Economy, Business And Markets

Framework Agreement Signed for S. Korean Finance

The Korea Export–Import Bank’s headquartersThe Korea Export–Import Bank’s headquarters

The framework agreement for the previously agreed upon South Korean finance for Iranian projects has been signed between the heads of the Export Development Bank of Iran and the Korea Export–Import Bank (Kexim).

A top-tier Iranian economic delegation led by deputy economy minister and the head of Organization for Investment, Economic and Technical Assistance of Iran Mohammad Khazaei was in Seoul on Thursday and signed the €8 billion ($9.4 billion) deal, reports Shada, the official news outlet of the Ministry of Economic Affairs and Finance.

The delegation, which also reportedly consisted of representatives from the Central Bank of Iran and a dozen banks, was present in a signing ceremony that saw EDBI chief Ali Salehabadi ink the agreement with his Korean counterpart, Choi Jong-ku, who has been the 19th chairman and president of Kexim since March.

In late June, former economy minister, Ali Tayyebnia, had met with Choi in Seoul, reaching an agreement regarding the line of credit, "for the finalization of which preliminary negotiations had started a year ago".

At the time, it had been reported that the line of credit is part of a South Korean FDI to be spent on Iranian projects, namely Isfahan refinery and eight Siraf gas condensates refineries among others. However, it was reported that the line of credit is worth $8 billion which, coupled with another $5 billion to be provided by Korea Trade Insurance Corporation (KSure), would stand at a grand total of $13 billion.

On Thursday, Khazaei said the €8 billion finance can be used by Iranian state-owned and private sectors within the framework of regulations while "12 Iranian banks have been designated as agent banks for using the finance".

Iranian officials have repeatedly touted the agreement as "the biggest foreign finance deal after JCPOA", the nuclear deal with world powers that was implemented in January 2016.

The Kexim chief reportedly referred to the agreement as an important step in expanding economic ties between Iran and Korea based on mutual interest.

"After the confirmation of CBI and the Investment Organization, a variety of Iranian projects will be able to enjoy the line of credit," Choi said.

According to the ministry's news outlet, a wide range of Iranian projects, especially in the health, transportation and energy sectors have been considered and negotiated, and are ready to be formally introduced for finance to the Korean side.

"After the agreement is signed by the banking system of the country and the aforementioned line of credit is approved for receiving the administration's guarantee, the Ministry of Economy will move to issue guarantees for the loan," adds the report.

As the ministry outlines, CBI, the Investment Organization and Kexim held early negotiations in 2014 when sanctions were still in place. A year later, a memorandum of understanding for financial cooperation was signed between the two countries, which signifies a credit line of up to €5 billion to build hospitals.

Negotiations picked up pace after sanctions were removed and while the path was paved for foreign finances to be used in other sectors, "the volume of credit line was increased to €8 billion from the previous €5 billion".

Shortly after the implementation of the nuclear accord, adds the ministry report, an early draft for a financial agreement and the relevant guarantees were devised, which finally led to the final draft agreed upon in June.

CBI Governor Valiollah Seif praised the Thursday signing as a positive effort that will lead to the implementation of more construction and manufacturing projects throughout the country.

"The direct effects of this deal on the economic development of the country will be made visible in the future," he added.

The official notes that in addition to its direct impact on production and job creation, deals such as the Korean agreement exert a psychological factor that indicates a high level of trust between the banking systems of both countries.

Seif concluded that the impact could prompt other countries to expand their dealings with Iran and remove the hurdles faced by the administration in attracting foreign finance.

A contract signed between Iran and China to finance the electrification of a 926-km railroad from Tehran to the eastern city of Mashhad worth $1.5 billion has been the most recent notable foreign finance deal successfully signed.

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