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Radiofarda – In next Iranian budget $800 million has been set aside to deal with the mess created by unlicensed credit institutions; a considerable burden for a country in the throes of an economic crisis.
This sum is equal or greater than the budget of many ministries, but the state has little choice in the matter. If these institutions go under, angry people who would lose their savings might trigger protests and unrest in the country.
The Iranian fiscal year starts on March 21, when it is New Year according to the ancient Iranian calendar. Parliament is grappling with a big budget deficit because of a huge loss in oil revenues.
President Donald Trump’s decision to pull out of the 2015 nuclear deal with Iran and impose sanctions, has indeed fueled an unprecedented economic crisis for Iran. The most immediate impact has been on the country’s oil exports, which finance a big chunk of the budget.
The $800 million outlay comes on the heels of a $300 million appropriation last summer to shore up unlicensed credit institutions.
But running a large economy is a complicated business. As the government feels cornered to pay people for their lost savings in illegal “banks”, it prints money and printing money leads to oversupply of cash in the economy, fueling inflation.
Politician Threatens To Unmask Influential Borrowers Of Defunct Bank
Iran’s inflation at the end of 2018 approached 40% compared with 2017. This has its own negative impact on the value of the Iranian currency, which has dropped three-fold against the U.S. dollar in less than a year.
In the past 12 years, a multitude of credit unions and savings and loans institutions were set up in Iran without obtaining a licence form the Central Bank of Iran. This means, no one checked the financial viability, internal regulations or banking experience of these outfits.
The result was that illegal and unqualified institutions began promising people high interest rates, attracting deposits and then being unable or unwilling to return people’s money, leading to both an economic and a social crisis.
Cheated depositors, often retired or ordinary citizens, held numerous noisy protests, demanding action by the authorities.
Given the sudden outbreak of mass protests in the past one year, the authorities are afraid of creating another reason for people to come out into the streets. This is why they are budgeting hundreds of millions to “deal” with illegal quasi-banks, in the midst of a budget deficit.
But how could unlicensed quasi-banks come into existence and operate? Why the central bank or the courts did not try to stop the illegal activity?
The answer lies in the nature of the country’s political system, which is often based on behind-the-scenes influences brought to bear by powerful actors, such as well-connected religious and military people.
Bankruptcy of ‘Illegal’ Banks Leads To Protests In Iran
Local media and even government officials have reported about the apparent role of Friday Prayer Imams, judges (also clerics), government officials and the children of these influential people in the quasi-banking business.
The former head of the central bank, Vliollah Seyf on December 12, 2017 complained that often courts rule in favor of illegal financial outfits in their disputes with the central bank.
Two days earlier, President Hassan Rouhani emphasizing that it is “very hard” to confront illegal credit unions, had said, “Everyone was putting pressure on us and writing to us form various organs. Strange people were asking for favors.”
This shows that the official government, operating within the presidential administration is not the only power in the land. A network of clerics and in some cases military people can get what they want despite rules and regulation or government decisions.
One politician alleged that the head of a now defunct quasi-bank even engineered an arrest warrant against the chief of the central bank.
One thing is clear. Hundreds of millions of dollars were collected by quasi-banks and no one knows where did the money exactly end-up. The powerful people who helped establish these institutions are behind the scenes and so is the money.
