems.
Tayyebnia recommended raising the capital of banks, their debts be reimbursed and their excess properties be sold to help mitigate the pressures on the economy and the banking system.
He said the government is taking measures to repay its huge debts to banks to address their liquidity crises. "Through the provision of released assets, bonds worth 60 trillion rials ($2 billion at official exchange rate) would be issued."
The minister hoped with the presence of foreign businesses in Iran and new foreign investments, the economy would pick up in the coming months.
China Collaboration
He referred to his recent meeting with a visiting special envoy of the Chinese government and expressed optimism over the future of Tehran-Beijing business relations. "We experienced good cooperation in the past and hope to enhance our collaboration once the sanctions are removed. They were prepared for closer collaboration and discussed seven potential areas for direct investment and financial support," he said, referring to the CEOs of 18 major Chinese companies which are among the top 100 business organizations in the world.
Tayebnia noted that "reducing dependency on oil export earnings and handling the global oil crisis falls within the ambit of an efficient banking system.
On the plunging oil price which began last year, he said, "oil prices have fallen sharply since September 2014, when it was $105 per barrel. Now it is below $50, leading to a huge loss in government income which is showing its damaging impact on the economy."
The pro-market senior minister insisted on shifting the focus from oil exports and concentrating on new opportunities to invest in technological and economic sectors.
"If we want to weather the oil crisis we must [first] look for early solutions to the banking problems. Like many other countries we are in a perpetual state of economic struggle and banks and businesses are the frontrunners who can help win the battle," he concluded.
