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News > Governor Seifs Statement at the Euromoney Iran Conference


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Central Bank of Islamic Republic of Iran : Iran A Stable and Strong Partner

Governor Seifs Statement at the Euromoney Iran Conference

Central Bank of Islamic Republic of Iran : Iran A Stable and Strong Partner

Governor Seif's Statement at the Euromoney Iran Conference

20 May 2016

London, UK (19 May 2016)

Good morning Ladies and Gentlemen,
I am very pleased to address this magnificent conference, today. Many thanks for the arrangements made and for this opportunity. My talks have three parts.
1. The first part is a brief description of the potentials of the Iranian economy and macroeconomic improvements in recent few years. 
2. In the second part of my talk, the Central Bank's future plan will be explained. 
3. Finally, in the last part I will present you with challenges, policymakers are facing after implementation of JCPOA.

1. Iran's potentials, macroeconomic and monetary policy conditions
Iran with a unique geopolitical, population of about 80 million, young and well-educated workforce and an entrepreneurial business class have great potentials which is known to you. The economy is endowed with vast mineral reserves and not the least that of oil and gas. Ranked 18 globally in GDP in PPP terms, the $1.4 trillion Iranian economy is well diversified, and enjoys a broad domestic industrial base. Although its' oil and gas reserves rank 1st in the world (according to BP) but the economic diversification makes oil sector share, only less than 15% of GDP.

Under the precarious economic condition in 2013, the new government adopted appropriate policies. Along with policies aiming at fiscal and monetary discipline and coordination for stable macroeconomic condition, elimination of tensions in Iran's international and regional relations was also put on the agenda. Given these appropriate measures, very soon expectations improved, confidence returned and stability prevailed. The sound monetary and fiscal measures, improved expectations, better international relations and some sanctions relief, had a swift and large positive impact on stabilization of the foreign exchange market. 
Despite uncertainties resulting from the nuclear negotiations and sharp decline of oil prices in 2014, market value of dollar did not rise more than 3 percent. In 2015, the stability of foreign exchange market continued, while declines in oil prices and foreign exchange earnings from oil export accelerated. The market value of US dollar surged by only 5.2 percent in the fiscal year ending March 2016. 
Inflation declined from 40.4 percent in October 2013 to 11.2 percent in April 2016. Moreover, point-to-point inflation was also lowered from 45.1 percent in June 2013 to 7.4 percent in April 2016, indicating that inflation rate will hit single digit zone in near future.
With regard to economic and investment growth, the adopted measures by government in improving macroeconomic environment, resulted in all indicators to move in favor of return of growth and investment. Gross fixed capital formation, which declined by 23.8 and 6.9 percent in 2012 and 2013 respectively, turned to 3.5 percent positive in year ending March 2015. GDP growth, which had continuous decline for 8 consecutive quarters, surged by 3 percent in year ending March 2015. However, challenges related to external shocks from oil price declines lowered the GDP growth rate in the fourth quarter of the same year and is expected to have resulted in weaken growth performance in year ending March 2016. 
CBI, by active intervention in the interbank market, is trying to bring calm to this market and manage credit bottleneck. As the result, the interbank market funding rate gradually declined from the very high of 29 percent at the beginning of March 2015 to 17 percent at the present.

2. CBI Future Plans and Policies 
Following the positive achievements in curbing inflation, now we attach priority to reach high and sustainable economic growth and creating job opportunities. To materialise economic potentials, we highly welcome foreign investment. 
One immediate issue is to revitalize the money and financial markets, finalise banking sector reform program, and embark on fundamental restructuring of banks' balance sheets. A comprehensive restructuring plan for the banking system, the development and diversification of financing tools and debt instruments in the capital market, along with reorganization and improvement of government debt management, and establishment of the Asset Management Companies are measures under consideration for Financial Sector Reform. 
With proper implementation of these policies, the CBI will gradually shift the conduct of monetary policy from a direct instrument framework to a market-based and indirect monetary policy framework. Another high priority measure of the CBI is implementation of exchange rate unification.
We are also strengthening the central bank's regulatory and supervisory powers and extending them to all shadow institutions outside our regulatory net and ensuring better risk management practices by banks. 
The central bank is strengthening regulation and supervision to ensure proper risk management practices in banks and compliance with international standards, including on corporate governance, financial reporting, financial crimes and capital and liquidity requirements set by the Basel Committee. 
We attach high priority to enhancing the AML/CFT framework to facilitate the re-integration of the Iranian banking system into the global economy. Following the passage of the AML law and its implementing regulations years ago, the recent enactment of the CFT law will remove an important obstacle in the way of Iranian banks' re-engagement with their foreign counterparts. We have requested an IMF assessment against the FATF standards, and intend to join the Eurasian AML/CFT group. We have, recently, met FATF board and thoroughly explained our regulatory system for the first time and received very positive feedbacks ever since. We are committed to advance these efforts.
3. JCPOA and its' aftermath 
While all nuclear-related sanctions on Iran have been lifted, the sanctions that fall outside the scope of the Joint Comprehensive Plan of Action remain in place. This has allegedly made major commercial banks around the world reluctant to engage with Iranian banks out of concern of becoming subject to penalties in case of inadvertent slippage in complying with US rules. Moreover, excessive financial sector regulations in advanced economies, as acknowledged by the IMF, have led many US and European banks to withdraw from several regions, including the Middle East, thereby creating a vacuum of much-needed correspondent banking network. These developments, together with restrictions on the use of the US dollar, present serious impediments to the development of Iran-US trade and investment relations, and place US corporations at a significant disadvantage vis-à-vis their Asian and European competitors.

On the other hand, under the JCPOA, EU and the United States are committed to taking all administrative and regulatory measures necessary to ensure successful and effective lifting of sanctions to enable Iran to reintegrate into the international markets. 
This commitment, as we are witnessing in the past few months, is flying in the face of problems that banking community is facing. These problems as articulated by BBA for their Thursday 12th May meeting with US Secretary of State are following headlines, detail of which can be accessed through BBA:

1. US Regulatory / Political approach
a. Harmonisation of approach between Federal and State Regulators
b. An articulation of Policy on how US agencies will investigate and respond to public disclosure requirements involving Iran

2. Financial Crime / Business Risk - BBA includes in its statement the helpfulness to know what technical assistance the US and EU are offering Iran to ensure rapid removal from the FATF's black list

3. Technical OFAC Guidance
a. Providing a general licence to enable non-US entities to utilize US software
b. Extending protections offered to US persons under General Licence H to non-US companies
c. Enhanced OFAC guidance on correspondent banking expectations
d. The creation of a US general licence enabling U turn payments

All the above items were known to USA & EU when the JCPOA was being signed. They have signed their commitments knowing all these problems. Now we feel that they should deliver their promises. It is moral and contractual obligation of the west to deliver on what they committed themselves in JCPOA, even if it means helping banks with revised regulations, guidelines and policies. 
Another background problem is over zealous adoption and implementation of sanction policy, which even in the words of US treasury officials, is harming USA itself let alone Banking industry. I bring a quote from FT to show the extent of the fear in the banking community: 'They fear that even if they receive assurances from the US Treasury department, US prosecutors and independent regulators might adopt a different and stricter interpretation of the rules.'
With the above, it is more than obvious that there are strong needs for the US & EU to take appropriate measures to ensure that the investments made in reaching the agreement on Iran Nuclear file is not thrown away. There are also moral obligations to reassure market participants of dealing with Iran. Iran needs to see the dividends of JCPOA in full. 
This is well spelt in the statement of Mr. Hammond, UK Foreign Secretary, when he said: 'Now it is incumbent on us to ensure the sanctions relief is effective.'
Also as recent as this month, May 2016, Secretary Kerry said in an interview that European banks are absolutely free to open accounts for Iran, trade, exchange money, facilitate and legitimate business agreement, bankroll it, lend money - all of those are absolutely open, permissible.
Iran on its part is ready to take all reasonable steps to mitigate the risks for willing counterparties to engage with the country. Financially, Iran has best track records in fulfilling its obligations, even during difficult times of revolution, war and sanctions. Politically, Iran is a stable country and a vibrant society in a turbulent neighborhood. Media, pro-war lobby groups and political propaganda have distorted Iran's' image. I urge you to come and see for yourself. Then you feel the difference.
At the end, I believe that governments, including Iran, US, UK and others need to be encouraged by banks and businesses to do more to provide comfort, including paving the way for making available payments and clearing services, trade finance and other essential financial services for doing business with Iran. 
I also urge all the banks to actively communicate and work with Iranian banks with full peace of mind.

Thank you very much.


20:07 - 20/05/2016    /    Number : 393951    /    Show Count : 798



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