 |
"As our trading partners are mostly non-dollar partners, it’s very natural that the composition of our reserves will vary according to or payments in various currencies. And therefore, as we have now shifted from dollar transactions to non-dollar, the share of the dollar is declining continuously"
|
HOPES FOR LIBERALIZATION in Iran are fading fast as the government of Mahmoud Ahmadinejad sacks key policymakers, abolishes autonomous sources of power and ratchets up moves towards a more populist economic policy. "It feels like a new Ice Age," says an observer of the Iranian scene who preferred not to be named for fear of falling foul of the new wave of purges. Late in August, Ebrahim Sheibani, a long-serving, widely respected technocrat, resigned from his post as central bank governor. Few doubted that the move was anything other than the removal of another obstacle to the centralization of economic policymaking in the hands of the president’s office, coming as it did shortly after the resignation of the then oil and industry ministers. During the summer the Office of Management and Planning was put under the aegis of the president and the key Monetary and Credit Committee was abolished.
Iranian public life has long been rent by disputes between conservatives and reformers, a battle that has only intensified since the election of Ahmadinejad in 2005. The president has pledged to spread the benefits of high oil prices to the wider populace. That has included keeping interest rates below the level of inflation, which is running at around 17%.
Many reformers fear that the Iranian banking system itself is under threat, as conservatives seek to move from an environment in which interest is charged for loans to one more closely matched to their view of Islamic strictures against usury.
In an interview conducted with Euromoney in late August, immediately before his chief was ousted, deputy central bank governor Mohammad-Jafaar Mojarrad talks of the pressures of navigating these waters – as well as dealing with a US intent on isolating his country from the international financial system.
As a central banker in Tehran, you are caught between a turbulent domestic policy environment and an often quite hostile international environment. Do you find it a lonely job?
Well, it’s a challenging job and we try to deal with the challenges faced internationally, and if there is a challenge internally we try to deal with that also in a very balanced way.
Do you think those pressures have become heavier over the past 12 months?
Internationally, yes. Internally of course we don’t see that much pressure. We have dealt with certain issues and we have come to certain strategies for domestic policies regarding banking sectors or financial sectors. But internationally, yes, pressure, as you know, is increasing.
How would you describe the state of the Iranian economy? What is GDP growth at the moment?
For the previous Iranian year the growth was around 5.8% and we expect in the current Iranian year to continue at the same growth rate. Good weather and the high price of oil have given us quite strong growth in the past three years. The real picture shows a very good performance, and unemployment, according to the central bank and statistical centre of Iran, is declining, although the level is still relatively high. Inflation is showing some increase but the policy of the central bank is basically to contain inflation. We are making every effort for the current Iranian year to bring it down, contrary to last year, in which the rate was 13.6%.
Is your planning based on a continuation of high oil prices?
Of course, yes. I think Iran will receive around $50 billion in oil revenues for the present Iranian year, given the current price of oil.
Do you think that you have the tools that you need as a central banker to combat inflation? It’s well known that the view of the central bank on the relationship between interest rates and inflation is a different one to that of some important elements of the Iranian government.
That’s quite true and the interest rate is now declining, contrary to the previous year, but our inflation mainly is a function of fiscal policy. We have advised the government to restrain on expenditure, and the government is basically following this advice of tightening fiscal policies. We expect that with a more prudent fiscal policy and more discipline for the current Iranian year, inflation will come down.
You may have won one battle, perhaps, in persuading the government to be a little less spendthrift, but it’s an election year coming up. Incumbent governments very rarely keep a tight hand on purse-strings when there are votes for the taking. An outside observer would say there is a good chance that fiscal policy may be loosened in advance of the election.
They are parliamentary elections, not presidential. The budget of the current Iranian year compared with the previous year itself is tighter, and the government does not intend to amend the budget. So for the rest of the parliament, we see a more prudent fiscal policy and less reliance on the oil stabilization fund. That could be a good source for containing inflation for the central bank.
You said that you had managed to persuade the government to be a little more fiscally austere. How are those discussions conducted? Are they peaceful discussions or are there, as we occasionally hear, stand-up fighting matches with the government? How would you characterize your relationship with them?
The relationship is quite good: we always have debates on economic issues but we will come to a decision that is a consensus. So when there is a consensus we always have the majority views and therefore this will be the guideline for the central bank as well. Regarding the interest rate, the monetary and credit council has a view, the government has another view, and therefore after more debates on the issue and more discussions it was a decision made by the majority of votes. This is a very democratic way of resolving some economic disputes among various governmental organizations.