Attention Foreign Bankers
A
major focus of the Third Economic Development Plan of the Islamic
Republic of Iran is restructuring the banking and financial systems. Based on the
provisions of the plan, the banking system would undergo a fundamental change. As per a
Majlis (Parliament) decision and after the approval of the Guardians Council, the banks
would absorb investments through ceding part of their shares to the private sector; this
would open the banking system to the non-governmental sector and has a positive impact on
the banking system. The Central Bank of Iran has voiced readiness to receive and examine
applications for setting up private and foreign banks in Iranian Free Trade Zones (FTZs).
Activities of private banks have been
predicted to be in rial or foreign currency. Those banks which perform operations in
foreign exchange would act in the framework of international regulations, while those
which operate in rial, must conform with Islamic banking, and are allowed to engage in
such activities as receiving deposits, opening letters of credit and issuing guarantees in
foreign exchange.
With the facilities offered for the setup of private and foreign banks in the Third
Development Plan in FTZs, these zones enjoy a bright prospect in terms of facilitating the
banking operations between Iran and other countries. Many banking operations related to
export and import of commodities are now performed in the neighboring countries, but once
private banks are established in FTZs, these operations could be done domestically.
With the facilitating of banking operations in Iranian FTZs, the Iranian traders would
have easier access to international markets and the profit gained this way would be
brought back to the country. Accordingly, the operating banks in FTZs are considered as
Iranian, but act independently in terms of banking operations. They can also perform
banking operations with domestic banks in the framework of banking procedures.
Moreover, once the branches of foreign banks are opened here, million of dollars of
capital would be brought in FTZs, which have a positive impact in the efficiency of the
country’s baking system.
According to CBI authorities, the capital needed for foreign banks to operate in FTZs is
$10 million and for branches of these banks is $3 million and once the bank is registered
with CBI, this capital could be used for the activity of the bank and it should not
necessarily remain with the CBI, while based on international rules, a certain amount of
capital should be deposited with the CBI by all operating banks in the FTZs.
CBI is ready to receive applications for setting up private banks in FTZs |
True, Iran is a country with such
huge resources as oil, gas and minerals, but exploiting this wealth needs investment. Iran
also enjoys vast tourist attractions and has large potentials for attracting investments
in its FTZs. The fact is that all this necessitates proper financial and monetary
structures as a prerequisite for trade exchanges between the countries. In the absence of
efficient financial organizations, as facilitator of trade, achieving a sustainable
development is impossible.
In order not to lose this opportunity, and since the monetary and foreign exchange
operations should conform with the FTZs law and regulations, the CBI - with the assistance
of FTZ Supreme Council and some professional experts - has studied the laws governing FTZs
in other parts of the world in a bid to compile a set of clear regulations for the
activities of banks and non-banking credit institutes. FTZs laws were compiled in a way to
create competition between these institutes. Some of the provisions, which have been
approved by authorities, are:
¨ Banking and monetary activity in Iranian FTZs would be allowed through setting up
private banks or branches of foreign banks, non-banking credit institutes and foreign
exchange agencies.
¨ The permit for banks would be issued by the CBI and is possible in three forms of
“banks with Iranian capital”, “banks with foreign capital” and
“banks with the partnership of Iran and a foreign country”.
¨ Establishing foreign exchange for legal entities is done upon the proposal of the
organization and with the permit issued by the CBI.
Financial Obligations of the
Islamic Republic of Iran
In Iran, using foreign financial resources
is not in form of direct loans, but is through implementing projects or importing goods or
services. There are two phases to receive foreign assistance this way. Methods for using
foreign financial resources are:
1. Purchasing usance for short-term:
Under such conditions, the purchaser buys goods in credit and the country is obliged to
pay its price within one year.
2. Purchasing through inter-bank credits: The purchaser buys goods in cash
and pays the money through a bank in the recipient country. The seller can get the money
from the receiving bank. Inter-bank credit can be on a short-, medium- or long-term basis.
3. Long-term loans for implementation of special projects: This type of
assistance is granted by such international bodies as the World Bank and the Japanese
Economic Cooperation Fund.
4. Short sale of oil: This is a method to use documents and contracts of oil
sale for receiving short-term credits in order to compensate for shortage of liquidity.
5. Overdue debts and moratorium contracts: Based on negotiation with
creditor countries, the $30 billion loan received by Iran during the early 1990’s
would be paid back over a six-year period.
Until September 21, 1997 the country’s obligations, including real and potential
obligations, were $27.675 billion and until March 21, 1998, it was $4.351 billion. The
total obligations were $23.419 billion at the end of 1998. Until September 1999, the real
obligations were $11.315 billion and the potential obligations were $10.315 billion, while
the total were $21.983 billion.
From the total potential obligations, $3.711 billion were related to finance projects,
$1.689 billion to moratorium contracts and $1.515 billion to long-term loans, while $2.889
billion were related to short-term documental letter of credits, $69 million to overdue
documental credits and $1.795 billion to guarantee the payment of short-term credits which
were received because of shortage of liquidity.
Iran’s experience of two socioeconomic development plans implemented during the past
decade demonstrates that achieving sustainable growth and social justice is possible only
through minimizing state ownership. Banking operations are no exception. As a prerequisite
to joining the global economy, the rates of foreign currency exchange and bank interest
must gradually change in favor of a free market. |
