Economy, Domestic Economy

Gov’t Sold 36% of State Assets

Gov’t Sold 36% of State AssetsGov’t Sold 36% of State Assets

The new administration has stopped giving shares of state companies as repayment of its debt.

Only 10% of stocks “privatized” were given away as debt repayment in the past two years, while 36% of all government companies were sold off after President Hassan Rouhani took office, IRNA reported.

Privatization of Iran’s heavily government-controlled economy, kick-started in mid-2000s following a new interpretation of Article 44 of the Iranian Constitution by the Leader of Islamic Revolution Ayatollah Seyyed Ali Khamenei.

Since 2001, 1.37 quadrillion rials (about $36.7 billion) worth of government assets have been privatized. But the real story is the way in which the government carried out the plans.

Around 44% of the shares were given to Social Security Organization, Armed Forces Social Security Organization, Civil Servants Pension Organization and others in return for money owed by the government.

Most of the companies sold like this were already in trouble. The new owners, of course, did not have any experience running them, further worsening the situation. As a result, most of Iran’s major pension funds are currently in financial distress.

As for the 770 trillion rials (about $20.8 billion) worth of shares sold to the public, large controlling stakes were mostly sold to state players and their financial holdings, leaving management almost unchanged while bringing profits to the state-owned buyers. This drew much criticism from economists.

The exact decision-making process in these companies and the volume of shares sold to state enterprises are not known today, but economists say the economy has been left worse off. In other words, if the government ran things inefficiently, at least one could tell who called the shots.

The new administration of President Rouhani banned debt repayment via transfer of government stock, in a clear break from the former conservative government’s destructive policies. This was despite heavy overdue debt inherited from the latter.

Former president Mahmoud Ahmadinejad’s conservative government is responsible for 95% of the shares transferred as repayment for debt to government creditors.

Markets welcomed Rouhani who scrapped previous plans to give away an additional 1.6 quadrillion rials (around $43.2 billion) in government equity as debt repayment.

During the Bull Run, after Rouhani took office, the government sold a record amount of shares. Later as the now two-year-old bear market dampened the appetite for equities, privatization took a back seat.

Nevertheless, 36% of all government companies sold off were given away when Rouhani was in office.

Iran has a long way to go for forming a vibrant stock market. But it is making headway.

The incoming wave of foreign investors will force more transparency, while increasing competition—if the government allows it—and introducing new technologies and expertise.