US Deal Violation Creates Opportunity for Reforms

EghtesadOnline: US President Donald Trump took the harshest stance possible and promised the full return of sanctions when he withdrew from Iran's UN-endorsed nuclear deal with world powers on Tuesday, but many inside Iran have interpreted this as a positive development.

News ID: ۷۸۲۵۲۷

12 May 2018

"We shall definitely be witnessing sanctions on Iran and a break of tie, but the US withdrawal from JCPOA and its agreements with Iran cleared many things for us and made decision-making concerning this issue much simpler," Masoud Khansari, the head of Tehran Chamber of Commerce, Industries, Mines and Agriculture, told IBENA.

The Joint Comprehensive Plan of Action is the formal name of the nuclear deal that the US has unilaterally and officially rescinded.

"There is no doubt that the disconnection of some ties between a number of nations and Iran will create problems for the economy. But in my opinion, we can overcome these problems by resolving three serious economic challenges," he added. According to Khansari, these three major challenges are the government's annual budget, the banking system and the foreign exchange market, Financial Tribune reported.

Iranian governments have had a long history of budget deficits. President Hassan Rouhani's administration has been employing the relatively easy but risky method of issuing Islamic bonds to cover the gap.

The government spent 316.3 trillion rials ($7.53 billion) on development projects in the first 11 months of the last fiscal year to Feb. 19, which marked a rise of 70.1% compared with the similar period of the year before. This is much lower than the target of 657 trillion rials ($15.64 billion) set in the Budget Law, according to the latest report of the Central Bank of Iran.

The government had to issue 97.6% more bonds during the 11 months year-on-year to cover its budget deficit of 331.3 trillion rials ($7.88 billion). As much as 620.4 trillion rials ($14.77 billion) worth of bonds were issued during the period.

But that figure was somewhat optimistic because the previous CBI report had put the budget deficit higher.

In his remarks on Wednesday, the TCCIM chief also said the banking system is witnessing an ever-increasing volume of liquidity that has caused many problems.

Many, especially private sector businesses and players, regard the considerable monthly rise of liquidity as a major problem that will enter the market sooner or later and does not boost the bank's lending power to spur production and growth.

According to the latest CBI data, the total volume of liquidity circulating in the country was close to 15 quadrillion rials ($357.14 billion).

"Making foreign exchange rates real is one of the measures that can strengthen production and exports," Khansari said, without referring to any particular rate for the US dollar as a preferred rate by the private sector. At present, the official unified rate for the greenback stands at 42,000 rials, but the private sector has yet to have access to dollars at that rate, which has hurt their trade. That is while the open market rate of the US currency is much higher.

Gholamhossein Shafei, the head of Iran Chamber of Commerce, Industries, Mines and Agriculture, on Tuesday also chose to look at the brighter side of the US pullout from JCPOA.

"The previous [pre-JCPOA] conditions are not repeatable for the US, meaning that it cannot unify its allies against Iran and JCPOA like it did before," he said in a message published on the ICCIMA website. Shafei also stressed that the private sectors of Iran, other parties to the landmark nuclear deal and any other country wishing to work with Iran will play a vital role in the coming months.

"I don't believe that the US pullout from the deal will not have any effect, but I don't think that it will have the effect the US wanted as we will manage to continue our work, especially in our negotiations with the European Union," he said.

Asadollah Asgaroladi, the head of Iran-China Chamber of Commerce and a prominent businessman, has referred to money transfer problems that will now exacerbate as a result of Trump's move, but added that "we are used to this".

"Major European banks refrain from dealing with Iran because they have American investors, but we must resolve our banking problems through negotiations with Europe because many banks there don't work with the US and we must work with them," he said.