Heydar Mostakhdemin Hosseini, a former deputy finance minister in President Rouhani’s government, in an interview with Sobh Eghtesad Persian economic daily, said growth in liquidity is nothing bad by itself but it should be under control and be directed in correct way.

IRAN NEWS ECONOMIC DESK

When asked about the real amount of liquidity in the country, Mostakhdemin Hosseini said that in the past two years, officials have not announced a comprehensive figure on liquidity because the Central Bank has not have statistics on liquidity and its growth. He added that liquidity and deposits are in hands of banks. He noted some of those liquidity and deposit were in control of unlicensed banks and credit institutes and for this reason, the Central Bank has not released exact figure for the liquidity and what was released was not a comprehensive statistic and belonged to the licensed banks and financial institutes.

Mostakhdemin Hosseini added that since there is no more unlicensed institutes, the statistic for liquidity will be more accurate and analysts can work on it. He went on to say that despite this fact, the Central Bank has not released statistic on the amount of liquidity but it is expected the figure was around 2 trillion tomans at the end of last year and till mid-January but after that date, the statistic was announced independently as the deposits in banks increased in last month of the year.

He went on to say that when Mr. Ahmadinejad took office, the amount of liquidity was around 70,000b tomans and when Mr. Rouhani began his term, it was around 500,000b tomans. The figure shows that liquidity was seven-folded during President Ahmadinejad term and during President Rouhani it has been four-folded so far. Mostakhdemin Hosseini reiterated that if there was an economic justice system, banking system was managed wisely, the Central Bank controlled money generation in banks and the government avoided budget deficit, the condition would not have been like what we see today.

He asserted that since President Rouhani took office, expenditure budget has been four-folded while everybody expected the government to reduce it and to begin economizing from itself.

Mostakhdemin Hosseini went on to say that President Rouhani’s government was after finalizing the nuclear deal and it had an eye on flood of foreign investments and forex into the country, and for this reason it spent lavishly and astronomical salary saga and extravagant ceremonies appeared. So this attitude caused liquidity combination among people to become comparatively strange. It means less than 10 percent of the society possesses almost 90 percent of total liquidity, he said, adding that the growth and combination of liquidity deteriorated in President Rouhani’s era.

The former deputy finance minister emphasized that governments should be blamed for injustice, and liquidity has caused budget deficit for governments, reiterating that bank’s task is to generate money but since there was no control and monitoring, they kept on generating money and credit as much as they could.

He further said the current governments have learned some words very well: if, must, should.

Finance Minister Mr. Farhad Dejpasand, my former colleague, has said liquidity should be at the service of production, Mostakhdemin Hosseini added. He further said, “Mr. Dejpasand ! you yourself are a member of Money and Credit Council which decides on monetary policy making and it should decide about the amount of liquidity for producers because what the council decides, the Central Bank implements.”

When asked on the existence of liquidity in an economy like Iran’s economy whether it could be useful or harmful, Mostakhdemin Hosseini said that if there is a policy for the liquidity, it will not be harmful. He further added that liquidity should not be loosened and neglected. If you have a program and policy for liquidity, it ties with government’s monetary policies, he noted, adding that Central Bank takes the government’s policies to the Money and Credit Council and passes into a law and operationalizes it. Then the central bank monitors whether those policies have been materialized or not, he added.

He said during President Khatami’s government, it was decided that oil revenues were only used in the government and for the infrastructural activities but today ministry is formed and later it is merged and again it is separated and those measures cost a lot.

Mostakhdemin Hosseini went on to say that the main and scientific root reason for growth in liquidity is government’s budget deficit and money generation by banks.

He asserted that government budget deficit means the expenditure and revenues of the government is unbalanced and the deficit is covered by printing banknotes and sale of forex but if liquidity is accompanied by production, it will not lead to inflation but it will bring welfare, growth in the GDP and economic growth and growth in people’s incomes.

He further added that liquidity is actually in hands of 10 percent of the society who are active in imports and exports and whenever they wish, they devalue rial and create problem for the government.

Mostakhdemin Hosseini went on to say that the role of banks in the current government is more colorful, reiterating that inflation is profitable for the rich and deteriorates the condition for the poor.

He went on to say that he does not expect prices of goods to decline at least during this government’s term.

When he was asked if liquidity growth is a malady, how it has happened and who should be blamed, Mostakhdemin Hosseini said that the Central Bank should be blamed and it is the major culprit for growth in liquidity, adding that there is no reason the governor of the Central Bank to attend the cabinet meeting while he is not a part of the government. The Central Bank should release a monthly report to the government, he reiterated.

He admitted that 80 percent of national economy is currently in control of the government, adding that if the economy privatized, it will not hurt.

He also criticized the idea for removing four zeros from the national currency, saying that removing zeros is carried out when there is no inflation at least for three to 5 years and country has a stable economy, so in the current condition it is not a useful act.

Asked about the role of private banking in Iran’s economy, he said a financial market should happen and be formed in the country in order that role of the banks in the economy transpires. He went on to say that financial markets consist of three major markets: money, capital and insurance. He went on to say that these are three major pillars of the financial markets and if each market acts properly and becomes balanced, the financial market will consequently play its role well and fulfills its undertakings.

Mostakhdemin Hosseini noted that banks should follow monetary policies and act for short term and they should not grant 5-to-10 year loans because you can find nowhere in the world such an act or task from the banks because banks have been tasked for short term facilities. He admitted that the country has eliminated developmental banks, and even specialized banks act like commercial banks, for example, housing and agriculture banks open L/Cs which is the task of a commercial bank. He noted developmental banks do infrastructural jobs but they have been eliminated and specialized bank are also busy with commercial activities. Insurance market guarantees capital and money markets as today insurance market in the country is the weakest financial market, he reiterated.

Mostakhdemin Hosseini went on to say that money market should grant short term loans and when it grants long-term loans, the result would be like what today you can see and when somebody goes to the banks to get loans, they are rejected with a “no” reply.

He once again reiterated that as long as money market is not reformed, private banks cannot play their role and they only cover certain clients and secure them.

On the relation of forex with the volume of liquidity, he said that when liquidity’s control and rein is in hands of the government and policy-makers and it is directed in a right path by them, it will help economic growth and production, adding that growth of this kind of liquidity is positive because it creates job and nobody will go after buying forex.

He went on to say that during President Khatami’s era nobody kept forex in the house as deposit, and prices were going up slowly and in compliance with inflation rate. He added that but during President Ahmadinejd everything changed and a game with national currency began and unfortunately the Central Bank listened to the government. He reiterated that if the liquidity is not controlled and does not move in proper direction, it would have negative and destructive impact. So, the liquidity would flood into gold, forex, cars and physical commodities markets and its role would be destructive, he added.

When asked whether independence of the Central Bank could be a solution to get of current condition, he said it is not a solution because almost 85 percent of the economy is state-run  and country’s revenues come from oil sales and oil is fully in hands of the government, adding that in such a condition the Central Bank cannot disobey the government while it gets the forex from the government.

Mostakhdemin Hosseini went on to say that the impact of exterior factors like sanctions is insignificant and those who try to tie economic problems with international relations are escaping from their responsibility.

He emphasized that Iran can have regional agreements with Afghanistan, Pakistan, Turkey and Iraq but statesmen and policy-makers in the country have different views and they prefer Europe.

He concluded that the government should be focused mostly on job creation because it can prevent some corruptions and social ills. He added that in a reckless move, the government should also remove restrictions for business climate and its third move should be taxation, and tax exemption should be eliminated and everybody should pay tax.

Mostakhdemin Hossein noted that the fourth move of the government should be reform in the banking sector and budget should be operational and based of the performance.