Proposed Industries Minister Vows to Reform Forex, Bank Interest Rates

Mohammad Shariatmadari, industries, mining and trade minister-designate, has pledged to lower banks’ interest rates and overhaul the current system of determining foreign exchange rates to support industries and exports.

“Domestic industries will not be able to continue their activities when banks’ interest rates stand at 25%. Therefore, we need to offer them loans with interest rates closer to the inflation rate, which currently stand around 10%,” he was also quoted as saying by IBENA.

However, in the face of growing public backlash over high rates, the Central Bank of Iran has already announced that it seeks to fix the interest rates approximately 2-3% higher than the inflation rate, which was 10.2% for the Iranian month ending June 21, but that is not an easy task when interbank rates are around 20%.

Shariatmadari, who served as vice president for executive affairs during the previous tenure of President Hassan Rouhani, noted that if Iranian lawmakers approve him as minister, he will personally pursue the matter of forex rates in the Money and Credit Council.

“I do not concur with leaving the currency rates unsupervised, but fixing an irrational rate for foreign currencies without noticing the difference between foreign and domestic inflation rates has troubled Iranian exporters and supported imports, therefore reforms in this regard are inevitable,” he said.

According to a report by the Institute for Trade Studies and Research (affiliated to the Ministry of Industries, Mining and Trade), the government has kept the exchange rates lower than its real value by 38% and 11% in 2013 and 2016 respectively.

Domestic production in Iran is highly subsidized by the state. However, overshadowing the country’s protectionist policies is the practice of allocating cheap, subsidized foreign exchange by the government to imports, which runs counter to the spirit of boosting domestic industries.

Seeking to gain the trust of Iranian lawmakers, Shariatmadari elaborated his plans for the ministry during the next four years in parliament on Saturday, in which he noted that his strategies are derived from the country’s macro policies based on Resistance Economy principles.

“The Sixth Five-Year Development Plan (2017-22) was the major cornerstone of devising my proposed program,” he said, noting that the ministry will endeavor to resolve the issues of competitive production.

The ministerial nominee believes Iran’s share of the global economy is not satisfactory, vowing to enlarge this share as soon as possible.

Shariatmadari added that according to international reports, Iran ranks as the 27th biggest economy in the world after its neighbors Turkey and Saudi Arabia so “we need to significantly boost our GDP”.

The proposed minister noted that the industries sector accounts for 34% of all job opportunities, but unfortunately the sector has registered a negative growth of up to 10.5% in the past.

However, Shariatmadari said during 2014-16, the situation improved slightly, as the sector’s uptrend restarted and registered growth rates of up to 6.5%.

“We have more than 49,000 incomplete projects in the country while about 11,200 of them have made more than 60% physical progress and we plan to create 365,000 new jobs in this area,” he said.

The proposed minister noted that small- and medium-sized enterprises account for 95% of all industrial units in the country, therefore they have a special place in the proposed plan.

“About $3 billion from the resources of the National Development Fund of Iran have been considered for development of rural areas and we need to extend our support and offer stimulus packages to improve industrial estates in underprivileged areas,” he said.

Shariatmadari said unfortunately, only about 150 industrial estates out of 959 are currently active.