Iran’s Jagged Frozen Asset Fence
Tehran stock exchange excitement flagged as nuclear negotiations resumed in Vienna with six international partners including Russia which otherwise split from the pack after its Crimea snatch, as the initial $4 billion in trapped oil revenue had yet to be released under the original outline. Banks in particular have been wary of flouting US sanctions under the exception, as BNP Paribas and other groups set aside cash to cover previous penalties. The sum is only a fraction of the estimated $100 billion in petroleum earnings still isolated, as officials petition for further relief and signal a revamped foreign investment code at the 100-day mark of the Rohani Presidency, which the IMF described as a “crossroad” in its April Article IV checkup. It traced the post-2012 “shockwaves” from trade and financial embargoes still shrinking output 2.5 percent in the first half of the latest fiscal year and ending the managed currency regime with a multi-tier market recently showing an appreciation trend. Annual 30 percent money supply expansion stoked near 50 percent inflation as interest/profit-sharing rates were negative, with non-performing credit especially to state-run firms almost one-fifth the total. Fiscal policy was equally loose on a chronic deficit from subsidies and erratic tax takes, and the current account balance and $100 billion in reported international reserves were hamstrung respectively by mounting external arrears and low liquidity. Along with the negotiation breakthrough authorities now acknowledge the economic stakes with stagflation and plan monetary and domestic energy price tightening according to the report. The huge Mehr low-income housing project which aimed to construct 2 million units in 5 years has been removed from central bank books to get dedicated funding, as better subsidy targeting could narrow the program’s gap to 1 percent of GDP. VAT will be raised and capital market development is cited as a priority to diversify the system along with more market-determined interest rates. A unified exchange rate is envisioned by mid-2015 as the current official one may be overvalued in the Fund’s view. Numerous restrictions are in place including a $300 limit for personal travel and profit repatriation prohibition, but the government will pursue business climate and labor practice reforms. Youth unemployment is pressing at 25 percent and privatization has failed to transfer ownership to commercial hands, the review finds.
The banking sector has suffered from a long period of poor risk management and supervision, and capital and provisioning standards are weak and distorted by directed lending mandates. Credit unions and micro-finance providers are unregulated, while private banks are often part of bigger conglomerates where troubles could trigger their own chain reaction. Foreign units may eventually return pending additional sanctions and overall industry opening, but post-revolution attention is now focused on Arab Spring participants enjoying solid stock exchange gains and transition milestones. Egypt’s military leader will run for president and Tunisia got a $500 million US borrowing guarantee to unlock constitutional economic changes with charter adoption.
