A former governor of the Central Bank of Iran has urged the Rouhnai administration to start clearing its mountain of debts to banks and other contractors so that industries get back on their feet and growth rates improve without further deterioration of the manufacturing sector.
In an interview with the state-TV, Tahmasb Mazaheri said the ballooning government debt had made a bad situation worse pushing the country into deeper recession.
“Now is the opportune time for the government to reimburse its mammoth debts and revive the moribund industries,” he said several times during the live interview with another economic analyst who though supportive of the government’s new economic incentive package, cast doubts over its ability fo deliver.
Referring to the government’s new direction to stimulate growth and pull the economy out of recession, Mazaheri opined that the new plan would increase not curb the already high inflation rate officially said to be in the neighborhood of 15%.
“Inflation born out of a functioning and robust market, unlike the one triggered by pumping liquidity into the economy, is constructive,” said the former senior banker who also was economy minister in early 2000.
Mazaheri recommended that the government pay a big chunk of its debts accumulated in the current year (started March 21) -- 600 trillion rials ($20 billion at the official exchange rate) instead of the 70 trillion rials ($2.3 billion) initially planned.
However, he did not explain how and from where the indebted government should find this huge amount to clear the debts in a short span of time, especially given the poverty of international crude prices that has slashed Iran’s oil earnings by almost 65%.
Cash-Starved
While total liquidity has reached a whopping 8.6 quadrillion rials ($287 billion), industrial units and big business remain cash-starved. “The total liquidity is huge, but it is hardly of practical use to manufacturers simply because it was injected into the market irresponsibly,” he argued.
He called for CBI and the Judiciary to adopt effective measures against the thousands of unauthorized credit and financial institutions. “A large portion of the liquidity is controlled by the uncertified institutions which is not accounted for in the official liquidity data.”
Mazaheri also urged reform in the free-trade zones’ banking laws in order to attract more foreign bank investments in the areas established to promote domestic production, expand payrolls and boost exports.
The existing laws allow foreigners to hold a 40% stake in Iranian banks, be it a newly-established or an existing one. But the CBI is pushing for measures to rewrite the laws that have long outlived their usefulness and make way for 100% ownership for foreign lenders in the free economic, trade and industrial zones.
