[R-G] FT: Reshuffle Displaces Iran Bank Governor

[Yoshie Furuhashi]

<http://www.ft.com/cms/s/0/91f04328-53f9-11dc-9a6e-0000779fd2ac.html>
Reshuffle displaces Iran bank governor

By Najmeh Bozorgmehr in Tehran

Published: August 26 2007 18:32 | Last updated: August 26 2007 18:32

Ebrahim Sheibani, Iran's central bank governor, resigned on Sunday as
part of a continuing cabinet reshuffle that has included the oil and
industry portfolios.

Analysts said the reshuffle appeared to be an attempt by President
Mahmoud Ahmadi-Nejad to take advantage of higher oil revenues to speed
up implementation of his populist policies, including the lowering of
bank lending rates.

Mr Ahmadi-Nejad's pledge to offer cheap loans to lower-income people
during his high-profile provincial visits is viewed as potentially
decisive in retaining the electorate's support.

Iranian news agencies repor­ted on Sunday that Tahmasb Mazaheri, a
former economy minister, would be appointed the new central bank
governor on Tuesday. Mr Mazaheri is believed to be more sympathetic
than Mr Sheibani to the reform of bank regulations advocated by the
president.

One economist described Mr Mazaheri's appointment as "bad news" for
the money market, because of his support for the further lowering of
bank rates and wealth re-distribution. "He may even try to run ahead
of the government," said the economist.

In May Mr Sheibani opposed the government's policy of lowering bank
lending rates to 12 per cent from 14 and 17 per cent by state and
private banks respectively. Mr Ahmadi-Nejad directly intervened to
enforce the new rate despite strong opposition by bankers that it was
two digits below the official inflation rate and much below a real
inflation rate estimated to be at least 20 per cent.

Critics argue that banks cannot weather the multi-billion-dollar
loans. But those arguments have fallen on deaf ears.

"Our [state] banks are in fact loss-making now," one banking official
said. Mr Sheibani opposed the rate cut but "agreed to carry out the
policies in order to keep his position", Mansour Bitar­af, the editor
of Jahan-e Sanat, a business daily, said. "Yet, that opposition slowed
the process," and therefore it was "not acceptable any more".

The change at the central bank is the third cabinet move this month
after Iran's oil and industry ministers also "resigned". There have
also been some changes at deputy ministerial level and the elimination
of several key policymaking bodies.

Iran's president shocked economists by dissolving the Money and Credit
Council, a monetary policymaking body, this month. That followed the
scrapping of the Management and Planning Organisation, the backbone of
planning and budgeting for six decades, last month.

Analysts see the moves as aimed at overcoming opposition within
government to excessive spending of Iran's oil income.

Iran earned $54bn (€39bn, £27bn) in oil revenues during the last
Iranian financial year that ended on March 20. The deputy central bank
governor, Mohammad-Jaafar Mojarrad, told the FT last week that oil
windfalls collected in a contingency fund would surpass last year's
$9bn by the end of this Iranian year.

"This government is getting richer every hour," said one western diplomat.

Some economists suspect the government is trying to win back popular
support dented by moves to ration petrol in June and by continuing
high inflation, unemployment and liquidity rates.

"It does not really matter who are the new figures and it is hard to
detect a new trend or strategy," said Saeed Shirkavand, a former
deputy minister of economy. "The recent changes represent the
government's admission of failure and effort to find the ones to
blame.

--
Yoshie