The CBI governor asked for the IMF support and assistance to expedite the Iranian reintegration with the international banking system and to provide technical assistance with regard to AML and CFT

According to CBI PR department, in his meeting with the IMF First Deputy Managing Director David Lipton, Valiollah Seif the governor of the central bank of Iran referred to the positive relations between Iran and IMF and added, “Fortunately, the central bank of Iran has always maintained regular relations with IMF and we anticipate that such relations will result in positive outcomes”. He emphasized that despite restrictions, the Iranian economy has gone through some reforms. “Reduction of inflation rate from a peak of 40% to about 12%, reversing a negative growth rate into a positive one in 2013, and 3% in 2014, and a point-to-point inflation of 7.4% are among the main achievements of reforms”, he said, “The CBI is determined to continue the decreasing trend of inflation until it touches single digits”
 

 
Regarding employment of monetary policy to stimulate demand during the 6 months before JCPOA, the CBI governor stated that the CBI attempted to transform an expectation-based stagnation into mobility. “This attempt led to an increase of liquidity from 23% in 2013 to 30% in 2014”, said the head of Money and Credit Council. Pointing to the limited capacity of Iranian financial system, Dr. Seif maintained, “At the time being, we are experiencing a finance shortage and about 50% of the bank assets are inaccessible for facilities. About 15% of this amount includes NPLs while other 18% and 15% incorporate claims against government and non-operational financial assets, respectively.”
He mentioned that the government owes Rials 5000tr. to the banking system which accounts for 40% of GDP. “Both government and the CBI endeavor to develop a suitable debt market so that the government debts would be funded and the CBI would be provided with powerful instruments to implement its monetary policies”, he continued.
Pointing to the interest rate of 29% in the past, the CBI governor stressed that the CBI had played a crucial role in inter-bank market to reduce the interest rate to 22%, “However, it is still far behind the optimal level”, he added. “Despite the descending trend of inflation, the interest rate suffers from stickiness and failed to move downward”.
He also referred to the necessity to remove the inefficient firms from the economic cycle and said, “We need to accept the failure of inefficient firms. A declaration of bankruptcy brings about the minimum advantage of prevention from wasting resources”.
 

 David Lipton congratulated the Iranian government for its efficient management of economy during the hard times before JCPOA and added, “Not only was the Iranian economy put under control but it also progressed. Iran faces unique opportunities after the JCPOA and may integrate deeply with the global economy.”
Pointing to the IMF assistance to return Iran to the international banking system, David Lipton emphasized that the IMF is prepared to provide Iran with assistance concerning AML and CFT. “In fact, Iran and other world countries demand some reforms and we are determined to offer the necessary assistance”.
He highlighted the experience of Latin America, Central Europe, and Africa in using monetary policies and instruments. “Whenever the world countries tried to solve their structural problems by monetary policies, they ended up in more severe problems. Iran should, therefore, focus on structural reforms. Liquidity injection and creating NPLs are among factors which contributed to Asian financial crises”, he said, “Solving the problem of unrecoverable bank assets through liquidity injection may seem justifiable in the short-term, however, the long-term outcome will be nothing. Related parties may receive facilities and once again transform them into NPLs. This vicious cycle continues. The banks will rely heavily on the government and expect the government to bail them out during crises.”
Lipton referred to the higher efficiency of the banks in every economy. “A banking system may prove its efficiency to the extent that it allocates its available resources in the best manner and grants them to economic activists.” he concluded.
As his bottom-line advice, Lipton recommended that the CBI focus on continuation of inflation reduction, creation of financial stability, and prevention of liquidity increase to an uncontrollable level. “The debt market needs to deal with the 15% bank assets that are inaccessible in the form of NPLs in the first place”, he said referring to development of a debt market in Iran.