Iran Gov’t Seeks Transparency in Foreign Exchange Allocation

EghtesadOnline: President Hassan Rouhani announced on Tuesday that he has ordered the Central Bank of Iran and the Ministry of Industries, Mining and Trade to publish the list of all individuals and firms that have received hard currency at the official rate of 42,000 rials.

News ID: ۷۴۵۵۳۸

27 June 2018

The announcement comes after ICT Minister Mohammad Javad Azari Jahromi for the first time disclosed the list of handset and mobile device importers who had received foreign exchange at the official rate of 42,000 rials. The list struck a raw nerve with the public, which saw itself swindled by some of these companies who had sold their goods at the open market rate and pocketed huge profits.

The controversy over hard currency allocation comes amid a volatile foreign exchange market where open market exchange rates staged an unprecedented bull run.  The government’s abrupt move to unify the exchange rate at 42,000 rials in April only proved to add to the problems, as it prompted a deluge of requests for imports at the attractive rate.

It also prepared the ground for the rent-seeking behavior of a selected group of exporters who had access to the cheap currency while the open market rate hovered above 80,000 rials, Financial Tribune reported.

Rouhan’s decree is the first of its kind in publicizing the list of those who received the subsidized currency. Although under Iran’s multi-tier exchange rate system after the 1979 Islamic Revolution, the list of goods eligible to receive subsidized currency was made public, no such disclosure was made about the people or entities receiving it.

Whether the government will follow up the disclosure of cheap currency recipients with oversight over their performance remains to be seen.

Prior to the announcement by President Rouhani on Tuesday, Chairman of Iran Chamber of Commerce, Industries, Mines and Agriculture Gholamhossein Shafei sent a letter to CBI Governor Valiollah Seif, demanding that the names of recipients of cheap currency be made available to the “private sector’s parliament”, which refers to the chamber of commerce.

In his missive, Shafei said the list is requested by ICCIMA to instill market transparency and check the recent volatility in prices.

The transparency move is the latest by the government in reforming the forex market.

It emerged on Monday that the government finally consented to allow a negotiated market exchange rate for a certain group of imports.

According to the new measures, goods that do not have to be registered in the online Integrated Forex Deals System (known as Nima) can sell their hard currency to importers of “non-essential” goods at “negotiated” exchange rates.

Although the negotiated rate will probably face limits, exporters and businesses hope that it will be closer to the unofficial market rate.

The decision gave respite to markets, as some merchants and business outlets had gone on a flash strike on Monday to protest against the skyrocketing exchange rates and the ensuing slump that had gripped their businesses.

Further Measures

Reports have also outlined the likelihood of the government softening its approach toward exchange shops by lifting the ban on the open market trading of foreign currencies.

The previous stance had pushed currency dealings underground where traders risk arrest by law-enforcement forces.

On Tuesday, the US dollar continued to lose ground in the unofficial market where exchange rates were quoted at around 80,000 rials–down from Sunday’s high of 90,000 rials.

The establishment of the so-called “secondary” foreign exchange market was welcomed by Mohammad Reza Pour-Ebrahimi, the head of Majlis Economic Commission and a known critic of government’s forex policies.

The lawmaker told ICANA, the parliamentary news website, that if this secondary market is accompanied by “proper management” from the Central Bank of Iran, then foreign exchange rates will begin to decline.

“The government finally accepted the Majlis view about the establishment of a secondary market after three months and of course, this delay imposed costs on the country’s economy,” Pour-Ebrahimi said.

According to the latest scheme, the allocation of hard currency would involve a four-tier prioritized system where imports will receive forex at different rates based on their priority. The import of the fourth class of goods, which the government deems “luxurious”, has been banned.