Business | Opinion
Profligate Tehran wasting oil wealth
Various organisations vie for extra cash as Iran's crude stabilisation fund rakes in money.
- By Najmeh Bozorgmehr, Financial Times
- Published: 23:43 August 26, 2008
Billions of dollars of surplus revenues in Iran's oil contingency fund are fuelling competition in the government of Mahmoud Ahmadinejad, as various organisations vie to demand extra cash.
The central bank has urged parliament to approve the withdrawal of $15.7 billion of the accumulated funds to recapitalise state-owned banks and enable them to pay their debts.
Iranian banks have seen their lending capacities shrink partly because in the past few years Ahmadinejad's government has obliged them to offer cheap loans to the poor.
Oil officials have hinted that they need $8 billion to import petrol, while the labour and industry ministries have asked for $5 billion to supply factories with raw materials.
Other elements of the government hope to win about $4.7 billion to import basic commodities, according to local press reports.
The Oil Stabilisation Fund was established in 2000 to collect windfall earnings. But the OSF's assets are a mystery.
Iran's central bank, which manages the fund as part of its foreign assets, declined to comment.
The International Monetary Fund, in its latest report on Iran, called for "transparency" and suggested that an OSF website be created to post information on the value of the fund, which could be updated regularly.
Independent economists believe that Ahmadinejad's government has raided the fund in order to finance populist policies, exploiting record oil revenues. According to the National Iranian Oil Company, oil revenues hit $54 billion during the first half of this year.
Trustees fired
The fund's board of trustees has been dissolved. Bayazid Mardoukhi, who was the board's secretary, estimates that $70 billion was channelled into the fund in the past three years but that $45 billion has been spent by the government.
Many economists say the additional spending is the cause of current record liquidity and of an inflation rate that is more than 26 per cent.
In May Ahmadinejad dismissed the board of trustees, the fund's watchdog, and handed responsibility to the economic committee of the cabinet. The official explanation is that the move was part of efforts to minimise the size of government. Analysts rule this explanation out and suspect that Ahmadinejad was instead seeking to loosen independent control of the fund.
According to Mardoukhi, dissolving the board turned ministers who used to be members of the board from its "guardians" into "technocrats" who try to find ways to disburse the money.
If the initial goals of the OSF's "double function as a strategic and investment fund" had been observed, he says, there should be $150 billion in the fund.
According to five-year development plans, the OSF can be used only to cushion the budget against falling oil prices or lower output and to grant loans to the private sector.
But central government has adopted a bargaining approach and convinced parliament to overrule previous laws and allow them to finance daily expenditure and fill the budget deficit.
Meanwhile, the expediency council, which drafts macro-economic policy as part of its advisory role to Ayatollah Ali Khamenei, recently approved a plan to convert the OSF into a national development fund.
This proposal has yet to gain the approval of Ayatollah Khamenei, the supreme leader, and parliament. Under the proposals, the national development fund will attract 30 per cent of Iran's oil and gas revenues plus any oil sales above $100 per barrel.
It will lend no money to the government unless oil prices fall below $70 per barrel. Loans can be extended only to the private and non-governmental sectors to expand production and development.
Some analysts believe changes in the fund's name and functions will do little to stop governments of whatever stripe eyeing the fund.
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