Crisis Among Iran's Credit Institution Escalated Over Past Week
By Elaheh Azimfar
A too important issue popped up as a major economic crisis immediately after Iranian regime’s recent presidential election show is the bankruptcy of the Revolutionary Guards’ credit and financial institutions.
According to regime’s media, one of the bankrupt institutions is Caspian, with Fereshtegan as one of its subsidiaries.
Vice Governor of regime’s Central Bank’s regulatory office Farshad Heydari has said in this regard “the total liabilities of Fereshtegan credit institution, including the principals and interests, is estimated to be 8,600 billion thousand tomans, owed to 500 thousand investors.” (State-run Rokna-Eghtesadi website)
More than five thousand institutions of this kind have been authorized by the Revolutionary Guards and regime’s Law Enforcement officials, while they themselves are behind the institutions’ predatory behavior. Using different tricks, particularly with the help of public broadcasting and state media, the institutions launched years-long massive advertising campaigns, claiming to be credible and authorized by the Central Bank, thereby gaining people’s confidence. Caspian has a total two millions account holders, of which 450 thousands belong to Fereshtegan. The deposit interest rates paid by the institution varied depending on the amount of investment, with 20 percent paid for 10-20 million-toman deposits and up to 38 percent for higher amounts. Besides, 400 thousand investors have deposited below 20 millions, according to Central Bank’s Vice Governor. (Same source)
These bankruptcies should be seen as part of regime’s total economic breakdown, particularly with regards to banks as these so-called credit institutions are actually some types of banks majorly linked to the Revolutionary Guards.
Despite such critical conditions, Rouhani’s government claims it has prevented a banking collapse by lowering interest rates.
The fact is that shortly after Rouhani formed his government in 2013, the issue of lowering interest rates was raised, only to be enacted after three years in 2016.
It’s been nearly a year since regime’s Money and Credit Council announced its decision on coordinating interest rates with inflations, reaching an agreement with bank directors on a 15-percent deposit interest rate and an 18-percent loan interest rate. Nonetheless, it was just last week that state-run Khabar-Online website, linked to regime’s House Speaker Ali Larijani, announced that “banks have not been adhering to their decisions during the time, so that some of mostly private banks offer their investors higher rates, which sometimes reach as high as 20-22 percent.”
In an article titled “why lowering interest rates failed?” the same website points to the reasons leading to the failure of the attempts to lower interest rates, saying “release of government bonds with effective rates well above 20 percent caused the rates in two markets to diverge and turned the rates back up. Moreover, increased activities of fixed-income funds with interest rates generally above 20 percent had another negative impact.” All this forced regime’s Central Bank Director Valiollah Seif to implicitly announce in April this year the failure of the lowering interest rates policy, saying “lower interest rates will hit both depositors as well as banks, since depositors will receive less interest on their deposits, thus tending to pull their money out of banks as it would no longer be profitable for them to hold their money there, thereby causing the bank to go bankrupt due to decreased amount of deposits.”
More interestingly, he goes on to say “the only way out of banking system deadlock goes through economic reforms.” (State-run Khabar-Online website, May 29, 2017). But needless to say, carrying out reforms under Mullahs’ regime with such corrupt, predatory economic structure would be anything but possible.
But what effects does decreasing or increasing interest rates have on Iran’s economy as a whole?
The reality is that healthy economies try not to raise the interest rates more than 2-3 percent above inflation, as it could otherwise lead to increased market liquidity on one hand and on the other hand, and most importantly, it could move the capitals away from production and towards the banks. So, interest rates are kept low so that capital moves towards production. But with Mullahs’ regime destroying the production and filling all economic holes with windfall oil revenues, the banks, which are basically linked to Khamenei and the Revolutionary Guards, are going all out with regard to interest rates.
But following reduced oil revenues due to international sanctions as well as falling oil prices, the crises began popping up, and that’s one of the reasons behind bankruptcy of regime’s credit and financial institutions, as decrease in production will lead to reduced economic growth as well as increased recession and unemployment.
An outstanding example in this regard which further proves the point is related to Iran’s 40-50 year-old car industry, the reasons behind backwardness of which are pointed out in remarks made by regime’s economic expert and former head of Competition Council ‘Jamshid Pazhouyan’, who says “nearly four decades ago, Iran was well known as one of the Asian pioneers in car industry … but due to mismanagements, we are now even behind Turkey and South Korea. So, maybe it would be better if we totally forget about car manufacturing and go invest on some other industry.”
Besides, all post nuclear deal contracts signed with different countries, including France, to upgrade and increase production of joint venture vehicles came to nothing, with recession, both in terms of production and sales, getting much deeper.
Elaheh Azimfar is a member of the National Council of Resistance of Iran and the NCRI’s representative for international organizations.