By Mahnaz Abdi

Foreign finance a post-sanction necessity?

September 20, 2017

The implementation of Iran’s nuclear deal in January 2016 lifted a majority of sanctions against the country. Among the most important removed sanctions were those on the Central Bank of Iran (CBI), the oil industry, shipping lines and commercial aviation industry.

The implementation of Iran’s nuclear deal in January 2016 lifted a majority of sanctions against the country. Among the most important removed sanctions were those on the Central Bank of Iran (CBI), the oil industry, shipping lines and commercial aviation industry.

A month later, the global transaction network SWIFT said it had reconnected a number of Iranian banks to its system and according to the CBI officials, 29 Iranian banks are now connected to SWIFT, though some problems are still in place.

President Hassan Rouhani has reiterated that the post-sanction economy needs foreign investment and the government plans to attract $65 billion of foreign investment by the end of the Sixth Five-Year National Development Plan (March 2021), of which $30 billion is about to come in finance, $20 billion in economic partnership and $15 billion in direct investment.

While the barriers for banking transactions with Iran remain the main issue, some countries have opened credit lines for the Islamic Republic in the post-sanction era. The last one was opened by China.

China’s CITIC Trust signed a 10-billion-dollar deal with five Iranian banks on September 15 to fund development and production projects in Iran.

Before that, on August 25, South Korea’s Eximbank signed a deal with the Iranian banks to secure an €8-billion ($9.4-billion) credit line to finance various projects in Iran. It was Iran’s biggest loan deal since its nuclear accord. 

Such deals, according to CBI Governor Valiollah Seif, are a sign of return of global trust in Iran’s banking system. However, the question is that whether foreign finance is a necessity for the post-sanction economy?

A credit for the country
 
Afsaneh Lak-Tabriz, director of the international finance department of CBI, is of the opinion that receiving finance is considered as a credit for every country, because it means that the country enjoys enough reliability to receive it.

“Receiving finance is a positive point for the country, but management of using it is our own responsibility, in a way that we use it based on our requirements and with true anticipation of the repayment,” she told the Tehran Times in a telephone interview on Monday.

Providing a ground to secure financial resources for implementation of production, infrastructure and development projects in the country is a good action, she noted.

Higher foreign debt

But, some economists and officials believe that using finance will increase the external foreign debt. They say the possible disability to repay the loans on time will bring some negative economic and even political results for the country.

In a condition when the government faces a mass of unfinished projects, using finance for some projects that may not be finished by the end of the repayment schedule means that the government should repay the installments through its sources not the projects income which is a loss for its budget.   

Oil income prioritized

Mehdi Taqavi, a leading economist, told the Tehran Times in a telephone interview on Saturday: “While repayment time is the most important matter when securing these loans, given the 1.5-fold increase in Iran’s oil exports after the sanctions it’s better that we use oil income rather than secure these foreign loans.”

No hurry for finance 

In a TV program on Saturday, Hossein Abdoh-Tabrizi, a top economic advisor to the transport minister, said: “The money we receive from the foreigners is better to be in the form of investment and we should not be in a hurry for finance.”

In the same program, Morteza Allahdad, another economist and a former advisor to the finance minister, said the government has moved toward foreign finance under the condition when the ground is not still prepared for credit lines and foreign investment. 

Better banking a prerequisite

Mehdi Pourqazi, the chairman of Industry and Mine Committee of Tehran Chamber of Commerce, Industries, Mines and Agriculture (TCCIMA), believes that securing foreign finances is a good and positive movement, but these finances will be used mainly for the governmental projects not the private sector ones.

In addition, receiving these finances requires improvement of our banking relations on one side and attracting trust of the foreign companies to business in Iran on the other side.

Foreign banks line up 

Foreign finance to open the capital floodgates for Iran or create unnecessary foreign debts for the government, the CBI government has said on Sunday that foreign banks are in a line to sign finance deals with Iran, announcing that several credit lines are expected to be opened for the country in near future.

He had previously announced that three European countries including Austria, Denmark and Italy are set to open €22 billion credit lines for financing projects in Iran which in addition to the €8-billion credit line to be secured by South Korea’s Eximbank the total value of loan deals will reach €30 billion after Iran’s nuclear accord.
 

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