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Oil windfall shifts Iran's economy into growth mode

By Peg Mackey

LONDON, Sep 30 (Reuters) - Robust oil prices are swelling Iran's coffers by unexpected billions -- putting the key oil producer well on the road to economic recovery, Iran's Central Bank Governor said on Friday.

``Higher oil prices will really help us speed up investment, reduce unemployment and accelerate our economic growth,'' Governor Mohsen Nourbakhsh told Reuters in an interview. The Central Bank chief expects strong oil prices to generate about $7-$8 billion of extra income for Iran this year. That's on top of budgeted oil export earnings of $11.5 billion.

``That money is not going to be idle,'' Nourbakhsh said. ``(Some of) it will be used for the purpose of investment and export activities.''

As international oil prices hover at 10-year highs of near $30 a barrel, Iran's crude oil exports of some 2.4 million barrels per day have been fetching around $26 a barrel -- well over the forecast $14.5 per barrel.

The extra billions initially will pour into Iran's special oil stabilisation fund -- set up under its five-year economic plan to protect the economy against unpredictable drops in the price of oil, Iran's main hard currency earner.

``This is the ultimate goal,'' said Nourbakhsh. But some of the reserves will soon be freed up to help speed investment and reduce unemployment, he said.

Iran's parliament has been asked to approve a partial release of the unexpected oil profits to provide private sector loans for investors wanting to export and earn foreign exchange and for portfolio management on a different asset to create earnings for the account, he said.

Billions of dollars were likely to be released from the stabilisation fund, Nourbakhsh said.

``Yes, I think it would be in that amount, but I can't give an exact figure because we have to stabilise the budget as a first priority and then proceed from there.''

The Central Bank Chief said the cash injection would happen soon.

``We didn't expect that money to be generated this year -- our expectation was for next year, he said. ``So we asked the Parliament to give us permission so this fund and its operation can start immediately.''

He was expecting no protests from the reformist Parliament, which is to take up discussions within a month.

``The main idea is already in our third five year plan -- but the only thing is the timing -- it was supposed to start next year, so they are just changing that to the current year.''

Releasing some of the stabilisation fund could only spell good news for Iran's economy, Nourbakhsh said.

``I think it helps a lot in terms of our growth rate,'' he said. ``We expect to have more assurance of achieving our six percent GDP growth target, a better chance of tackling our unemployment problem and at the same time to have a stable macro-economic framework.''

To manage the fund, a special committee has been set up with high level representation from the Central Bank Governor, Minister of Finance and the Vice President in charge of planning and organisation.


Iran is meanwhile about to welcome foreign investors back to its stock market for the first time since the 1979 Islamic revolution.

``We are working on the criteria for investment and I hope within a month and a half we will announce them,'' Nourbakhsh said. ``I have already asked the people in charge to prepare the documents and they are working on that.''

Foreign investors could put their money into the Tehran Stock Market immediately following the release of the investment guidelines, he said. They will include a minimum time requirement for investment.

Nourbakhsh said he was aware that some foreign investors already were ``informally'' active on the stock market through Iranian companies. They will soon have the opportunity to come out of hiding.

``To make this transparent and clear, we thought it would be better to prepare a special framework for how foreign capital can come to the stock market.''

Iran's drive to modernise its banking system by issuing licenses to private banks for the first time in more than 20 years was also gathering pace.

``There is strong demand for permits to establish private banks,'' said Nourbakhsh. ``We are going to have private banks shoulder to shoulder with public banks. In this way more competition is going to be created.''

Foreign banks are still not allowed to operate inland, but they can operate in Iran's free trade zones. Nourbakhsh said the authorities in the zones were supposed to negotiate with interested parties.


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