Central Bank's Guidelines on Utilizing Foreign Currency Facilities

One day after the implementation of the reduction in bank interest rates, the Central Bank of the Islamic Republic issued a six-point guideline for the efficient use of foreign resources. The text of this guideline, signed by Valiollah Seif, the Governor of the Central Bank, was published on Sunday in the news agencies. Mr. Seif, in this circular, has communicated six points to the CEOs of banks 'to optimize and efficiently utilize foreign financial resources.' Among other things, the circular requests bank CEOs to ensure that 'these facilities are used solely for construction projects whose economic evaluation and profitability have been approved,' while also noting that 'the necessary legal permits must be considered in the allocation of such facilities.' In another section of this circular, emphasizing the need for continuous and precise oversight of projects financed by foreign resources, bank managers are asked to provide detailed operational plans and human resources for the projects. The Governor of the Central Bank also reminds bank heads to obtain sufficient and necessary collateral from clients requesting to use foreign financial facilities. In the introduction to this circular, the Governor refers to the banking system's goals to assist in economic growth and development and to finance construction and production projects from domestic and foreign financial resources, introducing the Sixth Development Plan and the budget law for the year 1396 as the basis for obtaining foreign financial facilities up to twenty billion dollars. The circular prohibits 'the use of foreign financial resources for projects that are unable to repay the facilities on time.' The Governor of the Central Bank also obliges banks to manage the precise and timely execution of foreign financial contracts, develop appropriate operational planning, and allocate specialized and efficient human resources for this purpose. The issuance of the guidelines on the prerequisites and methods of utilizing foreign financial facilities comes at a time when the outlook for receiving foreign currency facilities from abroad does not seem very clear. Fereydoun Khavand, an economic expert in Paris, comments on the importance and impact of this guideline to Radio Farda: 'Of course, this circular has important points. However, the Governor of the Central Bank should have clarified to bank managers before issuing this guideline how Iranian institutions can receive financial facilities from global financial markets, international organizations, or bilaterally from other governments and banks, given the current state of the banking system in the Islamic Republic. Because currently, countries that provide loans to Iran, like the recent case with South Korea, directly monitor how these credits are spent.' Mr. Khavand emphasizes Iran's low ranking in the international trust list, stating: 'Iranian banks, given their current situation, either do not have the ability to receive loans in the international arena or the likelihood of receiving loans is very low. This is not only due to sanctions but also because international banks are extremely cautious towards Iran, and since Iranian banks have not yet clarified their status concerning international banking laws, such as not accepting the standards of the Financial Action Task Force, their chances of receiving facilities from international markets are very low.' Meanwhile, according to the Mehr News Agency, Fereyd Mousavi, a member of the Economic Commission of the Parliament, announced on Sunday that 'the monetary and banking law plan will be finalized in this commission before the presentation of the budget bill for 97 and sent to the public session of the Parliament.' According to this parliament member, this plan is intended to 'review the structure and components of the banking network, the Central Bank, the type of its banking operations, and the supervisory mechanisms based on successful international experiences in banking and the Islamic banking experience of the Islamic Republic in recent years and will be enacted as law.'