Moody's rates Iran foreign currency bonds
NEW YORK, June 10 (Moody's press release) - Moody's assigned a B2 foreign
currency ceiling for bonds and notes to the Islamic Republic of Iran and
a B3 ceiling for foreign currency bank deposits.
The long-term domestic currency bonds issued by the government were
rated at Ba2. The B2 ceiling reflects a weak economic structure that is
prone to balance of payments crisis when oil prices collapse.
Iran has rescheduled its bilateral debt twice in the last decade because
of a decline in oil prices and the lack of external financing alternatives,
which was partly a result of the hostile posture adopted by the United
States.
In the immediate future, the balance of payments will retain some of
the vulnerabilities that led to those past reschedulings.
The rating also acknowledges that Iran has shown a willingness to regularize
its payments and has taken strong economic measures to repay external obligations.
Placing Iran in the center of the single-B category also takes into consideration
domestic political transformations, which are permitting a reorientation
of Iran's foreign policy.
This in turn is leading to higher levels of bilateral external flows
-- and possibly even a resumption of multilateral lending -- which could
cushion the balance of payments in the event of an external shock. These
flows, together with a substantial amount of foreign direct investment
into the prolific oil and gas sector, could be the engines of growth beyond
the current stabilization period.
This would also set in place the conditions for a more rapid structural
transformation of the economy, which policymakers envisage would take place
during the Third Five Year Plan (2000/2001-2004/2005). Given President
Khatami's recent successes on the home front and abroad, and the cordial
reception he has received from Iran's former enemies and detractors overseas,
it appears that the likelihood of putting Iran on a new, externally financeable
growth path is better than at any time during the twenty years since the
revolution.
A broadly based government, a stable political system, and a reform
process that is promoting greater democratization will support the transformation
of the economy. Undoubtedly, the current government faces considerable
obstacles, partly because of entrenched economic and political elites and
institutions that utilize the rigidities built into the Iranian constitution
to protect their prerogatives.
The most serious shocks would be those intended to set back the process
of improved relations with Iran's neighbors and their strategic allies.
However, the growing youth component of the population and the ground swell
of public dissatisfaction with economic and social stagnation, properly
channeled by the current reformist government, appear to be breaking down
the resistance of the opposition.
The B2 rating anticipates an uneven process of transformation and some
degree of volatility in Iran's external relations. The Ba2 domestic bond
rating takes into consideration the generally prudent fiscal policy of
the government, even during times of external stress.
This is reflected in the generally low level of domestic debt it has
accumulated. However, part of the explanation is the weak capacity of the
state-run banking sector to mobilize sufficient resources and the fact
that the government was willing to monetize the deficit and as a consequence
see inflation rise to double-digit levels.
A reduction in subsidies and the unification of the exchange rate will
be essential to put the budget on a stronger footing, along with less dependence
on externally generated oil revenues. This will have to await the reforms
envisaged under the Third Five Year Plan.
Links
