Iran’s Extended Sanctions Slant
The Tehran Stock exchange index dropped 5 percent, as President-elect Trump won the contest with a signature vow to “rip up” the Iranian sanctions relief for nuclear monitoring accord with the US and five other countries. He also nominated an ardent congressional critic as intelligence agency chief who recently lambasted new Treasury Department guidance allowing possible participation in minority owned Revolutionary Guard indirectly-controlled ventures. Congress before adjourning to usher in the new administration passed a 10-year renewal of core bilateral sanctions still banning financial system dollar access. Iranian banks are to fall under stricter regulation with proposed new legislation as bad loans may be double the 15 percent of the total officially reported. A handful of second tier Asian and European banks have forged correspondent relationships, and an EU thaw in wholesale prohibitions against the big state-dominated lenders implicated in terrorist finance may have begun with Bank Saderat’s likely removal at Greece’s request. The Joint Plan of Action uncertainty overshadowed a $5 billion venture announced with France’s Total and China’s national oil company in the South Pars field, as OPEC members with Iran’s return to 2 million barrels/day announced production cutbacks to boost the world price. Real estate and telecoms have also drawn foreign interest as Vodafone entered a local partnership and malls and office towers are under construction with Gulf, Turkish, German and other international tenants. Germany’s Economic Minister visited in October with over 100 business executives in tow to focus on infrastructure in particular with rail, energy and metals contract signed. The auto sector was a major stock market stock market draw as France’s Citroen and a subsidiary of the giant Saipa conglomerate are in cooperation talks, as Renault negotiates on a direct government operation. The IMF forecast was upbeat for the fiscal year ending March 2017 with 4.5 percent GDP growth and 9 percent inflation, as it repeated calls for banking and exchange rate system cleanup. Financial listings continue as equity laggards, and the free-market rial/dollar rate has slipped below 35,000 earlier seen as a floor.
Egypt was down 20 percent on the MSCI index through November as the cost of a $12 billion agreed Fund infusion was free float of the pound, which careened from the official 8 to over 15/dollar in commercial trade amid continued shortage. An initial $2.75 billion was disbursed contingent on big fuel subsidy and civil service cuts and VAT introduction to contain the 10 percent of GDP fiscal deficit. Inflation could hurdle toward 20 percent with currency pass-through before consolidation, but tourism down 40 percent annually could benefit a cheaper destination aided by the lifting of source country travel warnings. However a bombing at Cairo’s main Coptic Christian church has again heightened security jitters as President Al-Sisi’s popularity rating dips toward 60 percent. He was one of the few foreign leaders who met with President-elect Trump while he was the Republican candidate as the new team in Washington may adopt a warmer diplomatic stance. Gulf ties have frayed as the GCC suspended $10 billion in annual aid to focus on its own budget and current account woes, and remittances as a key lifeline have also slipped and could spike current 15 percent unemployment which angry youth and democracy activists may no longer sanction.
