President Calls for Trackable System in Forex Allocations

EghtesadOnline: President Hassan Rouhani on Sunday instructed the Central Bank of Iran to improve transparency in allocating foreign currency for imports.

News ID: ۷۸۶۶۴۸

12 July 2021

“The CBI must make public data on forex disbursements and the financial commitments [of importers and exporters] in a transparent, precise and detailed manner,” Rouhani told a meeting of the Economic Coordination Headquarters.

He made the call following some reports on “ambiguities surrounding” the fulfillment of currency obligations of both importers and exporters.

It seemed he was particularly addressing companies who over the years took billions of subsidized currency to import basic and other goods. The Rouhani administration, the CBI in particular, are strongly criticized for the lack of accountability and transparency in earmarking forex to companies and state organizations involved in imports.

At regular intervals the local media has reported on the massive misuse of forex funds by importers. There have been instances when subsidized currency was paid but no goods were imported.

In the past three years the government subsidized foreign currency for importing basic goods wherein the dollar is calculated at 42,000 rials -- almost a fifth of its value in the open market.

While the CBI regularly publishes data on import companies that use the cheaper currency and the amount of allocated subsidized currency, almost nothing is made public about how importers use the money and whether the value of the goods they import matches the currency their receive.

Given the public sensitivity toward the government’s controversial forex subsidy policy for imports and its potential for corruption and rent-seeking, economic experts across the spectrum have begged the government to set the record straight. Public opinion must be informed unambiguously vis-à-vis such critical issues, they insist.

The cheap currency is sourced from oil export and used only for importing essential goods, pharmaceuticals and machinery to avoid price gouging and hoarding.

While successive governments have subsidized food imports, cheap currency in its current framework was made available after the steep rise in forex rates in the spring of 2018 when the government pegged the dollar at a fixed rate of 42,000 rials. It cut the long list of goods eligible for subsidized currency to a few essential items.

The policy attracted persistent opposition for its susceptibility to embezzlement and fraud simply becsue of the huge difference between the subsidized rates and  the open market.

$5.5b Paid in 3 Months

In related news, the newly-appointed CBI Governor Akbar Komijani met with Industries Minister Alireza Razm-Hosseini on Sunday to discuss the CBI’s status in paying for the import of basic goods.

Komijani said the CBI had paid $5.5 billion in subsidized forex for the imports since the beginning of the current fiscal year in March.

The CBI is supposed to pay another $2 billion by the end of the first half of current fiscal year (Sept), the bank’s public relations website reported.

Given the restrictions imposed by the Majlis, it is not clear how the CBI and the incoming government in August will approach the complex currency issues for import in the second half of the year.

The outgoing government has long been under pressure to scrap the failed policy, which was originally planned to support the low income strata and control the galloping consumer price inflation.

What was intended and what was achieved have been poles apart with the people being hit hard by the amazing pattern of rising prices and the unending decline in purchasing power.

Academia and economists have faulted the subsidy distribution system and the absence of stringent government oversight. They complain that the people buy food and other essential goods at the open market forex rates despite the fact that the same goods are imported at highly subsidized rates.