Economic experts are of the opinion that loans from the Foreign Exchange Reserve Fund have helped cut down the duration of implementing industrial projects by 30 percent.
Since private companies receiving loans from the reserve fund have to repay in dollars, they do their best to implement projects at the earliest to avoid having to pay back a higher amount due to the fluctuations in parity rates.
The Central Bank of Iran said earlier if oil prices remain above $30 per barrel until next March, some $6 billion would be deposited in the fund. Some $900 million in surplus oil revenues have already been deposited since late July.
In an interview with the Persian weekly Barnameh, Secretary of Foreign Exchange Reserve Fund Bayazid Mardoukhi explained how the fund helps with efforts to improve development goals in Iran.

Some 2,000 projects have so far received loans from the special fund.

BARNAMEH: Given the fluctuations in oil prices, how do you assess the situation of the fund in coming months?
BAYAZID MARDOUKHI: The Foreign Exchange Reserve Fund's deposits amounted to $4.8 billion by late August. The fund's deposits are expected to go far above the $4.3-billion target given the record increase in oil prices in recent months.
How much will be added to the fund's deposits would depend on the continuation of the current oil price hikes.
Estimates suggest that the fund's deposits could go well up to 7-10 billion dollars by March 2005.
It seems that the private sector, which uses 50 percent of the fund's deposits, will have no problems receiving loans in the current year. But this also depends on the amount the state sector would withdraw from the fund.
Hard currency resources are withdrawn from the reserve fund in two ways. Apart from the 50-percent withdrawal for private sector loans, some 50 percent of the fund's deposits can be used to counterbalance the government's budget deficits. If the government exploits the fund excessively, nothing will be left for private investments.

Bayazid Mardoukhi

Does the government withdraw money from the private sector's share of the fund for gasoline imports?
If the government's expenses continue to increase, as has been the case in recent years, it will have to withdraw more money to meet its financial requirements, including for gasoline imports.
In relation to gasoline imports, it merits mention here that there are numerous ways to control gasoline consumption but calls from energy and environment experts for formulating a mechanism to bring fuel consumption under control continue to be ignored. Such a mechanism should have been in effect 15 years ago, whereas it has been worked out only recently.
One of the most effective solutions could be to replace gasoline with CNG (Compressed Natural Gas) as fuel. This can help control the ever-increasing petrol consumption.
Another instance is the government's ill-conceived protective mechanisms in its efforts to alleviate poverty. The government pays a certain amount of money to the needy on a monthly basis, whereas results of research studies suggest this cannot be helpful.
It seems that we are using old-fashioned mechanisms, which are no longer used in the world and have been proved to be ineffective from the scientific point of view.
How do you differentiate between reasonable and unnecessary budget deficits?

The government pays a certain amount to the needy on a monthly basis but research studies suggest it is not helpful.

The most important thing that should have been done in the past 15 years was to have reviewed the government's expenses, which could have led to making current expenses more logical. That is, some unnecessary expenditure should have been avoided and some new expenses created.
The government has undertaken certain financial liabilities, which no other country has. For instance, the government provides three million meals for its employees every day. It provides them with free transportation to and accommodation in holy cities and tourist resorts, building several motels in such areas.
We have given slogans that we are going to promote tourist sector but at the same time we give free accommodation to government employees at the expense of reducing profits of private sector hotels.
The private sector's share of the reserve fund for investment purposes is used to counterbalance government budget deficits.

Can the government help the fund maintain its effectiveness?
Some four years after the fund was founded and operated via nine major banks, we have managed to remove most of the problems and barriers. Some 2,000 projects have so far received loans from the fund. The only remaining problem is that we have no assessment yet of the quality of projects financed by the fund.
Most of these projects will be completed by March 2006. Hence, the time is ripe now to start an all-out assessment of the situation to see how successful the fund has been in rendering financial assistance to private enterprises.

One effective way to control the ever-increasing petrol consumption is replacing gasoline with CNG.

Another major problem is that the government maintains almost full control over the fund's deposits.
We have objected to this several times, but to no avail. It seems that certain political and administrative mechanisms have to be taken to this effect.
The members of the Seventh Parliament have shown their willingness to help the fund continue its activities by passing article one of the fourth development plan (2005-2010) bill recently. The article stresses the need to have the Foreign Exchange Reserve Fund.
One more problem is the media campaign against the reserve fund. The fund has been subject to certain charges and blamed by print and broadcast media in recent years.

How do you think the US sanctions would affect the country's foreign exchange reserves?
Undoubtedly, the economic embargo will certainly increase our expenditures but will not create obstacles to our activities. We will have to implement our projects at higher costs. That is sanctions will affect our foreign exchange reserves and limit our choices at the international level.
Hence when the government faces an embargo, it will have to adopt the most logical mechanism. This includes short-term initiatives, which might damage the national economy in the long run.
Even if our oil revenues continue to go up, our expenses will increase because we will have to spend money on some other fronts. If the oil revenues fall, we will face a more serious budget deficit as well.

Experts maintain increase in oil prices does not necessarily benefit the producers.

The hike in oil prices, which experts forecast might even go up to $75 per barrel, has provided some sort of respite to our economic policy-makers. They can now focus more on the 42,000 billion rials budgetary deficit for this year.
At a time when the government has not yet sought Majlis permission to withdraw from the hard currency reserve fund, some experts have opined that the government will ultimately have to do so. But what is the solution? Can the government do anything else apart from withdrawing from this fund? It seems that this years also, like the previous years, the mistake of the policy-makers in computing the actual government revenues would be covered by petrodollars.
The more important consideration, however, is that the hard currency reserve fund, which is supposed to bring about financial security, has now become a subject of debate.
Some experts maintain that the increase in oil prices does not entirely benefit the producers. Currently, industrialized countries are speedily enhancing their fuel reserves. They are also contemplating an inexpensive source of energy such as natural gas. Meanwhile, energy analysts have predicted that gasoline will become more expensive than many other oil products in the near future.
Other oil producing countries are not a source of concern for us, but the point is that this year Iran has imported over one billion dollars worth of gasoline. The consumption of gasoline is on the rise and a part of oil revenues has been allocated for importing gasoline. This is while experts have proposed that a portion of the excess oil revenues must be considered for boosting the capacity of the country's refineries and building new refineries.
Some experts believe that the price of gasoline in the near future will increase by 300 percent. This will pose a big shock for auto manufacturers and vehicle owners. How could the aftermath of this shock be minimized?
Based on official reports by the Management and Planning Organization (MPO), last year (ended March 19, 2004) some $2.83 billion from the hard currency reserve fund was allocated to the industrial sector, $5 million to the mine sector, $3.1 million to the agro sector, $100 million to the transport sector and $68 million to technical and engineering services sector. However, no funds were allocated for expanding refineries despite the fact that refineries are fundamental for progress and development of the country.
According to official estimates, given the current consumption pattern of gasoline, by the end of the fourth development plan (2005-10), it would amount to 95 million liters per day. Therefore, it is absolutely crucial to boost the capacities of existing refineries and even build new refineries. If we realize that 80 percent of our exports are oil-related and 80 percent of the national economy relies on exports of oil, then we will not have anything left to allocate for importing gasoline. This emphasizes further the need to build new refineries urgently.