Central Bank of Iran Closing Loopholes in Currency Allocation

EghtesadOnline: The Central Bank of Iran is going to launch a mechanism for tracking forex allocated to the import of essential goods to ensure importers fulfill their commitments for which they acquired foreign currency, the CBI governor said.

News ID: ۷۴۶۵۱۹

19 January 2019

The measure is intended to close loopholes and prevent abuse that plagued the allocation of subsidized currency in 2018 whereby some traders took forex at hugely subsidized rates (USD=42,000 rials) and sold it much higher rates in the black market due to improper oversight.

Abdolnaser Hemmati said Thursday that on the orders of President Hassan Rouhani, the initiative will be taken to eliminate one loophole of corruption in foreign trade that also is in line with previous measures undertaken by the CBI to regulate the monetary and financial operations.

According to the CBI website, the system is to provide banks, Industries, Mine and Trade Ministry, Customs Administration and the Iranian National Tax Administration access to information about the activities of importers, Financial Tribune reported.

Hemmati said the CBI provided importers foreign exchange for importing essential goods and services which he said were at times misused by importers.

“It is indeed regrettable that the [currency allocation] process has been subject to abuse on more occasions than one…Some importers went through the legal process to get [subsidized] currency for importing goods but did not import goods worth forex amount,” he complained.

The CBI chief added that the importers’ performance in the new system will be considered as a benchmark based on which they will be eligible for forex in the future.

“If they fail to fulfill their commitments, banks will deny them services and their performance will be reported to the relevant authorities.”

He said “creditworthy” importers who play a pivotal role in trade will particularly benefit from the initiative.

The CBI boss noted that the system will be a step toward systemizing foreign trade and would significantly curb  corruption.

Following volatility in the forex market that sent the rial to unprecedented lows, the government decided to unify the US dollar rate in April and set the rate at 42,000 rials for the greenback. CBI gave currency needed for imports  at this rate but later cut the long list of importable items to a few essential items.

$3.5 Billion Violation

In related news, head of the Economic Commission of the parliament said in the first ten months of current year to Jan.18, almost $3.5 billion in foreign exchange  (almost a quarter of the total forex allocated for imports) was allocated for importing essential goods but the import was zero -- an issue the MP attributes largely to mismanagement.

Mohammadreza Pourebrahimi said the Majlis will support the CBI plan that aims to monitor the forex allocation process in its entirety, stressing that “the eligibility of all those who import goods must first be certified.”

Stressing that the system will rate traders based on their performance, he said close to 21,000 merchants will be ranked and data about their business will be saved in the system.

Speaking on state TV, Pourebrahimi said the system will also help determine the maximum volume each trader can import.

He called on the government and CBI to improve oversight in order to eliminate corruption and end nepotism and rent-seeking.

“Disqualified traders are lobbying to pressure related bodies and made exceptions to the system… The government needs to firmly stand against such  influence.”

In an analytic report earlier this month, the Majlis Research Center warned that the government policy to allocate currency at subsidiary rates for importing essential goods is tantamount to “wasting government resources without any benefit to the people” and consumers inevitably buy goods at prices much higher than what the government says or expects.

The think tank report referred to the allocation of $14 billion foreign exchange predicted in the next year budget bill for importing basic goods and offered alternatives ways to support the vulnerable and low-income strata -- the main group whose well-being was the intention of the government policy.

It proposed that if the government is adamant on implementing subsidized forex allocation policy, it must  at the least revisit the volume of allocated forex and restrict it to critical imports.

The MRC recommended the regulator confine subsidized currency only to those goods that are ensured to be sold to consumers at the official subsidized prices.

Highlight: The CBI chief says importers’ performance in the new system will be a benchmark based on which they will be eligible for forex in the future