Monday, May 26, 2008

Saving or Dismantling an Economy?

It is not a secret that President Ahmadinejad does not like the banks. He does not believe in them and considers them and their functions as a threat to himself and a barrier to combat unemployment and to increase production. There is no surprise that his acting minister of economic affairs has introduced a decree to disband all major banks and to replace them with zero interest rate saving funds. These funds can lend money only according to regulations set by the government. Iran’s private banks continue to exist but only as investors. Public banks would stop offering long-term saving accounts, and be banned from offering any service or account with an interest rate.

The government has thought of taking this step although Iran’s supreme leader has approved of privatizing publicly owned banks in Iran by re-interpreting Article 44 of the constitution and although privatization is the focus of currently in place 5 years development plan. This would stop the shares of at least 3 Iranian banks to be offered through Tehran Stock Exchange to the private investors and would send terrifying shockwaves through Iran’s economy. Although this project is nowhere close to implementation, it has horrified many of experts and technocrats in Iran.

Economy has proved to be a challenge no one in the government thought it could be. When President Ahmadinejad despite experts’ arguments and his former minister’s of economic affairs counsel decided to lower interest rates even further no one expected the governor of Central Bank of Iran Mr. Mazaheri to hold his ground. He disinclined to communicate President’s orders to the banks and objected this decision in strongest terms. It is now rumored that his days are numbered. It also is rumored that he has told the President that he would not resign his post.

The debate does not end here. Dr. Tavakoli a prominent conservative and member of parliament and the chair of its research institute told reporters that 46% of short run projects that government has put in place to fight unemployment do not exist. Dr. Jahromi, the minister of labor and architect of President Ahmadinejad’s economic policies denied this report and called it misinformation. It seems except for a few close associates few admire government's economic stand.

In the meantime inflation causes the prices to increase even higher, the prices have reached new heights in real estate market and consumers are squeezed even more in groceries and super markets. One wonders if disbanding the banks would have the effect government expects it to have, or it would intensify the crisis the economy is facing now.

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