Central Bank of Iran should be independent from government - expert

Azerbaijan, Baku, Oct. 25 /Trend, N. Umid, S. Isayev

Iran's Central Bank (CBI) should be independent from government, ethnic Iranian, Paris-based economist Fereydoun Khavand told Trend.

This way, according to the expert, country's economic problems can be solved.

"The CBI should pursue independent policy from the administration." Khavand said, adding that the Iranian government used the CBI as an entity for printing money.

"CBI should be able to say no to the government's demands for money," Khavand said, adding that the borrowed money were never returned to the CBI and entered the country's economy, and that in turn, led to increase of liquidity.

According to a report, recently released by the CBI, the monetary base and liquidity in Iran have increased by 4.4 and 5 times respectively during the ex-president Mahmoud Ahmaninejad`s administration (3 August 2005 - 3 August 2013), which lead to 40-percent inflation rate in Iran.

CBI's report said that Iranian banks' debts to it have increased by 13.6 times. It is while Iranian government's debts to CBI increased by 2.6 times during the same period.

Fereydoun Khavand said that some 700 billion of petrodollars were changed to Iran's national currency - rial, and released into Iran's economy during Ahmadinejad`s administration.

"Some projects which were very expensive including Maskanemehr (housing sector project) started during Ahmadinejad's time, and because of that Iranian Banks faced heavy debts and had to borrow money from the Central Bank," Khavand explained.

He went on to say that the former presidential administration tried to adjust country's budget by borrowing money from the Central Bank.

Despite warnings by economists, Khavand said the Central Bank's actions, under pressure from the former government, led to worsening of economy.

"Iranian Central Bank was forced to print more money to meet those demands which caused an increase in liquidity by 5 fold led to a 40 percent inflation rate," the expert said.

To improve Iran's economy, Khavand said that the authorities should reduce its dependence on oil incomes, and replace it with tax revenues.

He underscored that, current administration officials, including president Hassan Rouhani as well as his economic team, are planning to launch reforms for decreasing country's oil income dependency.

"If the reforms could create a base for eliminating the liquidity-caused inflation in Iran, then the country's economy would step on the right path towards improvement," Khavand said.

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