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Setting Economy on the Right Course
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"Realization
of a uniform exchange rate is the present policy followed by the
government and a great deal of money has been spent to reach this goal." |
Tahmaseb
Mazaheri, Minister of Finance and Economic Affairs, has been speaking with
representatives of the media for the past two months on economic reform. The
following is an outline of his viewpoints:
Euro-based Bonds: Around $625 million of bonds have
been sold to
Europe at 8.25% interest rate and funds amounting to $2 million
have also been collected. About $1.4 billion of the total 2 billion obtained
has been invested in special projects.
WTO Membership:
The government has decided to utilize
special schemes in order to join the WTO. As soon as
Iran’s membership within the WTO is
confirmed, there will be a period of several years to discuss, work out, and
coordinate the conditions for joining the organization. During the discussions
efforts will be made to take advantage of joining the WTO and at the same time
making use its benefits. There are so many benefits and much may be gained if
the discussions taking place are exact and technical in nature. The
discussions ahead of us will of course be tough. It took
China about a decade to finalize its entry
conditions.
Iran will try not to lose its benefits and at
the same time find its place in the all-important world market. Upon approval,
a professional and expert team will be created to study and determine all
aspects and dimensions of its membership. One of the barriers to our joining
the WTO may be the disapproval of a number of WTO members on the basis of
politics.
Privatization:
According to
the existing rules and regulations, the transfer of state companies to the
private and cooperative sectors through negotiations is forbidden and all
concessions must be done through the stock market or tenders. Despite the
existence of awkward rules and regulations for privatization of companies, the
trend has been positive in the current year. Articles 15, 16 and 19 of the
third development plan have been the greatest hurdles to the privatization of
state-owned companies. It is hoped that with the approval of the corrective
measures by the Parliament, the grounds will be paved for swifter
privatization.
Aggregated Tax Bill: Calculating the redundant duties,
the present rate of taxes received from production will be a minimum of 6% and
a maximum of 25%. With the approval of the aggregated tax bill all producers
will pay only a 3% duty and multiple duties will be done away with. Efforts by
some members of Parliament to cut the production tax by 1% will reduce state
income drastically and is completely illogical. The emergence of the new
taxation law has altered the method of authentication and evaluation of taxes
and therefore the basis for the new tax assessment will be the amount of a
company’s profits, its performance records, the loss and profit accounting
reports and its balance sheet prepared by certified accounting institutes.
Exchange Rates: It is hoped that there will not be
extreme fluctuations in the rate of exchange in the future and that it will
stay at an acceptable level. Any rate announced by the government will prevent
the single currency rate from establishing itself. If any authority announces
a new rate, the market will immediately establish another and this will
automatically lead to the emergence of the multiple rates system.
Activities of the Ministry:
A new plan is under way to correct the banking interest rate
structure as another attempt by the ministry to support investment within the
country. The interest rates on the bank systems legal deposits held at the
Central Bank of
Iran have been reduced from 23% to 16% in the current year. This
has been a very useful move to free bank resources and provide better
long-term facilities to the manufacturing sector. All banks are now obliged to
present their freed resources in the form of long-term facilities to their
clients as prescribed by the regulations of this plan.
Foreign Exchange Rate and the 2003 Budget Bill:
The
realization of a uniform exchange rate is the present policy followed by the
government and a great deal of money has been spent to reach this goal. Part
of the current year’s inflation rate was the direct influence of the attempt
to create a uniform exchange rate and the government intends to follow the
policy in the foreseeable future. Borrowing from foreign banks is in fact a
kind of financing but it is at the same time considered to be conducive of
budget deficit. This well-intended deficit has been accepted by the government
to secure the huge finances needed for half finished construction projects
within the country. It is suggested that the present trend should be continued
in the next fiscal year. The rate of exchange will be adjusted on the basis of
supply and demand and it is hoped that the balance of supply to demand will
create relative stability in the country and the rate of exchange will reach a
comparatively stable level in the next period.
The Role of Insurance in
Iran's Economy: The main aim of privatization is for
insurance companies to become more active and perform better through private
management. The first step in attracting the prospective insurer is to make
them trust the companies involved. The insurance company's balance sheets must
be published in the print media after approval and finalization so that the
public can come to know about their operations. Insurance companies must
undertake the practice of presenting a true and exact image of themselves.
Protection and support of investors with the goal of investment growth within
the country is one of the duties of insurance companies. Insurance in
Iran will not have a serious and valuable
effect on the growth of investment for as long as it is under government –
that means state companies should not feel so secure as not to insure
themselves. When privatization arguments are put forward, the first worry of
any investor are the probable risks involved.
The way to reduce the tension felt by
investors is to design and offer various forms of insurance coverage and
proposals. Part of the investment risks are the result of the decisions and
behavior of the government – but of course the government is at present
attempting to alter its behavior in such a way as to attract the trust of
investors, by reducing political risk to a minimum and allowing patrons to
forecast the state’s behavior.
Commercial and
production risks together form another factor which causes investors to keep
their distance. However, if logical and suitable behavior is seen, investors
would be prepared to accept risks, and insurance companies therefore must
formulate technical approaches to cover investment risks.
It is imperative for
Iran’s Central Insurance Organization (CIO)
to supervise insurance companies which have entered the private sector. For
privatization to be realized and unnecessary incidents avoided, supervision by
the CIO must become more concentrated and insurance companies have to make
certain that they are following the correct procedure.
If insurance privatization takes place in
the absence of compliance with the CIO's regulations and technical
supervision, there will be negative consequences following it – and the only
way to prevent this problem is thorough up-to-date, practical supervision by
the CIO.
In addition to moving towards privatization,
insurance officials in
Iran must support this move by taking steps to create insurance
cover for state plans and therefore open the way for development in various
sectors of the country's economy.
The privatization trend of state-owned
insurance companies possesses clarity and is moving along swiftly. It is the
intention of the state to hand over structural activities and economic
supervision to the private sector in order to pave the grounds for economic
development and economic reforms.
The provision of risk coverage for investors
will help economic growth in
Iran and the insurance industry can help the country in this
regard by expanding its activities. |
