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Iranian Economy Minister’s interview with IRIB Channel One

Thursday, Apr 30, 2015

(SHADA: TEHRAN) – The Iranian Minister of Economic Affairs and Finance Ali Tayyebnia was talked in a televised interview with Islamic Republic of Iran Broadcast (IRIB) Channel One. Here follows the full text to the interview

TAYYEBNIA: In the name of Allah, the Beneficent, the Merciful. I also say hello to you and your good colleagues in IRIB (Islamic Republic of Iran Broadcast) as well as all dear viewers of IRIB Channel One, and also wish success and glory for our good people.


QUESTION: Let me thank you for accepting our invitation. It is definitely a unique opportunity to have you in our programme to talk about various economic topics. I hope we can take the best advantage of this opportunity to pose much more questions. With your cooperation in offering short and brief answers to the questions, more questions can be dealt with, and I am sure you can manage the issue, although I know explanation is really a necessity in the field of economy. Dr. Tayyebnia, you are well informed that the Supreme Leader communicated the general policies for the “Resistance Economy” last year, in Bahman 29, 1392 (11 February, 2014). Before accepting the responsibility of the Ministry, you had announced that you conducted study on a model similar to “Resistance Economy”. As a result, we can conclude that you have a great deal of information concerning the subject. The Supreme Leader has also pointed out recently that the Resistance Economy and its goals will not be realised if we just keep on talking about it. I would like to request you first of all to explain briefly what were the most important goals for which these policies have been formulated and communicated?

TAYYEBNIA: I have to say that the Resistance Economy policies had been specified and approved in Expediency Council after long expert discussions, and on the basis of a profound understanding of the problems in Iran’s economy. They were then communicated by the Supreme Leader. I believe that if these policies are implemented thoroughly and precisely, they can be then a suitable prescription to cure many problems we are facing in our economy. The main goal being followed in the Resistance Economy policies is to attain a sustainable, constant, indigenous, outward-looking, productivity-based and high economic growth. If we analyse the growth process in Iran’s economy over the past decades, we will see that the growth has had some characteristics. Firstly, the growth rate has been so low. The average rate of the growth in Iran’s economy has been about 3 percent over the past decades, which could not provide the facilities for people’s welfare and help encounter poverty. The second characteristic of the growth process is that it suffered from high volatility and fluctuations; that is, the growth rate reached even to 6 or 7 percent in some years, while negative in some other years.  When closely looking at the issue, we will notice that these fluctuations we are facing in the process of the growth are heavily interrelated with the rise and fall of the oil revenues. And finally, the third characteristic of the growth process in Iran is that the growth process has been mainly much more based on exploiting resources and less relying on productivity and increased efficiency.


QUESTION: We’d better say that there was less attention to productivity.

TAYYEBNIA: The role of productivity has not only been positive but it has played a negative role in many periods; meanwhile, over 70 percent of growth in successful countries is attained as a result of the improvement of the productivity. The policies behind the Resistance Economy seek to improve these characteristics, and help us have access to a high economic growth in a way that the growth enjoy sustainability and steadiness, and also it should be a growth which is based on technical know-how as well as improved productivity. Based on the policies of the Resistance Economy, the economic growth should be indigenous; it means that all the existing facilities and opportunities inside the country should be thoroughly and optimally used. On the other hand, the growth is outward-looking, that is, its indigenous nature is not equal to isolation at all. On the contrary, we tend to utilise all the capacities available in the international arena, so that we can reach a sustainable economic growth which paves the way for the promotion of Iran’s stance in the international field, and also ensures our people’s best welfare.


QUESTION: How much of the policies, you believe, have been realised over the past year?

TAYYEBNIA: Look, as clearly expressed and specified in the policies, one of the biggest economic problems we are facing is the issue of the dependency of our economy on oil revenues. The Supreme Leader in his recent statements highlighted two problems and two major harms facing Iran’s economy: one is dependency on oil, and the other is that Iran’s economy is mostly state-run or governmental; in fact, [we suffer from the] lack of an efficient and effective private sector in Iran’s economy. Resistance Economy means that we would be able to remove these two problems in our economy, to provide the ground for reducing the reliance on oil and oil revenues, and to pave the way for handing the economy over to the people, and thus we will have all people’s participation in economic activities. Concerning the first axis, that is, the reduction of dependency on oil revenues, if we analyse and scrutinise the issue further, [we will see that] it can be reviewed from two standpoints. One is the dependency of government’s budget on oil revenues and the role the oil income plays in all government’s earnings; a high share of the government’s revenues is earned through oil income, and it is natural whenever oil price undergoes fluctuations, it also fluctuates and sways the oil revenues, government’s budget and developmental expenditures and all the like, and as a result fluctuations happen in Iran’s economic growth. The second aspect is the chief role the foreign exchange incomes gained from oil export play in balance of payments as well as the country’s trade balance. Our main foreign exchange revenues have been and are still gained through oil incomes, and it has unfortunately made our economy heavily dependent on oil revenues. I will now explain what plans and measures we have implemented in these two major aspects.  With regard to the reliance of the government’s budget on oil revenues, what is included in the policies of the Resistance Economy and what a wise economic logic would deem necessary is the urgent need for cutting the dependency of government’s budget on oil, and for this purpose we try to provide the main government’s revenues and its budget resources through clean income, especially tax revenues.


QUESTION: How much has been done in this regard and how much has been realised so far?

TAYYEBNIA: Look, we have designed a detailed and comprehensive programme regarding tax system improvement in the Ministry of Economic Affairs and Finance called “Integrated Tax Plan”.  Let me briefly talk about the plan. The plan was started to be formulated in Tax Affairs Organisation early Iranian 1380s (about 14 years ago). Unluckily, it underwent ups and downs over the past years, though. We have tried to expedite this comprehensive plan over the past year and particularly in recent months. The comprehensive plan has first begun to identify the status quo of the country’s tax system as well as its problems. Then, a favourable plan of the taxation situation has been designed to clarify what are the characteristics of a favourable taxation system. The status quo was compared with the favourable situation, and the gap between the existing and the optimum situation was identified. Many projects, that is, more than 30 projects were designed - with the implementation of which - we can promote the existing situation to the optimal condition. On the basis of the plan and these projects, we have predicted many changes and developments in the practices and methods concerning taxation specification, concerning laws and regulations and also concerning the taxation administration. 


QUESTION: Hasn’t it happened yet?

TAYYEBNIA: I have to mention that very effective measures have been taken considering the software and hardware needed to implement the Integrated Tax Plan. Necessary hardware has been designed and created. The issue of mechanising the taxation system and the measures which had to be adopted in this regard, have all been taken. All the devices have been installed. An integrated taxation software which helps us identify the tax-included income based on (needed) information and to collect (due) taxes is fully designed. This software is tentatively operating in three provinces in an effort to spot and eliminate its related problems. Human resources required for implementing the comprehensive plan have been recruited and trained, and they are ready to start. The necessary laws and regulations were prepared and presented to the Majlis (Parliament) in the framework of a bill. Luckily, the bill has now been approved in the Parliament, and we hope the law, which is to be communicated in the near future, can pave the way for the full implementation of the Plan. Once the comprehensive taxation system is established, we will be able to collect the taxes on the basis of the real information on the income and expenses of the real and legal persons.


QUESTION: You are well informed that the Supreme Leader had mentioned that we are now encountering the phenomenon of tax evasion. Before involving this subject, let us note that what is really termed as a problem solver concerning taxation issue for the government, in general and for the Tax Organisation, in particular, is the subject of information transparency. Just now you pointed to our integrated software in the field of information lucidity. Is this integrated software at present connected to banks, for example? Is it connected to our Customs Systems so that it can cover up the related taxes, thoroughly?

TAYYEBNIA: Look, one of the items in the modified bill of direct taxes law is thoroughly allocated to the establishment of a centralised system for tax payers’ economic information.


QUESTION: What does it include?

TAYYEBNIA: All economic information which is related to the tax detection will be submitted to the Tax Organisation under the rule of law.


QUESTION: The existing tax payers?

TAYYEBNIA: under the Direct Taxes Act, a tax payer is an Iranian citizen who is engaged in economic activity. Therefore, under this legal decree and based on the created software and hardware which are now ready to operate, we will be allowed to keep the tax payers’ all economic information in a system in a centralised way, and to carry out the operations concerning tax identification and detection on the basis of the information. In the system we have designed with the help of skilful Iranian and foreign experts, the tax will not be assessed on an arbitrary basis any longer. We hope, God willing, the term, “arbitrary assessment” will be completely eliminated from Iran’s taxation dictionary.


QUESTION: As of when?

TAYYEBNIA: God Willing, we intend to fully execute this comprehensive plan as of late Iranian year of 1394 (March 20, 2016). A part of it (the plan) is currently being carried out, though. And if we have been able to witness a considerable increase in the tax revenues, it was because of this very system being implemented. I need to further explain the system in a few sentences. Arbitrary tax determination will be fully removed, God willing. The identification and determination of taxation will be made on the basis of a tax return. If a tax payer does not submit a tax return, the system will produce one for the tax payer and present it to him. The tax payer has the right to accept the proposed tax return, but if he has any objection, he may speculate his own alternative tax return.


QUESTION: You mean it happens to all Iranian citizens?

TAYYEBNIA: Any Iranian citizen who is engaged in an economic activity is obliged to submit a tax return to the taxation system, even though s/he is legally exempted from paying taxes.


QUESTION: Let us first talk about many people who are involved in an economic activity, but they do not reveal their economic activity at all. Suppose there is a case of brokerage for example in the field of housing and land. There are of course other fields, however, the activities are not recorded anywhere!

TAYYEBNIA: When there is a centralised economic information system in the Tax Affairs Organisation, and when all the information concerning the Customs are connected to this system, all the information about the asset transfers is connected to this system, all the information related to monetary and financial activities are connected to this system, and in general, (when) there is a system and a software to process all these (activities), any kind of tax evasion methods will be blocked.  The system is based on a global experience and based on analytical efforts on the problems our Tax Organisation confronted. Once the system is thoroughly established, we hope both to prevent tax evasion and to witness the tax identification based on real information which means the realisation of a (healthy) economy. I have to confess that taxes are not partly collected based on real information, so that is not really fair! We hope to collect the taxes in a fair method and to deter tax evasions, once the system is entirely launched. Let me just mention that over the past [Iranian] year – since the start of [Iranian calendar year of] 1393 (March 21, 2014) till today, the tax revenues have increased by 42 percent, [which is] a considerable performance, regarding the present Iranian economic conditions. The increased revenue is collected not due to an increase in tax rates, but on the basis of a more precise identification of the tax payers’ income.


QUESTION: what are the projections for the tax revenues in the next year budget?

TAYYEBNIA: It has to be communicated in the budget. But, I think an almost 30-percent increase in tax revenue has been predicted for the next year compared to that of the present amount.  We can judge referring to the exact figure, when the budget is communicated.


QUESTION: It will embrace about almost 50 percent of the budget, as predicted, right?

TAYYEBNIA: Less than 50 percent.


QUESTION: Many believe that this [figure] is too optimistic and will not be realised.

TAYYEBNIA: Many also believed that the revenue predicted in the Taxes Law and in the [last year’s] Budget Plan would not be realised. Today, over 95 percent of the [predicted] revenue has been fortunately realised; a remarkable achievement for the Tax Affairs Organisation of the country.


QUESTION: Another criticism in regard to the taxation sector is that when we say that tax revenue is increased, it is because of the inflation rate, that is, suppose if the inflation increases by about 20 percent, taxes will be naturally increased accordingly; therefore,  this is not reckoned as a high revenue or [big] success.

TAYYEBNIA: Please note that I said that the tax revenue growth has been 42 percent, and the inflation [rate] has now reached to 15.2 percent. It means the difference between 42 percent and 15 percent is about 27 percent, so we had about a 27-percent real growth in tax revenues.


QUESTION: Taking this month’s inflation into account, right?

TAYYEBNIA: The inflation [rate] we had in [the Iranian month of] Bahman (February 2015) –[the inflation rate] in 12 months ending Bahman- has been about 15.2 percent. That is, our yearly inflation [rate] was about between 15 and 16 percent; and the tax revenues have increased by 42 percent. It means tax revenues growth has been much more than the price growth, and it means that the purchasing power of the tax collected this year has been meaningfully increased. This is achieved in a situation that as I noted, we have been trying not to exert any pressure on the tax payers who had paid their taxes in a transparent way. A portion of the surplus revenue has been collected through more precise identification of the revenues, and yet another portion has been earned through Value Added Tax or VAT. You are well aware that VAT means consumption tax. A measure [which is] being taken and followed in the Tax Affairs Organisation is that we deduct the share of income base and production base from the tax, and shift the tax to consumption base. The share of tax on consumption was too low and meagre in the past. Some 21 percent of our total tax revenues was earned through VAT last year; the share has reached to 26 percent this year. It means that the share of consumption basis has meaningfully increased this year, compared to [the share in] the previous year. It is partly because the VAT rate was increased, and partly because we tried to enhance tax collection and prevent tax evasion. There are other measures ahead. We have prepared a bill to present to the Majlis (Parliament) so that we can make it obligatory for any store and production unit throughout the country to use “a computerised selling device”. Each and every seller will have a device which is connected to the banking system and to the Tax Affairs Organisation. Any kind of buying and selling to be made in the stores will be recorded in the taxpayer’s taxation file. This will help us stop tax evasions regarding VAT. There are now some stores, some people, that collect the tax from the consumer, but they fail to reimburse it to the Tax Affairs Organisation. This system helps us and empowers us to stop such tax avoidances or evasions, too. 


QUESTION: About the prediction made for the next year regarding the tax income increase, there is a concern that the pressure will be again exerted on the same fixed taxpayers, that is, the employees and workers, and the pressure will be even more! However, this will not happen according to what you said?   

TAYYEBNIA: We do not intend to enhance the taxation pressure on producers, at all. We believe that under current conditions we need to further support the manufacturing units. Therefore, if there is an intention to enhance the tax [income], it has to be accomplished through an increase in VAT, more precise identification of information, putting a stop to tax evasion, as well as eliminating and organising some unjustified exemptions.


QUESTION: You just mentioned the exemptions. In your message to the eighth seminar on Iran’s Taxation Policies held on December 17th 2014, you noted that some 43 percent of our total NGP –according to the estimates- is exempted from paying taxes. What has it resulted from?

TAYYEBNIA: Well, a major part of economic activities have been legally exempted under our tax laws, and it means that we have already lost wide-scale capacities. The reason behind granting such exemptions in the past has been primarily to support production activities, especially those enjoying priority. We infer that many of these exemptions were not successful in achieving its goal of boosting production capacity, so we intend to reorganise systematise such exemptions, God Willing. At present, there are provisions in the Fifth Five-Year Socio-Economic Development Plan stating that exemption should be changed into a zero-rate tax. We are now implementing it under the provisions of the Fifth Development Plan. It means that if anyone wishes to be eligible for [tax] exemption, s/he has to submit a tax return to the Tax Organisation, where s/he presents the information on his/her economic activities. The taxable income will be assessed, but it will be multiplied by a zero rate. The measure taken by the Parliament in the framework of the Fifth [Development] Plan will empower us to make economic information more transparent, and also to put an end to any tax avoidance.

QUESTION: How will the exemptions affect tax incomes when multiplied by zero?

TAYYEBNIA: No effect in a short-term period, however, some activities are eligible for tax exemptions for a specified time. If an activity, for instance, is carried out in the free trade zones, it will be exempted for 20 years from paying taxes. This 20-year period of [tax] exemption has come to an end for some businesses in some of our free zones. Accordingly, if those who are exempted [from paying taxes] do not submit their tax returns, we will never find out when their exemption time is over. Therefore, when a tax return is submitted, we will be kept informed of the exemption validity time. Moreover, some of these businesses engaged in economic activities in a free trade zone, are carrying out part of their activities in their own area, and some other parts are being handled in free zones.  Submitting tax returns would help us distinguish and divide up the activities in the two regions. Hence, these people are also trading with those who are doing businesses in their main area [other than the free zones]. We need to identify their income. There are goods which are being produced within the free zones and being exported abroad, whereas the raw materials required for producing them are being procured in the main area (not in the free zones). Under the Law, we are obliged to return the taxes already collected for the raw materials of the exported goods. When a tax return is presented, we will be able to pay the amount back in an accurate way. There are numerous advantages for the measure, as a result we are trying to change the exemption to a zero-rate tax policy which will surely help us make the economic activities transparent and also enhance our information in a meaningful way.


QUESTION: We have questions to ask you on transparency, recession, inflation and growth. Yet, since we entered taxation subject, please allow us to review this chapter to the end. We return to other issues, later.

TAYYEBNIA: Let’s not forget we should also address the second topic, that is, the necessity to decrease dependency on oil revenues, and the discussion we had on balance of payments.


QUESTION: The Government can earn a suitable income on taxation, when there is a production boom in the country. The key solution is to prevent capitals from entering the non-productive sectors such as gold and foreign exchange [black markets] and housing speculation. Taxation on capital gains is the solution other countries have found to this problem and they are at present working. Please kindly inform us why taxes on capital gains have not yet been collected in Iran, as non-productive markets are widespread in our country.

TAYYEBNIA: Look, we have conducted a wide-scale research concerning taxation on capital gains as well as taxation on increased asset value. Further study is being currently conducted on this taxation, and we identify this [tax] resource as an effective resource in our future plans and programmes. However, there are particular complexities and difficulties to collect taxes on capital gains due to needed infrastructures. If we try to collect this tax without preparing the required infrastructures, we won’t have a successful performance. Anyhow, these are the bases we are considering for the future; we intend to totally use the capacity of the existing bases. We are now facing wide-scale tax avoidances in some bases. We [have to] firstly try to complete the bases we have so far introduced, then we provide the infrastructures and pre-requisites needed to implement [the programmes for] taxation on capital gains or increased asset value. And simultaneously with preparing the infrastructures, we [hope to] submit the needed bill to the Parliament, God willing.


QUESTION: Dr. Tayyebnia, as [this bill] will just enter its implementing stage in (the Iranian year of) 1394 [starting March 21, 2015], when are we supposed to accomplish it?

TAYYEBNIA: Look, once you do not carry out an activity in a logical and proper way, based on an appropriate policy or an accurate practice, it will lead to an unfavourable result. If we happen to predict a [key] law such as capital gains in just one or two articles in the direct taxes code, it definitely means the failure of such taxation.


QUESTION: Your disagreement with [taxation] on housing was similarly [due to] the discussion on infrastructures.

TAYYEBNIA: Exactly. First of all, taxation on capital gains is not just imposed on asset. If we are supposed to levy taxes on capital gains, we have to do it for all kinds of assets, with a particular logic; and we have to prepare the pre-requisites, too. My colleagues are now conducting studies on capital gains taxes, and we hope to witness the establishment of this taxation system in Iran in future.


QUESTION: When do you think its infrastructure will be set up to collect taxes on capital gains?

TAYYEBNIA: I believe we can present the bill to the Parliament over the next two years, and pave the way to implement it [in the meantime].


QUESTION: We may hope that both the price of land with its relation to construction and also gold and foreign exchange [black market] which are different forms of speculations can be organised in a way or another, and both will be prevented from having main impacts on the economy. Well, Dr. Tayyebnia, you were to explain a second axis concerning reduced budget dependency or reduced economic dependency on oil.

TAYYEBNIA: One of the problems we are confronting in Iran’s economy is that a major portion of the country’s revenues in foreign currencies is gained through crude oil exports. This has made us heavily dependent on the foreign exchange. And with a production sector heavily dependent on intermediary goods, and also imported raw materials, when a country’s revenue resources are decreased and the foreign currency income is lessened, the import of raw materials and intermediary goods needed for production will also decrease, the result of which is reduced production and worsened recession. Therefore, we have to try to replace oil exports with the export of non-oil services and goods in order to be able to solve this problem and minimise Iran’s economic vulnerability due to oil revenues. This has been accepted as a prime policy in the communicated “Resistance Economy” policies.  


QUESTION: How much [of it] has been realised over the past year?

TAYYEBNIA: Look! We’ve taken large-scale measures aimed at boosting non-oil exports. We’ve tried to eliminate many export bans and restrictions. We’ve also removed or minimised the taxes levied on exportable goods. We’ve provided abundant facilities in the Customs to facilitate the clearance process for the export goods as well as the imported commodities needed for production. I am delighted to say that these practices accomplished for the establishment of the Customs Integrated System have entailed very favourable results. We can now state that the export clearance process which used to take seven [working] days in the past is now being conducted in just one day; and the release of the imported goods required for production units which used to take 26 days, is being done in three days at present. This very facilitation we provided has helped decrease the expenses exerted on production units and economic activists by 20 billion Rials (USD 833.3 million approx.). Generally speaking, the measures have led to favourable results. Over the first 11 months of the calendar year 1393 (2014-15), the country’s export revenues grew by 22.5 percent while our imports increased by 12.2 percent during the same period. The higher growth rate of the export minimised the distance between non-oil exports and imports of the country. Moreover, these figures do not include the export of services.


QUESTION: Excuse me, was the 22.5 percent you just mentioned for non-oil exports?

TAYYEBNIA: Yes, that was for non-oil goods, I mean, it does not include the export of services. We had some 46.3 billion dollars of non-petroleum goods exported, and our imports amounted to 48.2 billion dollars. This means that the distance between our imports and exports amounted to 2 billion dollars over 11 months, and again it means that we are fortunately reaching a stage that our non-oil foreign trade balance can enjoy a positive balance, that is, there will be no deficit.  I believe that we can get our trade balance tilted positive in our favour with a short-time effort. We will witness a surplus trade balance in the near future, thanks to the serious willpower and determination we enjoy in the field of export development.


QUESTION: Will it be realised early next year?

TAYYEBNIA: I hope that our trade balance lacks a deficit in the next year, because it seems not difficult to balance the USD two billions [deficit]; and we can probably reach a surplus. There are good markets in the region, and we can make the country’s trade balance stable and positive, with regard to the facilities we are providing for exports and for exportable productions. This means that the vulnerability of our oil-dependent economy has been sharply reduced. Regarding the Government’s budget dependency on oil revenues, about 80 percent of the resources of the state budget used to depend on oil revenues in the past; however, we have now reached a situation that [just] about 30 percent or even less than 30 percent of the state incomes comes from oil. I regard all of these as remarkable successes achieved in Iran’s economy. It might be interesting to know when we talk to most of oil-[exporting] countries in the region and inform them that dependency of Iran’s economy on oil has reached to about 30 percent, they congratulate us and consider it as an eye-catching achievement for the Islamic Republic of Iran.


QUESTION: Actually, everybody is so pleased to hear that this 30 percent has been realised, and we hope to move further forward. I said in the last week programme that we will definitely take advantage of oil and gas capacities, and we hope that our budget will be soon independent of oil [revenues] so that the [oil] fluctuations would not affect our economy. However, what the parliament members opposing the budget stated is that the present reduced dependency [on oil] has been due to a decrease in oil prices, and because of the situation where we confront difficulty to export. If there were no such hindrances, our dependency would definitely increase. What is your answer?

TAYYEBNIA: Look, oil price fall is certainly a threat and a harm against Iran’s economy, but the Government and Parliament are fortunately endeavouring to change this threat to an opportunity. I see this as a positive opportunity, and we have to take the best advantage of this opportunity, and try to minimise the reliance of the Government’s budget on oil. We have also this very concern, and we in the cabinet try to be careful. If the oil revenue increases in the future, which hopefully will, we have to appropriately and optimally use such revenues. We should not make a mistake; oil is a blessing. What changes this divine blessing into a blight is the wrong usage of the oil resources. If we keep committed to the Resistance Economy policies and the country’s general policies including the establishment of the National Development Fund and accordingly the aims for which the Fund was set up and also Foreign Currency Saving Account, it seems that oil revenues increase can lead to a higher economic growth using such optimum utilisation and can also result in the expansion of a productive and efficient private sector. Therefore, we are worried about this same story, lest there be a temptation to spend the increased oil revenues in the framework of the Government’s budget, as it’s happened in the past! Nevertheless, the Government is firmly determined to not allow such happenings any more in the future. A Hadith [an Islamic tradition] says that believers must [be careful enough] not be bitten twice from the same [snake] hole. However, we have been bitten several times so far from the increased price of oil, and I believe that such bitter experiences are more than enough to lead us to this conclusion that such experiences should not recur any longer in the future, God willing.


QUESTION: At the beginning, you talked about the economic growth. As we are presently studying the production and recession situations, we hear that some cite a number of cabinet members as saying that we’ve passed the recession. It is also being stated that we are passing the recession. Still some others believe that we are still suffering from the recession. Will you please let us know how the situation of economic growth and recession is in the country? 

TAYYEBNIA: When the new administration took office, we were faced both with a hefty inflation, that is an inflation above 40%, and [with] a drastic recession. We faced negative economic growth over two consecutive years; a negative growth of [minus] 6.8 percent and [a negative growth] of [minus] 1.9 percent. When recession and inflation are intermingled for two consecutive years, it will be hard to handle the phenomenon. When the Western countries including U.S. faced the recession in 2008, it was just a recession, and there was no inflation involved [at that time]. It is not hard to deal with this very recession; nevertheless, it took them 6 or 7 years to get out of the recession situation. Our economy faced a recession blended with inflation. When you face both recession and inflation at the same time, it will be so hard to use monetary and financial policies to deal with the inflation and with the recession. Thus, this Government made its best to operate in two fronts to confront both the inflation and the recession. When we came and tried to harness inflation over the past year, it was because we intended to encounter the recession. We believe that a country cannot enjoy a high economic growth while it is suffering from a severe inflation. When you get inflation, a heavy inflation, you will face instability in different markets, [such as] in foreign exchange market, in gold market, in commodity market. Such instability allows no one to invest. Investment necessitates a safe and secure atmosphere; therefore, the Government made its aim at the very first stage to confront inflation. It is firstly because inflation per se has harmful distribution impacts, and secondly because encountering inflation is considered a prerequisite and inevitable condition to fight recession. Over the past year and months, the Government succeeded in controlling the inflation; the inflation fell to less than 16 percent from over 40 percent.  


QUESTION: Before we enter the discussion on the growth rate, I would like make a point because it is so important, now that the inflation issue is being discussed; respectable public officials announced that the inflation rate was “zero” in the Iranian month of Bahman (February 2015). People are nowadays facing increased prices of some commodities such as chicken and dairy products as well as other goods. How can these two matters be put together? The people do not feel like [the inflation rate] being zero!

TAYYEBNIA: Look, we have two reference bodies responsible for calculating the inflation rate: Statistical Centre of Iran (SCI) and the Central Bank, both of which show the same index of price change trend as well as the inflation rate. That is, due to the experience we’ve gained over the past years, when the inflation rate declined, they both have usually reduced together. And when it [the inflation rate] increased, they both increased. However, regarding the absolute value, there is a difference between the two rates. This happens anywhere in the world. For the index calculated in [the Iranian month of] Bahman, the SCI estimated the inflation rate to be zero, but the Central Bank calculated it to be a very small positive amount being under one percentage unit. But the 12-month average rate has been announced to be 15.8 by the Central Bank, and 15.2 by the SCI, and the monthly rate which specially happens in Bahman, has been estimated to be zero by the SCI and 0.8 percent by the Central Bank. Look, this is an average rate, that is, we check the prices of hundreds of commodity items, and then we state the average price for each item. The price of some 5 or 6 commodity items might rise, and some others might fall. When you calculate the average, you will notice that there is no price increase.  Therefore, there is no contradiction once the inflation rate is zero, and at the same time, the prices of some items are increased; meanwhile the index announced by the Central Bank indicates that there’s been a limited inflation rate in the month of Bahman of this year. More important than these two [inflation and recession], I would like to state a third index, and that is the producer price index. The consumer price index indicates the inflation for households or consumers of commodities and services, while the producer price index shows the inflation the manufacturing corporations face. The corporations buy their needed intermediary goods and raw materials, and they also face a kind of inflation which is demonstrated by producer price index. The monthly producer price index has been minus 0.1 percent in this year’s month of Bahman, that is, not only has there been no inflation, but the price for the producer has also decreased concerning their total purchases. This is the minimum amount possible in a five and half year period. The Producer Price Index Point-to-Point Percentage has been 11.4 percent in the month of Bahman, that is, the purchases made by the producers have increased by 11.4 percent in Bahman 1393 (February 2015) compared to the corresponding period in the previous year (February 2014). This has been the lowest producer inflation rate over the past four and half years. The average producer price index indicated a 15.3 percent growth, which is also the lowest rate possible. The producer price index is important because it is a pre-indicator. That is, if we notice that the producer price index has increased in any month, we will learn that the consumer index will be increased after a time interval, and if it decreases, it means that the consumer price index will be reduced in a time interval. It will promise us a decrease in the consumer price in the future, God willing.


QUESTION: I repeat myself that we will be truly happy to hear even better news in this field. However, what is actually happening in the real scene of the society is the very reality [the people are facing]. The question which might now come to the mind of our viewers is that ‘why are we facing the [price] increase n the very commodities which are widely used’ by the consumers? Why is the [price] decrease happening [in places] where there is no outcome for us [the people] to demonstrate that the inflation has diminished?

TAYYEBNIA: The answer to your question is hidden in the question itself. When you need a commodity more than others and the demand is higher for those commodities, that very commodity is naturally exposed to inflation.


QUESTION: You mean there is something wrong with our calculation bases?

TAYYEBNIA: Look, the inflation results from extra demands. When the demand for a certain commodity is higher than the supply, the price of that very commodity increases. And if there is no demand for a commodity, or when there is a limited demand, we should not naturally witness an increase in the price of that commodity. On the contrary, when there is an increase in demand for a commodity, there is a higher demand, and it is natural to see inflation there. Of course, I have to tell you that there has been a limited growth for the Food Price Index. I do not have the statistics with me now, but there has been no considerable increase for the food prices over the past months. Another question which is sometimes asked is that we are told that you claim the inflation rate was reduced, but we [the people] see that the prices of commodities are still on the rise. There is seemingly a contradiction in between; however, these are two different concepts. When we say that the inflation rate is decreased, and reached for example to 15 percent from 40 percent, it means that the prices are still rising, but the speed of price increase has been reduced. For instance, suppose a car is moving at the speed of 150 km/h, and then it lowers the speed to be at 40 km/h; it means that it is still moving forward, but at a lower speed. Luckily we were able to decrease the inflation rate to 15 percent from a rate of over 40 percent. And the Government is determined to continue its anti-inflation policy so far as to witness a one-digit inflation rate in Iran’s economy, God willing. 


QUESTION: let’s discuss the issue of recession. It is said that we have been out of recession. You just explained that the Government began harnessing inflation through indices. What comes to the mind is that when we started to control the inflation, we have finally accepted, in a way or the other, that we have to also bear a part of recession, because it will happen at last in an economy. How are we supposed to put these two together?

TAYYEBNIA: Look, as I have already mentioned, we selected the aim to confront the inflation because we believe that having access to an economic growth requires inflation restrain and price increase control. It means, harnessing inflation is a pre-requisite for an economic boom, but it does not mean that we have merely concentrated on containing the inflation. As of the pervious year -- if I am not mistaken it was [the Iranian month of] Shahrivar 17, 1392 (September 8, 2013), I mean the very first week the Government took office—the cabinet issued its first act concerning going out of recession. Within the very limited period, we tried to identify some of the production obstacles and problems as well as the reasons why recession has happened. We endeavoured to adopt solutions to encounter it. That was the first act issued by the Government aimed at confronting the recession conditions in the country. Accordingly, a task force was formed in the Ministry of Economic and Financial Affairs by deputy minister for economic affairs. We studied the country’s economic situation with the cooperation of other economic organisations in a bid to identify the reasons behind the recession and to adopt solutions to encounter it. It was known as “anti-recession package”. Well, the package covered the comprehensive policies aimed at confronting the recession and achieving an economic growth. Some of the policies were needed to be presented to the Parliament in a bill to ask for permission. The policies were compiled in a bill and submitted to the Parliament as a single-urgency bill. Some policies were within the Government’s authority, so the cabinet issued approvals/acts in this regard. Some policies were within the authority of executive organisations. The adopted collection of policies fortunately proved the positive results. We witnessed a positive economic growth of 4 percent during the first half of the current year, and the process will be continued till the end of [the Iranian year of] 1393 (March 2014 - March 2015). We believe that the economic growth will remain between 2.5 and 3 percent till the end of this year, God willing.


QUESTION: Does it mean that we are out of recession?

TAYYEBNIA: You see, you have to define the recession. There are different definitions for [an economic] recession in the economics literature. The most comprehensive, the most common definition is that if an economy has a negative economic growth over two consecutive seasons, the economy faces recession. We enjoyed a positive economic growth both in the spring and summer in [the Iranian year of] 1393. Thus we can consider the economy going out of recession, although we know that our [current] production level has not yet reached to the maximum, that is to the level we had in [the Iranian year of] 1390, and there is still a gap. I mean that we have to still experience this positive economic growth process so that we can reach the highest level we had in the past. But, there is no negative economic growth in Iran’s economy any longer, and the economic growth has become positive.


QUESTION: Now, let me pose the question I asked another cabinet minister in our programme before the previous one; that was, why aren’t the recession and the growth tangible?

TAYYEBNIA: The economic growth has already started in some big economic corporations and companies, but it has not yet spread out to the body of the economy, to the small- and medium-sized corporations. However, we hope that this growth process starting from the big corporations would prevail in small-sized and medium-sized units in the near future, and accordingly, we would witness an all-inclusive growth in the our economy, as a result of which the people will undeniably feel it better.


QUESTION: When do you predict it will happen?

TAYYEBNIA: Look, a part of the practices we had predicted and we presented to the Parliament has not yet been finalised. One of the problems our production sector is presently faced with is the problem of liquidity (cash) restrictions and credit bottlenecks. If you ask the manufacturing corporations what your biggest problem is, you are certainly told that it is the problem of financial resources. Generally speaking, we are facing serious restrictions. Well, to eliminate the financial resources restriction problem faced by the corporations, we had several solutions. A solution was to print money, colloquially speaking, that is, to increase the volume of money through printing money, and thus, to eliminate the problem faced by the corporations. Well, our past experiences and the world’s have both demonstrated that this method has no result but aggravating the inflation. This mistake has been made several times in the past, justifying that the production sector would be encouraged when the volume of money is increased. The volume of money increased, yet we did not witness any increase in the production. Therefore, that was not a logical solution. We had to do away with the problems faced by our banks and our capital markets so that we could witness an increase in the financial resources. One of the problems with which our banks are encountering is the problem of their capital. The foreign exchange rates versus out national currency have had a considerable increase, almost tripled, over the past few years. Accordingly this has exceedingly raised our economic corporations’ need for financial resources. However, the capitals of our banks have not been increased in the mean time; the capital of our big banks can support the financial needs of just one big company or corporation. Therefore, we have to increase the capital of the banks. We must try to settle the Government’s debt to the banks. Another problem our banks are facing and the very problem which prevents banks from providing the production corporations with [their needed] facilities is the large debt the governmental sector owes to the bank. A major part of our banks’ resources is thus stalled in this field.


QUESTION: Well, how does the Government intend to provide these resources at present, and to settle its arrears?

TAYYEBNIA: We had predicted all these in our anti-recession bill.


QUESTION: Is the Parliament reviewing it?

TAYYEBNIA: Some of the articles we had suggested have been approved. Good decisions, for example, have been taken in the Parliament regarding banks’ capital raise, but the bill has yet to be finalised and communicated; it is still in the Guardian Council. It will be communicated in the near future, God willing, and [it will] pave the way for us [the Government]. Some of the articles we suggested in the bill were not approved by the Parliament. We hope that we will be able to take this approval from the Parliament in the next stage. As I said, part of the banks’ problems is the large debt the Government should pay to the banks. On the other hand, banks are in debt with the Central Bank, for which they are paying a 34-percent fine to the Central Bank. We had predicted that the Government’s debt to the banks and the banks’ debt to the Central Bank would have been settled through the account balance in the Exchange Account. Accordingly, it could solve a major problem in the country’s banking system. The banks were also obliged to take serious measures to collect their deferred unpaid receivable money (arrears).


QUESTION: It is from foreign exchange reserves account, right?

TAYYEBNIA: Yes.


QUESTION: So it will really happen. Will the debt be really settled?

TAYYEBNIA: Yes, the debt would be really cleared up. At least, the fine the banks are paying to the Central Bank due to overdrafts puts a heavy load on banks. The very overload could have been eliminated this way. Anyhow, we are well aware that a 600 or 700 thousand billion Rial debt cannot be presently settled in a short period regarding the Government’s limited resources. 


QUESTION: The bill had been already presented before, but faced with criticism. Now the Government is again …   

TAYYEBNIA: Look, there was a meaningful difference between what had been put forth in the past and what had been presented in the Government’s bill. We had formulated the provisions in a way that the monetary base would not be increased at all. Had the Government’s debt to the Central Bank been cleared up this way, it would have meant that it could increase the monetary basis. We had set conditions so that there would be no increase in the monetary basis. The major difference between the Government’s bill and the other options put forth before is exactly in this point. Anyhow, I would like to say that a major problem faced by our production sector is credit bottlenecks.


QUESTION:  Well, you are now put forth credit bottlenecks. You see, small corporations have little access to financial facilities. What was mentioned was about the big corporations, the ones which have been assigned with some 73 percent of the facilities of stock companies. It [financial facility] is less than one percent for 60 percent of the smallest corporations. Why aren’t the banks willing to provide the small corporations with loan or other facilities and support them?

TAYYEBNIA: Look, the Government is not now following the policy to provide merely the big corporations with facilities.


QUESTION: But, you agree that the small corporations are supported less.

TAYYEBNIA: A major part of the facilities being now provided is under the condition of   instalments and moratorium. Our corporations had been placed in an unsuitable situation; therefore, they could not reimburse their dept. Most of such corporations are those which do not have any notice of dishonour, but they had problems to repay their debts because of the particular conditions and the recession which occurred in the country. Thus, the banking system has to cope with them, both big corporation debtors or small-sized and medium-sized corporation debtors. Although bank capital increase has not yet happened, and although the Government has not yet settled its debt with banks, I would like to inform that there has been a considerable increase in the facilities the banking system has granted in the current year. Some 2300 trillion Rials (USD 95.8 billion approx.) of facilities have been offered in [the Iranian year of] 1392 (ending March 20, 2014) by the banking system, while the facilities offered in the first 10 months of 1393 (starting March 21, 2014) reached 2000 trillion Rials (USD 83.3 billion approx.). It means that the facilities offered by the banking system will amount to Rials 3200 trillion (USD 133.3 billion approx.) by the end of the current calendar year. The increase of facilities from 2300 trillion to 3200 trillion Rials suggests that the banking system has made great effort for the economic activities.


QUESTION: I remember that Dr. Seif [Central Bank Governor] said that there is a priority for our plans. That is, there is a priority for offering facilities to the projects underway.


TAYYEBNIA: Firstly, our priority is not even for offering facilities for investment. When an economy is suffering from recession, it means that the full capacity is not being used for production. Under such conditions, if you start a new investment, there will be no meaningful effect on production. When an economy is suffering from recession, it does not use its existing capacities. The priority lies in doing something to make the best use of the existing capacity. What is the problem that the corporations are not using their full capacity? [That is] shortage of working capital. Therefore, the first priority the Government has and is following this year is to provide working capital for the economic corporations. The banking system had been told, the policy was that some 60 percent of the offered facilities would be [allocated to] the working capital. And I am glad to say – according to the statistics by the Central Bank- some 59.90 percent of the offered facilities have been in the form of working capital.  In the industry and mine sector, some 80 percent of the offered facilities has been [allocated] as working capital, that is, the banking system has played a very effective part both in enhancing the offered facilities and in providing working capital of the corporations. Let me give you some statistics. I believe the statistics can prove useful. The cash [liquidity] growth has been 15.6 percent over the first 10 months of [the Iranian year of] 1393. Out of the 15.6 percent of cash growth, the monetary base has had a share of 0.6 percent, and the share of multiplier increase has been 15 percent. What does it mean? It means that the Government has not printed fiat money any more. 


QUESTION: Well, regarding the shortage of resources in the next year, aren’t we inadvertently pushed towards it?

TAYYEBNIA: We think that the monetary base growth will be a bit more than this 0.6 percent over the two last month of the year. This is an unavoidable fact, but it indicates the monetary and financial discipline which the Government has deployed. What did the liquidity increase result from? It was because of multiplier increase. When the multiplier is increased, it means that the banks have been able to offer more facilities, and have played a greater role in financing the economic activities. In the economic literature, a multiplier increase is a sign of financial development. The statistics prove a monetary discipline, a financial discipline, and that the banks have been able to play a more effective part in financing economic activities, although we have yet to settle bank’s main problems. I hope that we can remove the banks’ problem, that is, the problem of capital shortage, with the cooperation of the Parliament. With each unit added to the banks’ capital by us, banks’ offering facilities power will be increased by about 12 times. 


QUESTION: As I mentioned, the subject of economic transparency is an indication of realisation of many economic objectives. One of the subjects is the subject of banks and the facilities the banks offer. In addition, there is the subject of embezzlements and unguaranteed and unsecured loans, which are due to lack of transparency and which have turned to a complicated problem in our economic system. Is there any way out of this problem? Any plan?

TAYYEBNIA: We have formulated a strategic programme in the Ministry of Economic Affairs and Finance, and also designed eight big projects; we are implementing them; eight big projects, each of which can play a key role in improving the country’s economic structure. One of the eight big projects includes the improvement of the country’s financing system. It is a problem we have been facing for the past [years] and it seems to have aggravated. That is the problem of providing the financial resources needed for economic activities. No economic growth, no investment development will happen without providing for the financial needs. Therefore, we have to definitely recover our financing system. There are several sections in our financing system. One is related to the improvements in the country’s banking system. Another section deals with the improvements in the capital market. Still another section copes with the foreign financing system in order to use the foreign investment and financial resources. The other section involves policy-making system and supervision of the financial markets. We have designed four sub-projects or sub-plans as the sub-sets for the country’s financing system, a major part of which -as I mentioned- is the improvement of the country’s banking system. Based on the plan, we tried to identify the problems and constraints faced by the banking system, and also to suggest appropriate solutions to improve the country’s banking system. The plan will be definitely followed up seriously. We are regularly monitoring the executive units in a time-tabled manner, we monitor the progress, and on the basis of this big plan, we hope to be able to eliminate a major part of problems the banking system is faced with.


QUESTION: Will it provide the necessary transparency?

TAYYEBNIA: Definitely it is one of the main axes for improving transparency. Our banking system is grappling with numerous problems: the problem of capital shortage which I already mentioned; the problem of arrears for which there are numerous reasons; the problem of the Government’s debt to the banking system; the problem of banks’ speculative activities, that is, banks are now being engaged directly in economic and speculative activities.


QUESTION: They are not inclined to get out of these speculative activities.

TAYYEBNIA: Of course, the root of these phenomena has to be found and tracked. Why are the banks drawn towards speculative activities? Is it because banking activity is not profitable? Because the Government has paid back its debt through ceding some assets and belongings in a compulsory method? Because banks are forced to resort to acquiring properties and assets to collect their debts from the debtors? There are numerous reasons why banks are engaged in speculative activities. We tried our best to identify all these [causes] and eliminate the fields leading to banks’ speculative activities. Meanwhile, the banks are obliged to go out of speculative activities within 3 years, and be involved in the economic activities under the principles and criteria announced by the Central Bank.


QUESTION: You mentioned the arrears. There is again the conflict about the precise amount of unpaid loans which is not still identified. As the Minister of Economic Affairs and Finance, please kindly inform us what is the exact amount of the banking arrears?

TAYYEBNIA: I have not taken the exact amount with me to tell you. The arrears are something about more or less 900 trillion Rials (USD 37.5 billion approx.). It can be checked with the Central Bank. Some part of the arrears is related to the unreliable debtors who have been among bad customers of the banking systems; the fines have been stockpiled: the principal and also the interests of the debt. Naturally, they had been able to borrow resources with low-rate interest from the banking system; perhaps, they have not even deployed the loans in their main activities. The figures have been accumulated, and they are not willing to repay their debts.


QUESTION: How much of the amount is related to the small loans available to the general public?

TAYYEBNIA: I do not have the exact figures now with me to tell you. But, there are creditworthy debtors and dishonoured debtors among the debtors.


QUESTION: Which group is bigger, the creditworthy or dishonoured debtors?

TAYYEBNIA: I myself imagine that the dishonoured. It is my own personal comment. Particularly, the unpaid sum indebted by the dishonoured ones adds up to huge figures. I mean the figures are astronomical ones which have been put forth in some media. Well, they had been able to receive these facilities from the banking system under some conditions; at present, they are not that much willing to refund the facilities.


QUESTION: Is there sufficient cooperation right now between banks and the judiciary branch?

TAYYEBNIA: Yes. Let me mention that another group naturally includes the persons who were entangled in trouble under the existing circumstances. A committee has been formed in the Central Bank comprised of representatives from the judiciary branch, from supervisory organisations, from the Parliament, from the Ministry of Economic Affairs and also naturally from the Central Bank. The committee precisely investigates the issue of the arrears and the debtors to the banking system. That is, we check to see whether a given debtor had been engaged in amounts overdue in the past years, or not. This can be traced and thus specified through checking their accounts. Those who are creditworthy people – producers - and are incapable of repaying the arrears due to the existing conditions, we know well to provide them with necessary assistance, [that is] to take measures for rescheduling and instalment of and even forgiving of their fines. However, concerning the debtors who are among the dishonoured ones and do not intend to pay back, both the Government and the Judiciary Branch are determined and cooperating to take necessary measures to collect the unpaid amounts.


 
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