IMF encourages economic reform in Iran post-sanctions

Already, Iranian officials are planning for the new post-sanctions economic order, but many obstacles remain in their path. The first is the impact of low oil prices – which severely hampers the short term revenue that can be raised from re-entry into the global oil markets. The second is the sanctions relief schedule, which is still being debated by the domestic governments of the P5+1 powers, who are arguing that more stringent inspections should be demanded and sanctions relief awarded for compliance with these measures.

But now the larger issue is that fiscal and economic reforms appear to be the major stumbling block for attracting foreign investment. The Oil Ministry has been busy awarding contracts to domestic exploration and drilling companies associated politically with Revolutionary Guard alumni, and IOC’s (international oil companies) like Total, Eni, and Royal Dutch Shell are protesting that the decision appears to be mostly political and not economic – in addition to the corruption problem, they are also cautious not to violate any sanctions that may remain in place during the relief process, which would still result in hefty fines.

The IMF’s Middle East and Central Asia Department head, Maritn Cerisola, said that officials need to make structural changes to their regulatory structure, recommending the withdrawal of subsidies, reducing public sector debt, and pursuing a more prudent monetary policy. Cerisola and the IMF team will be issuing their own annual review of the economy in December, but so far, the tone of their remarks as well as those of Western companies is negative.

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News Briefs:

  • Ukraine and Kazakhstan’s leaders will meet in Astana to discuss the implementation of the Minsk II Accords agreed this past February. Kazakh President Nursultan Nazarbayev is increasingly acting as a go-between for Russian officials and Kiev, a product of Kazakhstan’s relatively positive image throughout the world thanks to its “multi-vector foreign policy” that has established trade relationships throughout the region.
  • The construction of first US embassy in Turkmenistan has begun this week. US Ambassador Allan Mustard along with the Mayor of Ashgabat broke ground on the 5th of October during an official ceremony. The “campus” will include multiple buildings and is anticipated to be completed in July 2018 – until recently, with the appointment of Mustard, relations between Turkmenistan and the US consisted of human rights accusations, but this newest step seems to be paving the way towards a larger footprint in the country.
  • Government officials in Tajikistan have arrested two dozen members of the opposition party, the Islamic Renaissance Party of Tajikistan (IRPT) shortly after declaring it illegal to belong to the party several weeks ago. Prosecutors claimed that the IRPT hatched the alleged attack plans along with the former deputy defense minister General Nazarzoda, who was killed in a showdown with security forces late last month. The IRPT maintains that it had no association with Nazarzoda, which is the contention of most Western observers who claim the event is being used as an excuse to clamp down on dissent.
  • The Diplomat has a great article examining how real the threat of the Islamic State expanding into Central Asia is – while a common theme among most reporting in the region, the article contends that especially in countries like Tajikistan, the despotic government is taking advantage of the threat of a globalized Islamic State to clamp down hard on its own opposition party, the Islamic Renaissance Party of Tajikistan (IRPT). As such, the critical consensus by human rights organizations and even Western governments that are asked for aid is that the threat is largely exaggerated.
  • The Russian economy minister, Alexei Ulyukayev says growth will return in 2016, thanks to Russia’s status as an export-driven economy and success through RCB rate increases and adjustments to adjust to the new economic reality quickly. However, while Russia’s forecast for the remainder of 2015 is in alignment with the more sober assessments from the IMF and the World Bank, they contend that 2016 is unlikely to bring any growth, an assessment that Ulyukayev conceded “if oil prices slide lower to an average of $40 per barrel over the next two years.”
  • The development of rail transportation infrastructure in Central Asia has led many European and Chinese logistics operators into the region, including DB Schenker, profiled in this article. Of primary importance to most business entities in the region is an overland rail transportation corridor between China, Russia, and by extension Europe, that does not require the use of either ocean or air corridors. Trial runs through the old Soviet rail networks in Central Asia were initially not promising – due in part to the high trade restrictions between the five Central Asian republics. Going east, according to DB Schenker is mostly automotive parts, perishables, and industrial goods – going west are electronics, fashion, and toys.

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