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    Cash-strapped Iran facing difficulty in repaying foreign debt

    TEHRAN, Nov 18 (AFP) - The severe recession in Iran, which has been exacerbated by rock-bottom oil prices, has left both the public and private sectors struggling to pay off some 11 billion dollars in foreign debt.

    "There's a cashflow crisis," said one foreign banker. "And that's official."

    Bankers are seeing a sharp rise in debt defaults and foreign firms in Tehran have been deluged with requests for delays in loan repayments.

    Iranian companies are said to be having difficulty obtaining hard currency from the government, which according to Western sources is struggling to service its debts to three principal creditors -- Germany, Italy and Japan.

    Tehran has asked the trio for a three billion dollar loan to help meet its financial commitments.

    Italy, Iran's second largest trade partner in Europe after Germany, has agreed to extend a 1.2 billion dollar line of credit but reportedly wants the money used for investments rather than for meeting current expenses.

    Germany and Japan have given no firm reply to Iran's cash request, hesitant to commit funds to a country that has failed to introduce key reforms to an economy almost wholly dependent on the sale of oil.

    Crude expors account for 80 percent of Iran's hard currency earnings, which have fallen off dramatically as oil prices hover around a 10-year low.

    The government had estimated oil revenues this year on a price of 16 dollars per barrel, but with crude trading at around 11 dollars per barrel Iran is facing a budget shortfall of some 6.3 billion dollars.

    Observers estimate that Iran loses a billion dollars a year in revenue for every dollar drop in the price of oil.

    The government has been forced to borrow money from the central bank as well as take advances on future oil sales in an effort to pay wages and finance the very development projects it intended to create new jobs.

    The unhealthy state of the economy has also taken its toll on the Iranian rial, which was trading at 6,200 to the dollar in mid-October but is now at more than 7,000 as the demand for hard currency grows.

    For its part the government has said that as much as a third of the Iranian economy is underground, further adding to the nation's financial woes.

    In an unusual step to scrape together money, the government is even selling exemptions from Iran's 21-month compulsory military service. For 1,500 to 2,500 dollars, school and university graduates can buy a peace- time exemption.

    But those numbers are unlikely to make a significant impact on the stuttering economy, which is seeing a flow of money into gold and jewellry as consumers demonstrate little faith that economic reforms will take hold.

    The government's efforts to diversify revenue sources have failed, and non-oil exports and tax revenues remain stagnant in the face of the sharp recession, now well into its second year.


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