Tehran Chamber of Commerce Head: Currency Policy Tops Business Gripes

EghtesadOnline: With the government’s rescue package reining in the foreign exchange market, the private sector once again voiced its objection over the administration’s adamance on keeping the national currency strong at all cost.

News ID: ۷۸۲۰۱۶

13 March 2018

Tehran Chamber of Commerce, Industries, Mines and Trade, as the country’s biggest private sector assembly, gathered early Tuesday for its last get-together of the current fiscal year that ends on March 20.

Announcing that the chamber would soon send a letter to President Hassan Rouhani over his administration’s foreign exchange policies, Masoud Khansari, the TCCIM chief, repeated the private sector’s perennial gripe about the government’s monetary policies.

Khansari noted that wrong currency policies, disorderly banking and monetary situation, as well as the government’s fiscal deficit and chronic debts form the triangle of Iran’s economic woes, Financial Tribune reported.

“With regard to the issue of foreign exchange, unfortunately the government’s wrong policies, which had been set in place earlier, are still persisting and one of the reasons for the country’s economic ills is the issue of foreign exchange,” he said.

Khansari and his fellow business leaders at Iran Chamber of Commerce have long urged the government to stop propping up the “nominal value” of rial in the name of strengthening the national currency, which they say would make imports more appealing to consumers at the cost of domestic goods.

They also argue that this hurts the country’s non-oil exports by making them unattractive in neighboring and global markets.

Many pundits have also warned the government that its habit of “enforcing the appreciation of rial” would backfire once economic uncertainty hits the country.

A currency shock in the foreign exchange market in recent weeks, which forced the rial to lose a further 8% in January alone is the latest example experts mention to support the view that the Central Bank of Iran’s market interventions may not be enough at a time of crisis.

The central bank hastily adopted a variety of tactics to bolster the position of the rial, with reports in February of the detention of more than 90 currency traders, the closure of 10 exchange shops and the freezing of 1,300 bank accounts.

CBI authorities have also taken other measures to support the national currency. They include allowing banks to offer one-year deposits with a 20% interest rate, 5 percentage points higher than the previous ceiling–which measure has also garnered rebuke for the bank’s reversal of its declared monetary easing.

Khansari added that the Iranian calendar is drawing to a close at a time when unemployment and lackluster production continue to ail the economy.

“Despite the relative stability resulting from single-digit inflation, the above-mentioned ills arise from the slow pace of investment, high cost of lending and the erosion of the competitiveness of domestic products against foreign counterparts,” he said.

In an opinion piece in the prominent Persian financial newspaper Donya-e-Eqtesad also published on Tuesday, Khansari voiced concern about the “element of unpredictability” in the Iranian economy, adding that “keeping foreign exchange rates low” is an integral and historical practice of consecutive governments, which is no longer practical in the current economic landscape.

The TCCIM chief pointed to the latest economic indicators and said the unemployment rate at 12% remains worryingly high. He referred to the latest inflation figures of 8.2% and 9.9% respectively reported by the Statistical Center of Iran and CBI, and said the fact that inflation is still in the single-digit territory is an encouraging sign.

“We hope that it will remain in single-digits in the next year as well,” he said.

Khansari mentioned the country’s growth rate in the first half of the current fiscal year to Sept. 22, 2017, which was 4.5%, saying it remains to be seen what the GDP figure for the whole year would be against the IMF forecast of 3.5%.