- Development & Aid
- Economy & Trade
- Human Rights
- Global Governance
- Civil Society
Thursday, April 25, 2019
TEHRAN, Nov 13 2006 (IPS) - President Mahmoud Ahmadinejad's populist economic policies and his government's interference with Parsian Bank, Iran's largest private and its second largest bank, may well end up unsettling the future of private banking in this country.
Parsian, now second only to the National Iranian bank, was founded in July 2001, months after private banking was revived in the country after a gap of 22 years. It quickly succeeded in attracting huge savings due to high-interest rates it offered. The bank is in the process of becoming Iran's first international bank.
Much depends on the final verdict of the Administration Justice Court which, late October, stayed a Central Bank decision to disqualify Abdollah Talebi as the bank's chief executive officer (CEO), allegedly on orders from Ahmadinejad.
Entertaining a complaint from Talebi, the court also stayed the bank's general assembly meeting that will select a new CEO and board members, until all due legal processes are complete.
As per the unaudited accounts, the bank's capital and assets were worth 8.8 billion US dollars on Mar. 21, 2006. The stocks of the bank, offered at Tehran Stock Exchange in 2004, rose to nearly one dollar a share before the presidential elections last year, but are now being traded at one-eighth of that price.
Ahmadinejad's attack on private banks, Parsian in particular, began even before he took office last year. Without directly naming the bank he often referred to it as one of the signs of economic injustice and corruption.
"The only ones who benefit from huge bank loans are a certain group of people who never employ those loans in production cycle because it is not profitable. Instead the money is used in trading and profiteering and the result is only ever increasing inflation and huger gap between classes," he said.
"One reason for Ahmadinejad's antagonism to Parsian Bank was that he thought the bank was owned by the family of Ayatollah Hashemi Rafsanjani, his main rival in the presidential elections. After Ahmadinejad took office, Talebi, an outspoken reformist, sent a list of the shareholders to the President to prove that was untrue. The bank is a symbol of bourgeoisie for Ahmadinejad," Saeed Laylaz, economic and political observer in Tehran, told IPS.
"Parsian was a good target for his populist attacks by which he meant to attract the masses and to fight capitalism within the framework of his own populist policies. On the other hand, the bank and its CEO had resisted his economic policies such as an imposed order to reduce interest rates as best as they could. The bank, with around 80 percent of the total capital of all private banks in Iran had become too big and scary for the government. It was capable of influencing the market with its every manoeuvre," he added.
The President's economic policies are piecemeal attempts at pleasing low-income groups, his main source of support. His opponents, Rafsanjani in particular, say these policies will lead to "distribution of poverty" rather than "distribution of wealth." Ahmadinejad has repeatedly criticised the banks for being neglectful in overcoming an increasing unemployment crisis, now standing at nearly 12 percent.
"Ahmadinejad doesn't consider banks, private or public, as profit generating economic enterprises. He rather believes they should offer interest-free or low-interest loans to the needy and to help solve the unemployment problem. That's why all banks had to reduce their interest rates last December when a government bill to the effect was approved with some modifications by the hard line parliament," an analyst asking not to be named told IPS.
Interest taken on loaned money is considered religiously wrong (haraam) in Islam and, after the Islamic revolution of 1978, the banking system witnessed many changes to adjust to the idea of doing away with interest. Iranians can now choose between interest paying and no interest savings accounts, but banks always offer huge lottery-based prizes to those savings that are interest-free to encourage people to invest in them. Banks also offer some interest-free loans, usually small sums.
"We want to convert our banking system to an Islamic one. There is resistance to this. We reduced interest rates and believe this can lower inflation rates but there are people who say lowering interest rates is harmful to production and increases inflation. I don't believe in this kind of analysis," ‘Sarmayeh', a Persian economic daily, quoted Ahmadinejad as saying on Oct. 22.
"Parliament couldn't risk overturning the government bill to cut back interest rates for the fear of losing popular support although they knew well the implementation of the law would harm the ailing economy. And the President is also enjoying the support of the Supreme Leader without whose approval the parliament can't oppose the President too openly or too strongly in spite of great opposition growing among hard line and conservative parliamentarians to Ahmadinejad's economic policies," the analyst said..
The reason given for the disqualification of Talebi, as given by Central Bank in a statement on Oct. 2, was that huge loans were being given to individuals, preventing ordinary people from taking loans.
On the same day the biggest private sector transaction at the Tehran Stock Exchange was annulled, allegedly under pressure from the President's office. The transaction involved transfer of 28.8 percent of the total shares of Parsian Bank, worth 320 million dollars and owned by a number of subsidiaries of a government affiliated auto-making company, to a private buyer, Mohammad Rostami Safa and his partner Al-Aqili. An official of the Stock Exchange told the press the transaction had been annulled due to late arrival of documents of collateral payment.
"The transaction had taken place and had been registered in the computers and on the boards of the Stock Exchange. There had absolutely been nothing wrong with the proceedings. On Ahmadinejad's direct orders the records had to be erased from the system which caused the whole computer system to hang for a day," Laylaz said.
At the same time as all this was taking place, Ahmadinejad, on one of his famous tours of the provinces, promised the people of Nazarabad, a small town outside Tehran, that he would disclose to the public the names of two financially corrupt individuals who had taken huge loans from banks and did not want to pay them back.
He said the two had obtained a loan line from a bank to buy the shares in another one and had offered the shares they had not yet bought as guarantee for the loan. "Thank god the government found out about this misdeed and sacked some of the bank officials who had been responsible for that," the ‘Roozegar' newspaper quoted him as saying.
The bank that had given the loan to the prospective buyers of Parsian shares was Eghtesad-e Novin. This private bank has been offering loans to purchase shares in the stock market for several years now, taking the shares as guarantee for the repayment of the loans taken.
And the men Ahmadinejad had threatened to disgrace were the two buyers of Parsian shares, Safa and Al-Aqili. But the President could not possibly have announced the names himself for legal reasons – instead the government-run Islamic Republic News Agency revealed the names, quoting an informed source, on Oct. 19.
"The Parsian case, if the judiciary resists pressures and rules in the bank's favour, will be a huge disgrace for the administration,'' an analyst told IPS. On the other hand, if the bank is indicted, it could bring on the doom of the country's very young private banking sector, he added.
‘'Government banks, already on the brink of bankruptcy, will also have to go along with the President's wishes to reroute their activities to offering even more small interest-free or low-interest loans. That is not a good panorama for banks, government-run or private and the economy in general," the analyst told IPS.
IPS is an international communication institution with a global news agency at its core,
raising the voices of the South
and civil society on issues of development, globalisation, human rights and the environment
Copyright © 2019 IPS-Inter Press Service. All rights reserved. - Terms & Conditions
You have the Power to Make a Difference
Would you consider a $20.00 contribution today that will help to keep the IPS news wire active? Your contribution will make a huge difference.