News ID: 110721
Published: 0755 GMT February 01, 2015

Forex reserves inadequate

Forex reserves inadequate

Since oil prices have fallen below $50 per barrel from their peak last year, the unfreezing of Iranian frozen assets is expected to offset plummeting petrodollars. On November 24, 2014, P5+1 (the US, France, Britain, Russia, China plus Germany) agreed to release $4.9 billion of Iranian funds held in foreign banks until July 1, 2015. Mehdi Taqavi, a university professor, commented on the impact of unfrozen assets on the national economy, economic growth and forex market fluctuations in an interview with the Persian daily Arman. Excerpts follow:

ARMAN: Can the release of Iranian frozen assets compensate the decline in crude revenues?
TAQAVI: The release of frozen assets has coincided with the plunge in petrodollars. Hence, they fall short of offsetting the crude price decline.

How do you see the outlook for economic growth?
The appreciation of foreign currencies against the Iranian currency, the rial, under the former administration, pushed up inflation and adversely affected economic growth, but the unfrozen assets have reversed the trend.

However, real economic growth should not be confused with nominal economic growth. The latter pertains to a rise in annual income, which marks an annual increase, whereas the former is measured on the basis of inflation rate and people's purchasing power.

As a result, nominal economic growth increased, even though real economic growth was negative under the former administration, thanks to the rampant inflation.

Annual incomes rose about 12 percent under the former government, but the drastic fall in the value of rial by about 400 percent against foreign exchange currencies impinged on economic growth.

Should the government unify subsidized foreign exchange rate with that of the open market?
Sufficient forex reserves are required to unify the rates, which remain elusive. This is because oil revenues have declined.

If the administration implements such a policy, prices in the open market will rise again. Hence, subsidized foreign exchange must be re-allocated for essential goods, which will raise inflation.

The government has projected an 8-percent economic growth for the year ending March 2015. Is it attainable?
I think the figure is not logical. It would be easier to achieve a 3- or 4-percent economic growth from a negative rate rather than increase it to 8 percent from 4 percent.

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