The Economy Was Killed in Baharestan
The economy was killed in Baharestan. The bills and proposals that the eleventh parliament has passed in the past three years have become the most controversial laws that have had irreparable effects on Iran’s economy. However, economists believe that the recent parliamentary proposal known as the Banking Law is separate from all the destructive legislations that the revolutionary representatives have turned into law so far. The damage range of this law is such that some believe that if this law is implemented, even the current weak banking system in the country will be paralyzed.
In recent weeks, many prominent economists and banking experts have voiced sharp criticisms of this proposal. Among the most notable figures who expressed their objections to the Banking Law are Farhad Nili, Ahmad Azizi, Ahmad Hatami Yazd, Akbar Komijani, Bahaeddin Hosseini Hashemi, Alireza Tavakoli Kashi, and Hojatollah Saeedi.
These criticisms were so harsh and biting that even Farhad Nili, in a meeting arranged to review the same law, used the thought-provoking phrase ‘the fate of citizens being decided in Baharestan Square.’ Iran Gate, in this report, addresses the flaws and controversial aspects of this sensational proposal.
What are the main criticisms of the Banking Law?
１ Violation of Central Bank Independence
The biggest criticism that economists have against the Banking Law is very fundamental and foundational. Experts and banking sector activists believe that the approval and implementation of such a law will undoubtedly result in nothing but the discrediting of the Central Bank and the position of its presidency. Although the structure of Iran’s economy essentially does not recognize the independence of the Central Bank.
However, overall, at times we have witnessed constructive resistances from the Central Bank governors, rooted in their insistence and persistence on implementing laws. But if this law is implemented, the groundwork for the legal and official independence of the Central Bank will be provided, and future governments will have no reservations about dipping into this institution’s pockets.
By taking a closer look at this issue, it can be said that this proposal places the managers of various governing bodies in the position of capitalists and the Central Bank governor in the role of a CEO, facing each other. In fact, the Central Bank meetings will turn into a general assembly where government officials, as shareholders, can challenge the governor and each demand their share from him.
As mentioned, the implementation of such a proposal primarily violates the independence of the Central Bank and then reduces the position of the Central Bank governor to that of a CEO of a financial institution who must answer to shareholders.
２ Inflation Intensification with Government Dominance over the Monetary and Banking System
According to experts, the recent parliamentary proposal strengthens the government’s dominance over the country’s monetary and banking system more than ever. As mentioned in the previous section, the violation of Central Bank independence will be the most significant harm from implementing such a proposal, but it should be noted that this violation of independence means the government’s control over monetary policymaking.
In simpler terms, the government can dip into the Central Bank’s resources whenever it pleases to cover its budget deficit. In other words, the parliamentary proposal will legally and officially establish the government’s dominance over the country’s monetary system, meaning that the monetization of budget deficits by governments, if this proposal is implemented, will be entirely in line with legal mechanisms.
This is while, until now, despite governments’ encroachments on Central Bank resources, this institution ultimately reported these encroachments. On the other hand, some Central Bank governors had the courage to stand against the unreasonable and illegal demands of governments. But this proposal marks the end of financial discipline and practically legalizes the encroachment on national and public resources.
The tangible and concrete result of this very dangerous transformation is nothing other than the intensification of inflation caused by money printing. In fact, Ebrahim Raisi’s government intends to fully legalize climbing over the people’s walls and remove obstacles in its path by enacting arbitrary laws. Many experts also believe that the appointment of Saleh Abadi as the Central Bank governor is precisely because he fully obeys the government and shows no trace of courage to stand against the government’s illegitimate demands.
３ Islamic Banking and the Intervention of the Fiqh Council in Policymaking
Another controversial aspect of this law is the issue of expanding and promoting the principles of what is called Islamic banking. The focus of this issue is the implementation of interest-free banking rules, which have been discussed in Iran’s economy for about 40 years but have never been fully implemented. However, economists believe that what is known as Islamic or interest-free banking in Iran is fundamentally impractical.
On the other hand, experts attribute some of the banking system’s shortcomings to the incomplete implementation of interest-free banking principles. Principles that, if fully implemented, could have widespread and devastating consequences for the country’s economy.
Perhaps this is why Farhad Nili referred to the approval of this proposal as determining the fate of Iran’s children in Baharestan. In recent weeks, the presence of more than 20,000 clerics in bank branches has been discussed, rooted in the provisions of this same infamous law. On the other hand, if we witness the implementation of this law in the country’s banking system, a position equivalent to the Central Bank governor will be practically defined for the Fiqh Council, which could violate the independence of this institution.
Moreover, implementing such a law means the introduction of unprofessional and destructive interest-free banking provisions into the country’s banking system. It should not be forgotten that economists believe one of the reasons Iran has one of the highest interest rates in the world is precisely the half-hearted implementation of these Islamic banking rules that were prepared and formulated in previous decades.
It should be noted that the Iranian-Islamic banking model implemented over the past four decades is not even accepted by Muslim countries. In other words, the inefficiency of the interest-free banking model is not only clear and evident but also the insistence of the parliamentary proposal on its continuation and expansion is nothing but sheer ignorance.
Who is Behind the Banking Law Disaster?
According to information obtained by Iran Gate, several names stand out among those who played a pivotal role in drafting and approving this proposal. Among the most important of these names are Gholamreza Mesbahi-Moghadam, head of the Fiqh Council; Mohammad Hossein Hosseinzadeh Bahraini, a member of the Central Bank’s Fiqh Council and a representative of Mashhad in the parliament; Hassan Agha Nazari, a member of the Fiqh Council and a member of the Society of Seminary Teachers of Qom; and Ali Saleh Abadi, the current Central Bank governor and Mesbahi-Moghadam’s son-in-law.
Observations by some informed sources from the parliament’s Economic Commission sessions indicate a pivotal role played by Mohammad Hossein Hosseinzadeh Bahraini, a Mashhad representative and a professor at Ferdowsi University, in the process of drafting and approving the Banking Law. It seems that many representatives and even members of the Economic Commission do not agree with this proposal, but due to the balance tipping in favor of Bahraini, no one has succeeded in stopping this proposal.
On the other hand, the significant role of Gholamreza Mesbahi-Moghadam as the main orchestrator of this affair cannot be overlooked. It should not be forgotten that there are also rumors about a family connection between Mesbahi-Moghadam and Ali Saleh Abadi. Although Mesbahi-Moghadam denied the existence of such a connection, sources within the government confirm it, although a look at Saleh Abadi’s career also strengthens the possibility of such a relationship.
Because during his presidency of the Stock Exchange Organization, he also established a committee called the Fiqh Committee of the Stock Exchange and Securities Organization. Many capital market activists also believe that Mesbahi-Moghadam played a pivotal role in creating this committee. In other words, wherever Saleh Abadi has worked, traces of Mesbahi-Moghadam can be clearly seen, traces that are now clearly recognizable at the Central Bank, and if the Banking Law proposal is finally approved, Mesbahi-Moghadam will effectively have complete control over the Central Bank and its governor in his position as the head of the Fiqh Council.
It can practically be said that the banking law disaster is the handiwork of the Mesbahi-Moghadam, Saleh Abadi, and Bahraini triangle, with Mesbahi-Moghadam at its head. In summary, if this triangle succeeds in implementing its plans, we will certainly witness the disintegration of the country’s monetary and banking system and, consequently, the economic collapse of the country in the not too distant future. Although the roles of Ebrahim Raisi and Mokhber should not be overlooked in this context.
In fact, this proposal will not only bring benefits to the three mentioned officials but will also make it easier than ever for Ebrahim Raisi and his government to encroach on Central Bank resources, resulting in nothing but corruption and economic collapse for Iran.
Other exclusive reports and analyses by Iran Gate related to this article
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- Fact-Checking the Claims of Government Supporters