There is not enough publicly available information to permit an assessment of Iran's compliance with the Code of Good Practices on Transparency in Monetary Policy. However, the International Monetary Fund (IMF) has long stressed the importance of greater independence for the Central Bank of Iran (CBI) in order to enhance both the transparency of its monetary policy activities and its overall credibility. Draft legislation is currently in the works to attain this goal, but it has yet to be passed. The IMF recommends that Iran's monetary policy be less subordinated to fiscal policy, and that greater data reliability can be achieved by harmonizing sectorization, categorization, and residency criteria with internationally accepted standards and principles. In August 2007, the conflict between the CBI and Iranian President Ahmadinejad over his constant intervention into CBI policy, which had already resulted in the president dissolving the Money and Credit Council, the monetary policy-making body of the CBI, led to the resignation of CBI Governor Ebrahim Sheibani in protest.

General Overview

The IMF, in its 2006 Article IV report (published in 2007), noted that Iran's continued fiscal dominance over monetary policy is problematic, and that the government's use of oil revenues has compromised the central bank's ability to meet its economic targets. In its 2004 Article IV report, the IMF had strongly urged that the bank establish realistic targets that were integral to broader, medium-term, inflation-fighting goals. That earlier report recommended greater central bank independence, and the report published in 2007 notes that progress on draft legislation to that end has been made, but nothing has yet been enacted.

The 2004 IMF report also called for attention to be paid to developing a coherent exchange-rate policy that was more supportive of overall monetary policy goals, and asserted that, in monetary policy, inflation reduction was key. The IMF report published in 2007 stated that "greater exchange rate flexibility [was] desirable" (p. 21), and called for structural reforms. The 2007 report cautioned that monetary policy instruments remained weak, and that not enough progress had been made in increasing the flexibility of interest rates, although exchange-rate unification, certain tax reforms and trade regulations, as well as the passage of a new foreign direct investment law were described as good initial steps. The 2007 report also cautioned that the deferral to 2006/2007 of certain expenditures originally included in the 2005/2006 budget would place constraints on monetary policy going forward. All in all, the IMF's 2007 report stressed the importance of tighter monetary policy.

Given the challenges to monetary policy outlined by the IMF in 2007, recent events have raised concerns among economic experts. In August 2007, there were widespread reports by regional and financial news organizations, including the Financial Times, New York Times, Forbes, and others, of conflicts arising from Iranian President Ahmadinejad's populist political agenda and the Central Bank. Ahmadinejad's insistence on redistribution of oil revenues rather than reinvesting, and his intervention in CBI policy by dramatically cutting interest rates led to a confrontation with CBI Governor Ebrahim Sheibani. Sheibani tendered his resignation in protest, and Ahmadinejad announced his acceptance of the resignation on August 26, 2007. Earlier in the same month, the Iranian president had already dissolved the Money and Credit Council, the monetary policy-making body of the CBI.

The Principles

Clarity of roles, responsibilities and objectives of central banks.

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There is no publicly available information that comprehensively addresses Iran's compliance with this principle. Iran's Central Bank (CBI) was founded in 1960, according to the CBI website. The Monetary And Banking Act of Iran (1998) places the responsibility for monetary and credit policies under the authority of the CBI, with the caveat that such policies must be in accordance with the broader national economic policy. The Act sets the CBI's primary objectives as maintaining currency stability, ensuring balance-of-payments equilibrium, facilitating trade, and encouraging Iran's overall economic growth. To achieve this, the Act empowers the CBI to issue currency, supervise financial institutions, formulate foreign exchange policy, and regulate foreign exchange. The CBI also acts as the government's banker. In this capacity, it keeps the government's accounts and acts as the government's lender. The laws governing the CBI are consistent with the principles of the Constitution of the Islamic Republic, the 1979 Banks Nationalization Act, the 1979 Law for the Administration of Banks, and the 1983 Usury-Free Banking Act. In addition, according to the CBI website, the central bank's monetary policy must accord with the government's Five-Year Plan framework. The IMF's "2006 Article IV Consultations" report notes that CBI credibility will be enhanced when current draft legislation according the bank greater independence is finally passed.

Open process for formulating and reporting monetary policy decisions.

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There is no publicly available information that comprehensively addresses Iran's compliance with this principle. According to the CBI website, the banking system is key to the transmittal of information regarding monetary policy to the broader economic system. It does this through a variety of publications, including Economic Trends, Bulletins, an Annual Review, its Economic Report and Balance Sheet, and other periodicals of public interest, including the text of relevant banking laws. The CBI website is intended to be the portal through which interested parties may access information regarding the current monetary policy as well as the Five-Year Plan framework into which the policy is intended to fit. As of August 2007, however, links to these pages were not functional.

According to the IMF's 2000 report on "Recent Economic Developments," monetary policy objectives are set forth in a statement that is usually appended to the annual fiscal budget. The CBI's authority to formulate and execute the policy, and the instruments available to accomplish this, are based on Constitutional provisions, the Monetary and Banking Act of 1998, and other related legislation. Policy instruments include direct management of credit, the setting of reserve requirements, the ability to set rates of return on loans and deposits, the allocation of credit to various sectors of the broader economy, the allocation of government bonds to financial institutions, and setting overdraft penalties. Many of the tools available to the bank, however, are rarely used. In 2007 the IMF repeated its oft-stated recommendation that the CBI be granted greater independence to fulfill its monetary policy formulation and execution functions, and noted that draft legislation to that effect is currently in the works. It has not yet been passed, however.

Public availability of information on monetary policy.

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There is no publicly available information that comprehensively addresses Iran's compliance with this principle. However, the 2007 IMF report notes that, although Iran makes adequate information available for surveillance purposes by the IMF missions, the regular publication of monetary data remains insufficient in coverage, timeliness, and periodicity. Iran does not subscribe to the IMF's Special Data Dissemination Standard, nor does it subscribe to the less rigorous General Data Dissemination System. The report notes that there has been some improvement in reporting upon Iran's informal economy, and that the CBI is attempting to harmonize its GDP compilation and presentation with that employed by the Statistics Council of Iran. The CBI does provide the IMF's Statistical Mission with monetary data on a monthly basis, but there remains a problem with periodicity. Work is ongoing to align the sectorization, categorization, and residency criteria used in compilation with internationally accepted standards. Broad money measures still fail to include certain deposits, namely those of public nonfinancial corporations, residents' currency deposits, and the deposits of local governments. The CBI does follow the principles of the IMF's Balance-of-Payments Manual (5th edition). Iran does not disseminate data on its international investment position. The data on public and publicly guaranteed debt, while disseminated, is compiled and provided in a format inconsistent with accepted standards.

Accountability and assurances of integrity by the central bank.

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There is no publicly available information that comprehensively addresses Iran's compliance with this principle. The IMF's 2004 Article IV Consultation made the point that credibility in achieving realistic monetary policy targets was crucial, and that this depended on greater CBI independence. Nonetheless, by the 2007 publication of the IMF's the 2006 Article IV Consultations report, a significant problem in assuring accountability and integrity on the monetary policy side remains the Central Bank's lack of independence and the continued intermingling of fiscal and monetary policy. Discussions are ongoing regarding the drafting of a new Central Bank law, but there is no publicly available information regarding the specifics of the envisaged legislation. Discrepancies between fiscal and monetary data dealing with deficit financing, largely due to the use of inconsistent reporting categories, render monetary data less than reliable. There is no publicly available information regarding the appropriateness, applicability, or enforcement of such integrity controls as codes of conduct or legislation regulating conflicts of interest on the part of officials, beyond the requirement that high-level officials make a public declaration of their assets.