MRC Says Bill to Support Manufactures Is Flawed

EghtesadOnline: The Majlis Research Center has rejected provisions of a parliament-initiated bill that calls for all-embracing support for the manufacturing sector.

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04 January 2022

made by production companies unable to repay loans will be prohibited.

Plants and factories unable to meet their financial commitments to banks cannot be deprived of banking services, such opening accounts, receiving checkbooks and commercial cards, the proposal says.

In addition, if the bill becomes law, the judiciary would be disallowed from detaining managers of factories or their investors on “economic charges”, which could lead to closure of the factory or disrupt its operations.

Legal authorities are allowed to use alternative ways to penalize these managers, like “obliging them to boost production capacity, expanding the manufacturing units and increasing employment”.

Last week the chamber passed a double-urgency motion to prioritize debate on the key bill after its outlines were approved by the Majlis Industries Commission, according to Javad Hosseini-Kia, the vice chairman of the commission.

MRC in an analytical report said it is cognizant of the concerns of MPs about effectively supporting the production sector, but proposed that the bill “be rejected due to fundamental flaws

Among other things, the think tank said that the provisions of the bill “give manufacturing units a bit too much comfort to not worry about reimbursing their debts to lenders”.

Elaborating the point, the MRC on its website said: Firstly, [such legislation] would undermine their impulse to repay the loans and by nature give rise to non-performing loans, which by extension will harm banks’ support to manufactures.

Secondly, banks may demand collateral from manufacturers that are not subject to limitations mentioned in the bill.

MPs advocating the bill seem to be affected by recent reports about large scale closures of manufacturing units due to bank arrears or confiscations/penalties.

The lawmaker and President Ebrahim Raisi share the same concerns. Earlier, the Economy Minister Ehsan Khandouzi said manufacturing companies must not be shut due to their inability to pay their debts to banks.

Addressing banks, the minister urged them to give deferral to companies potentially capable of functioning or because failure to repay debts was due to issues beyond their control such as inability to procure raw material or the like.

“If production units close down either due to technical issues or when the owner is unqualified to manage it, banks can expropriate the property only on the condition that confiscation doesn’t lead to closure of the unit or layoffs,” the minister said.

It needs mention that banks argue failure to repay loans have given rise to the mountain of NPLs, which have hurt their balance sheets and increased their credit risk.

The MRC noted that if and when a state-owned bank or administrative body is found guilty of violating rules envisioned in the bill, it would translate into extra financial burden for the government.

It said this would be at odds with Article 75 of the Islamic Republic Constitution, which stipulates that the Majlis should not pass laws that harm public revenue.

Banking issues notwithstanding, provisions of the bill are incompatible with basic legal codes, the MRC said. In particular, it criticized that part of the bill that gives immunity to managers of failing factories, saying that such protection is rare in the legal system.