Iran started its new year of 1382 AH (Iranian fiscal year starting on 21 March 2003) with two shocks. The first was the American-led coalition attack on Iraq and the second was the death of Dr. Seyed Mohsen Nourbakhsh. The tremors sent out by the second shock were far more severe than those of the first, as no one anticipated or could believe the sudden demise of Dr. Nourbakhsh, and indeed some are still grappling to come to terms with the enormity of the tragedy.

Nourbakhsh was a familiar face in the economic landscape of Iran, with more friends and foes than any other economic policymaker, which is in itself a testimony to the impact his decisions and policies had on the Iranian economy.

From the time when Nourbakhsh first stepped onto the economic scene in 1981 until his days ended on 22 March 2003, he firmly stood by his belief that the principals of market economy were the only tried and true method of economic development and the key to the country’s progress. This determination and resolve was clearly put on display from the very beginning, in 1981, a time when the debate over "expertise and dedication" dominated the country’s entire political-economic atmosphere. In his memoirs of 1981 and 1983, Akbar Hashemi-Rafsanjani, former-president and current head of Iran’s expediency council, wrote, "the Islamic banking Society has come to complain about the continuation of Bani Sadr’s policy on banking and they are gradually starting to oppose Nourbakhsh as well" (Passing the Crisis, p. 224). Nourbakhsh went on to serve as the Minister of Economy in the cabinet of the then president Akbar Hashemi-Rafsanjani between 1989 and 1993.

Nourbakhsh’s performance can be mainly assessed through the record of his three terms as the Director of the Central Bank of Iran –from 1981 to 1986, 1994 to 1999 and 1999 until his death in 2003. Examination of his time in office shows that, contrary to allegations from certain quarters he did not adopt his economic policies based on political trends.

In the 1981-1986 period, when Nourbakhsh had assumed the governorship of the Central Bank of Iran for the first time, he was not only responsible for safeguarding economic principles –such as progress and adjusting the rate of inflation– but he also had to grapple with the economics of a country at war. During this period the most significant event in the banking system became the passing of the Usury-Free Banking Operations Law in 1983. Economic review has since shown that the gross domestic production (GDP) grew by an average of 3% during this period, while inflation ran at a rate of 10%. However, when Nourbakhsh left the Central Bank in 1986 for three years, at the same time as the first development plan commenced, inflation ran on average at 18% and the GDP shrank to 0.9%.

Another matter that upset Iran’s economy, from 1986 onwards –and we are still somewhat subject to its negative consequences today– were the ‘obligatory facilities’ which were forced on the Iranian economy. The pursuance of this policy meant that monetary resources would be spent on projects that did not warrant any economic justification whatsoever. When this process was legitimized and legalized, the banking system became obliged to finance it. An additional side effect of this process was concealment of the government's budget deficit. From 1982 onwards, the Central Bank also came under pressure to adopt and conform to this policy, but Nourbakhsh refused to comply for as long as he was in charge. It is interesting to note that when Nourbakhsh returned to the Central Bank in 1994, one of his main policies was tackling the ‘obligatory facilities’ and eventually succeeded in suspending it and legislated a mandatory 10% cut in it for the third development plan.

Nourbakhsh’s second term as the governor of the Central Bank came when Iran was under a catastrophic foreign currency exchange (forex) debt, with Iranian economy tainted by a loss of credibility at a time of economic globalization and when foreign investors in Iran were faced with rising risk factors. Banking experts had asserted that the most important factor leading to the forex debt was a lack of adequate information and statistics relating to obtaining foreign exchange credits and when they were to be repaid. The information and statistics existing in the country’s various banks were inconsistent with that of the Central Bank of Iran. The first step Nourbakhsh took was to bring together all this information and statistics as a coherent whole, and more importantly, he succeeded in updating them. By doing so, the precise amount of Iran’s forex debts and the time span for repayment was ascertained. Furthermore, currency management policies were implemented to address the debts to regulate repayment. As a direct result, the first credit line was extended to Iran after three years, which in itself had the knock-on effect of encouraging European insurance companies, responsible for insuring official exports, to guarantee and warrant the export of goods to Iran.

Implementing these policies and their effective management were to save Iran once more in 1987, when the currency revenue witnessed a drastic drop, and consequently difficulties were experienced in meeting the forex dept repayment obligations.

Nourbakhsh’s third term as the governor of the Central Bank of Iran coincided with the third development plan. The most important steps undertaken by Nourbakhsh during this period can be recounted as establishing a currency reserve account, implementing a uniform currency exchange rate and the commencement of operation by private banks in Iran. We must not forget his efforts and dedication in lowering the rate of inflation and establishing a realistic currency exchange rate.