Rouhani Expected to Make Economic Reforms a Priority

Having won a reelection in a landslide, Iran’s President Hassan Rouhani is expected to prioritize economic reforms.

If the nuclear agreement reached with six world powers in 2015 was the prize achievement of his first term as president, the challenge of the next four years is to convert the lifting of international sanctions into jobs, investment and growth, reads an FT article. Excerpts follow:

Since the nuclear deal came into effect, Iran has raised its oil exports and lowered inflation. But one of the laments from Tehran is the reluctance of foreign banks to follow international oil companies, aircraft makers and car manufacturers, which have begun to dip their toes in Iranian waters.

This, Iranian officials maintain, is out of fear of Washington. Some US sanctions remain in place and its authorities have determinedly pursued violations to the tune of billions of dollars.

“The United States, instead of encouraging these financial institutions, use[s] multi-pronged words that are actually bringing fear to the hearts of these banks,” Rouhani told an American interviewer last autumn.

But putting the blame for Tehran’s banking problems on US enforcement fails to tell the whole story. International banks have their own reasons to be cautious and Iran’s institutions have many problems, although these are being recognized and slowly redressed.

Iran hopes to shed its place on the Financial Action Task Force’s blacklist, designating the country as parlous territory.

Last June, the Paris-based watchdog acknowledged that Tehran was taking sufficient steps to have counter-measures suspended for a year. Iranian officials are keen to win over FATF and are bullish about their chances of getting a clean bill of health when the taskforce convenes next month.

That, however, could trigger internal pushback by hardliners opposed to having the books on their considerable business interests scrutinized.

International observers and Iranian officials alike acknowledge that the state of Iran’s banks leaves much to be desired. In February, the executive board of the International Monetary Fund noted “an urgent need for financial sector reforms”.

Proposals for a banking reform bill are under consideration by both the Cabinet and Iran’s Parliament, with the hope of introducing it this summer. Even so, there will be no quick fix.

President Rouhani has acknowledged that for Iran’s economy to flourish, his country needs “constructive interaction with the world”. Strengthening Iran’s banking at home and taking steps to make the country a less risky proposition abroad is a necessity.