Unreformed banks fail Iran's corporates
Iran's economic liberalization programme has shown impressive results. But the victory of conservative forces in the latest elections threatens further progress. Meanwhile the country's banks are incapable of funding its corporations, which are turning instead to the capital markets.
AT FIRST GLANCE, the Iranian economy looks to be on a roll. The IMF declared in June 2004 that growth should remain strong at 6.5% in the Iranian fiscal year to 21 March 2005. This comes after growth of 6.8% in the previous fiscal year, slightly down on 2002-03 growth of 7.4%. The Tehran Stock Exchange (TSE) is continuing to perform strongly, after recording 116% growth in 2003, and oil prices are at historical highs.
Yet beyond the short term the picture appears less rosy. The IMF has stressed that reform must be accelerated if Iran's medium- to long-term economic health is to be ensured. Financial sector liberalization is at the heart of the issue, and crucial to the country's future is the Fourth Five Year Development Plan (FYDP).
Its fate now hangs in the balance. James McCormack, senior director of sovereigns at Fitch Ratings, believes that "the real debate over where Iran is going over the next five years is taking place right now".
The FYDPs have set the economic agenda in Iran since 1990.