Banking
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Following the recent drop in foreign exchange rates in Iran, the “desired exchanged rate” has been a topic of discussion for a while in the economic circles of the country. Some believe that the exchange rate should be brought down by the government as much as possible, while others think otherwise. Below is a brief report on the country’s banking and economic status, presented by the Central Bank Governor Mohsen Nourbakhsh, about the exchange rate among other issues: A Suitable Rate: The rate of 7,900 rials for a dollar is suitable and defendable, and the rate of dollar against the national currency would not fall behind this level. The government policy is based on stabilizing forex rates and strengthening and maintaining the value of national currency against hard currencies. To maintain the value of national currency and stabilize forex rates, the three important principles of financial discipline, monetary discipline and raising productivity should be taken into consideration. This year’s budget has set the value of each dollar against rial at 7,900 and on the same basis, the rates would remain unchanged in the next year’s budget.To stabilize the foreign exchange rate, there should be a balance between supply and demand; if this does not happen we will be witnessing further decline of foreign exchange rate. Given the budget limitations and the projectionist policies for non-oil exports, the rate cannot be reduced further than 7900 rials. Expected Growth: Economic growth in industry, oil, agriculture and construction sectors would be about 5% next year (to start March 21, 2001). The gross domestic fixed capital formation has a 7.8 % rate of growth this year. In the first seven months of the year (started March 21), the average price index of the consumer goods and services showed about a 13.1 % growth. This figure is expected to reach 15.9 % by the end of the current Iranian year as planned. In the first year of the Third Five-Year Economic Development Plan (2000-2005), a growth of 4-5 % in economic sector, 7-8 % rise in investment and about 15% inflation rate are predicted. Export Revenues: In the first half of the year, export of oil derivatives and non-oil commodities fetched the country about $12.9 billion. In return, $7.196 billion worth of commodities were imported. The revenues gained from oil sale stood at $13.99 billion and from oil derivatives at $1.658 billion by November 20. The extra revenues from oil export will be spent to increase production and investment and to encourage exports. Debt & Liquidity: The debts which the government owes to the banking system are over 132,000 billion rials, and once this is returned to the system, the interest rate of credit facilities will decline. If the government settles its dues with the banking system, the liquidity will grow and this will encourage banks to look for customers through offering competitive services. The volume of liquidity in the country amounts to 210,000 billion rials, half of which is with the government agencies. This constitutes one of the reasons for incapability of the country’s banking system in offering facilities at low interest rates. Export Problems: Various sectors of the industry have been created for satisfying the domestic needs and substituting the imports. However, with the current status of the industry, they cannot meet the figures of the Third Development Plan. One of the significant solutions to promote exports is to form joint ventures with foreign companies; China can be referred to as one the successful countries in this field. Based on this year’s budget, about six billion dollars could be sold by the government to fulfill its needs, but based on the recent amendments and considering the exporters’ foreign exchange this figure is to reach $11 billion. The dependence of exports on budget regulations may be effective in promotion of exports, but when the oil prices decline, the country’s exports will sustain a heavy damage because of such dependence. |
