Baku, Azerbaijan, Sept. 18
By Khalid Kazimov – Trend:
Concerns are growing in Iran over the outcome of the recent agreements with foreign countries on extending credit lines for supporting development projects in the Islamic Republic.
While many believe that the credit lines would help Iran’s economy climb out of the recession and create new job opportunities, others question the capability of the Iranian firms to pay back the loans and also their ability to meet commitments after allocating such financial facilities.
Abbas Daneshvar, the director of international affairs and resource mobilization at Iran’s Bank of Industry and Mine, told Trend on Monday that some European banks are going to provide lines of credit (LCs) to Iran in a few days.
“There are a number of LCs to be opened by European partners in the coming days, a move in cooperation with the Central Bank of Iran and the Investment Department of the Ministry of Economy”
The flow of foreign finance to the country began following the implementation of the Joint Comprehensive Plan of Action (JCPOA/ nuclear deal) last January.
Government’s increasing debts
Hossein Abdoh-Tabrizi, a senior advisor to the minister of Roads and Urban Development, has warned against allocating the financial facilities to those entrepreneurs who may be incapable of settling the debts.
“We should not allocate the facilities to those incapable of paying back the loan”
He further added that in cases the debtors fail to clear the debt, the government has to pay it back.
Iran’s foreign debts reached $9.122 billion by July 21, 2017, the country's Central Bank (CBI) said in its latest monthly report on Sept. 14.
Speaking during a televised interview aired by Iran’s public broadcaster Abdoh-Tabrizi proposed to use a part of the financial facilities in producing raw materials and exporting those commodities.
He also urged the government to prevent allocating the foreign finance for importing the equipment and machineries that the country is capable of producing them domestically.
The official also called on the government to turn to foreign investment deals instead of credit lines.
Uncertain future of forex rate in Iran
This is while, Morteza Allahdad, an outstanding Iranian economist has warned against allocating those loans to private firms as the future of currency rate remains unclear in Iran.
Earlier this month, Gholamali Kamyab, the foreign exchange deputy at the Central Bank of Iran (CBI) suggested that his organization may adopt its policies on the unification of the exchange rate as of March.
"The Central Bank has no accurate time schedule for implementing the plan on unifying the currency rates but considering the existing plans, the implementation would begin by the end of the current (Iranian calendar) year (starting March 20)".
There is about a 15 percent difference between the official and free market exchange rates of the US dollar in the current situation in Iran.
Morteza Allahdad believes that allocating the foreign loans to private companies constitute great risks due to the low capacity of domestic producers to export their products.
According to Allahdad, the foreign loan could help Iranian producers, if they were capable of exporting goods.
“Extending foreign credit lines should take place in an industry which enjoys incomes from exports”.
He further described economic recession and unemployment as the biggest problem of the country.
The officials have earlier announced that the number of unemployed Iranians has already reached 3.4 million.
Allahdad added that over the past four years the country saw an inflation rate of 65 percent but the currency rate has increased by 10 percent.
He said the imbalance between the inflation rate and currency rates encourages the producers to tend to importing goods instead of manufacturing them.
He accused the government of failing to draw up a detailed plan for using the foreign loans.
Benefits of foreign loans
Mohammadreza Biglari, an economic expert suggests that the foreign loans are not beneficial and the country has to pay high interest rates for those credits.
He said that the lack of domestic resources would reduce the possibility to get a proper use from the foreign debts.
Earlier last week, five Iranian banks and China’s CITIC Group Corporation Ltd inked an agreement which obliges the Chinese side to open worth of $10 billion of credit line for the Middle Eastern country in order to finance a number of development projects in the country.
The Governor of Central Bank of Iran Valiollah Seif has said that the new loans seek to support domestic producers and entrepreneurs.