Economy, Business And Markets

Banking and the Burden of Sanctions

Banking and the Burden of SanctionsBanking and the Burden of Sanctions

Extended sanctions on the banking industry have brought about negative consequences for the sector, Tahmasb Mazaheri says, the website reported.

The senior economist notes that both banking restrictions and other economic sanctions aimed at undermining economic, commercial and financial activities have added to the woes of the banking sector already saddled with a mountain of soured and restructured ‘oans.  

 “The limitations have increased the cost of trade, the final price of domestically manufactured goods plus the price of imported goods and services.”

A former governor of the Central Bank of Iran, he said there are two diametrically opposed views in relation to the international sanctions. “The first is the one touted by the former administration that dismissed the United Nations sanctions as nothing but a scrap of paper to be relegated to the dustbin. They considered sanctions as not only inconsequential but also a blessing in disguise both for the people and the economy.”

Mazaheri says this stance was and is “unacceptable, ill-conceived and incorrect.”

On the second view he says that there are those who reckon that the sanctions will paralyze the domestic economy. “These people believe no policy or plan can deliver with the sanctions in place and that the country would eventually face economic collapse under the mounting pressure of the sanctions.”

Mazaheri, who was minister of economy in the cabinet of former President Mohammad Khatami, however, contends that there is a midway between the two clashing viewpoints and that is the belief that there is and should be a workable solution for countering the sanctions.

“There are some unofficial ways and means to bypass and evade the sanctions but we should know that those solutions increase the cost of trade and would give rise to middlemen and brokers.”

The former banker is of the opinion that the roundabout ways to beat the restrictions would drive up costs, decrease efficiency and create hurdles in the way of economic activities.

According to Mazaheri, with the removal of sanctions the issue becomes quite different as Iranian companies and banks can again compete with their foreign counterparts on a fair economic playing field. He believes the post-sanctions atmosphere will breathe much-needed energy into the non-oil export sector and also help stimulate demand for domestic goods.

He, however, warns of an unsavory phenomenon that has haunted the economy through the years and that is money laundering. Mazaheri said several major cases of dirty money exposed in the banking system are to a great extent “independent of and irrelevant to the sanctions” and must be stopped with legal instruments and effective oversight.