MP Accuses Gov’t of “Financial Repression”
Economy, Business And Markets

MP Accuses Gov’t of “Financial Repression”

Iran’s economy has undergone ‘repression’ in the previous decade, according to Hadi Ghavami, vice-chairman of the Parliaments’ Budget Commission.
Elaborating on the charge, he says “financial repression includes every government policy aimed at directing credit toward state-owned enterprises in order to reduce government debt.”
The lawmaker complained that government intervention in financial markets by reordering interest rate ceiling(s), pumping scarce financial resources into selected (loss-making) economic sectors and setting capital adequacy ratios have contributed to the long list of dilemmas visiting the national economy, ISNA reported.
“Another aspect of financial repression is the deposit rates staying above the inflation rate since 2013 when inflation started to decline,” from record highs of 40%” he said.    
On why interest rates have declined in keeping with the lower inflation rate, he pointed out two hurdles: low return of investment in the real sector and the structural problems plaguing the banking industry.
 “The present (high) interest rates discourage investment and manufacturing and spur banks to engage in speculative, high-risk lending,” he warned.  
Under balanced conditions, real interest rates are close to the ultimate return on capital, putting nominal interest rates and inflation rate on par with each other. The legislator cautioned that the present state of affairs is far from ideal.
Ghavami, however, warned against any abrupt move to cut rates, saying it could undermine the role of banks in the economy, cause further turmoil in financial markets, impede economic growth, limit businesses lending and add to the grave unemployment problem.
The banking sector’s ills are of two types, according to the MP: internal and external.  “Uncertified quasi-lenders, insufficient resources of banks, government debt to banks, bond debts owed to banks, non-performing loans, poor management of state-owned banks and the banks’ blocked assets (overseas) are the main problems gnawing at banks from within.”
The bank-based financial system of the economy, a recession-hit real estate market and the government’s debts to contractors are the woes thrashing banks from outside, the lawmaker added.

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