Economic crisis lurking in the system
Iranian banks are bankrupt
According to Iran Gate’s report on Iran’s economy, the pre-crisis economic situation in the system has faced numerous significant crises, each of which has the potential to seriously challenge the government. However, reports from the Central Bank indicate a creeping crisis beneath the surface of Iran’s economy, which is expanding rapidly but silently.
The Central Bank’s report on the repo market in December 2022 is a serious warning sign for the Islamic Republic system. So far, any crisis that has grown and thrived within Iran’s economy has gripped the ordinary people of the streets. But if no attention is paid to the crisis that has taken hold in every aspect of Iran’s banking system, it is the government itself that will face a comprehensive crisis.
Reports on repo operations indicate a creeping and escalating imbalance in the banks, which are essential pillars of Iran’s economy. Economists believe that if this trend continues, the likelihood of Iran’s economy facing a complete collapse is very high.
What is the repo issue all about?
What is the story of the post-crisis?
Recently, the Central Bank has published a report on the trend of repo operations in December 2022, which has turned into a bitter equation for Iran’s economy. In summary, what can be inferred from this report is that there is a very widespread and unprecedented imbalance in the country’s banking system, which is intensifying at a very high speed.
Looking at this report, it can be observed that the volume of repo transactions on December 19, 2022, has been the highest since the beginning of this market. The value of these transactions on December 19 has also exceeded 113 trillion Tomans, which is considered a heavy record in this market.
Analyzing the trend of repo transactions from mid-Azar to the end of December also indicates an unprecedented surge in this market. In fact, for the first time, the daily value of repo transactions in this time period has exceeded 100 trillion Tomans, which has raised concerns among experts.
Record-breaking money creation in December 2022
In a report published by the central bank about repo operations, another very important point has been highlighted. The weekly money creation statistics, including the systematic borrowing of banks from the central bank, as well as borrowing from other banks and financial institutions, have raised concerns. This amount, which records the speed of government borrowing from banks, indicates an increase in borrowing.
Overall, in the month of Dey 1401, the amount of money creation has exceeded 21 trillion tomans, which is unprecedented. This astonishing and highly concerning record can be like a ticking time bomb in the heart of Iran’s banking system, a bomb that could explode at any moment and the bankruptcy of banks and financial institutions is just one of its devastating consequences.
Imbalance of banks and government mismanagement
Once again, the budget deficit remains unresolved. The government has so far borrowed from the central bank, either directly or indirectly, with the aim of compensating for the budget deficit. This borrowing, as has been repeatedly stated, has had detrimental effects on the economy, with its public manifestation being the increase in inflation rate.
But until when will governments have the possibility to continue borrowing? As the saying goes, in order to borrow from a source, that source must always be full. In other words, when banks go bankrupt, there will be no resources for the government to dip into and borrow from.
On the other hand, the risk of social unrest is very high if banks declare bankruptcy. There have been instances where banks like military banks, future capital banks, and financial institutions that have either gone bankrupt or were on the verge of bankruptcy faced the risk of depositors’ attacks. Now, if the banks’ mismanagement, which according to the repo operations report in December is rapidly expanding, is not stopped, it will undoubtedly intensify the flames of social tensions more than ever before.
Every government has its own priorities.
Economists believe that if no thought is given to this issue, we will definitely have to wait for an unprecedented wave of protests that will not be motivated by political or even livelihood reasons. In this case, even influential government and private companies, as well as small and large investors, will be affected. In fact, it can be said that if this time bomb is not defused, the beneficiaries of the flawed economic system of Iran will also join the ranks of protesters, who have so far benefited from the flawed economic structure. However, this situation will no longer be in their favor.
That is why in the leaked audio file of the conversation between Mohammad Mokhber and Mohammadreza Farzin, the first deputy of the president, Mokhber emphasizes that addressing the problem of bank irregularities is much more important than providing resources for paying retirees’ salaries. In other words, Mokhber is concerned that the government will no longer be able to meet its employees’ salaries and current government expenses by dipping into the banks’ pockets.
Persian
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