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Domestic Economy
Thu, Feb 12, 2009

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Domestic Economy
Middle East
Art & Culture
Trade With Turkey In Local Currency
Islamic Banks More Resilient
Oil Tanker Fire Extinguished
Pragmatic Partnerships
Oman Gas Deal Sealed
Call for Prioritizing Vision 2025
High-Level Meeting on Turkmen Ties
HPCL to Triple Crude Imports

Trade With Turkey In Local Currency
Turkey and Iran presently enjoy more than $10 billion in trade.
Turkish Foreign Trade Minister Kursad Tuzmen said Ankara seeks greater trade with Iran in national currency.
Speaking at a ceremony on Tuesday in Ankara to mark the 30th anniversary of the victory of Islamic Revolution, the Turkish minister added that talks are underway between his country’s treasury, central bank and affiliated organizations to replace foreign currency with national currency in bilateral trade with Iran.
According to IRNA, studies are currently underway to enable Turkish exporters to use the local currency of neighboring countries instead of the US dollar when engaging in foreign trade.

Regional Focus
Tuzmen said Turkish exporters trading with Russia recently demanded to use the Russian ruble in their trade, suggesting that exports would increase in this way.
“Some Iranian exporters have recently suggested using the Turkish lira in their trade with Turkey. We are evaluating such requests,“ he said, adding that they have studied examples of similar applications in other countries.
Stressing that exports should continue so that the negative impact of the current global financial crisis on the Turkish economy can be minimized, the minister said the government is determined to do everything it can to support Turkish exporters.
Turkey intends to use the resources of the Turkish Eximbank, a state-controlled bank established to support exports.
Tuzmen stated that visits to Egypt and Iran are expected before the end of January as part of government’s efforts to boost trade relations with its neighbors and other regional countries.
“We will meet with government officials and representatives of the private sector in these countries,“ Tuzmen said, noting that some Turkish exporters will be accompanying him during the visits.
“I believe the meetings will prove beneficial to all sides.“
As Turkey’s main export markets in the EU and Russia shrivel and Turkish exports are rocked by the global financial crisis, the country has been intensifying its quest to diversify export markets and reduce dependency on its traditional trading partners.
Tuzmen’s trip to Iran with a delegation of 160 businessmen can be seen as part of this search to diversify markets.

Bilateral Trade
Turkey and Iran presently enjoy more than $10 billion in trade. This marks a dramatic improvement from the $2.1 billion figure of a few years ago, according to experts. However, this is far below its potential.
Echoing the pledges of President Mahmoud Ahmadinejad during a visit to Turkey last summer, Tuzmen said he desired to see trade reach $20 billion.
“We don’t see any reason why this number can’t be attained by the date Ahmadinejad indicated (2010),“ said Hamid Kiyan, president of the Turkish-Iranian Businessmen and Industrialists Association.
“When we founded the association in November 2001, trade between Iran and Turkey stood at just $700,000. This number has now reached $10 billion. Unfortunately, $7 billion to $8 billion constitute oil and gas exports.“ He stated that government incentives and the determination of businessmen could go a long way in furthering these relations.
In addition to gas and oil products, Kiyan saw industrial products ranging from auto spare parts to petrochemical and agricultural products as sectors with considerable growth potential.

Tuzmen told reporters trade with Iran was around $1.3 billion in 2002, but exceeded $10 billion last year.
The minister said Turkey aims to facilitate exports and imports, reduce customs tariffs and form a regional economic zone with Iranian businessmen.
“Turkey wants to remove the fuel oil price difference with Iran,“ he said.
He underlined the importance of conducting trade with national monetary units and said Turkey is determined to achieve this with Iran.
The Turkish minister noted that in a recent meeting, Iranian First Vice President Parviz Davoudi has promised to make efforts to rapidly implement a reduction in customs tariffs.
“Davoudi also said that using national currencies in commercial activities between Turkey and Iran would improve trade. Let’s implement the preferred trade agreement as soon as possible and reduce the customs tariffs. This will benefit the two countries,“ he said.
Commenting on Iran’s proposal to use national currencies in trade, Tuzmen said that the proposal was supported by Turkish exporters as well.
ECOTA was signed in Islamabad by the representatives of ECO member countries in 2003 with a pledge to further trade liberalization and reduce tariffs to around 15 percent on all products within eight years. The member countries later agreed to make accelerated progress for implementing ECOTA by 2011.
Pakistan, Iran, Afghanistan and Turkey have so far ratified the agreement. Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Azerbaijan and Uzbekistan have yet to ratify the agreement.
A speedy agreement will expedite the process of negotiations and boost trade among member countries.

Islamic Banks More Resilient
Islamic finance has proven to be more resilience to the world’s economic crisis as London consolidates its position as a key western center, according to a financial services organization.
In a new report, the International Financial Services London (IFSL) found that Islamic banks had been “less affected than many conventional banks as they are prohibited from activities that have contributed to the credit crunch, such as investment in toxic assets and dependence on wholesale funds“.
According to IRNA, while Islamic finance had felt the influence of the credit crunch and the world’s economic downturn last year, IFSL noted that the global market for Islamic financial services rose by 37 percent to $729 billion at the end of 2007.
“The UK has benefited considerably from supportive government policies intended to put Islamic services on the same footing as conventional services,“ said Duncan McKenzie, IFSL’s Director of Economics.
“Evidence of London’s growing role in Islamic finance is shown in the UK being the only western country to feature prominently, 8th with assets of $18 billion, in a global ranking of Sharia-compliant assets by country.“
The report said London has been consolidating its position as the key western center for Islamic finance in 2008. This included a cumulative total of 18 Sukuk issues with $10 billion being listed on the London Stock Exchange, second only to Dubai.
During the year, Gatehouse Bank and European Finance House have been granted licences bringing to five the number of fully Sharia-compliant banks in the UK.
“It is important we continue to work with our Islamic finance partners to maintain our position as the leading western center for Islamic finance service providers,“ said Sir Andrew Cahn, UK Trade and Investment’s chief executive officer.
“Despite its origins overseas, Islamic finance has found a natural home in the UK. Though no sector is immune to the global financial crisis, Islamic finance has shown great resilience.“
IFSL’s report indicated that the UK’s offering includes a total of 22 banks with Sharia-compliant products, far more than in any other western country.
Professional services are also provided by 18 law firms and the big accounting firms. With 55 institutions offering educational and training products in Islamic finance, the UK has more providers than any other country worldwide, it said.
IFSL is an independent organization that seeks to promote and raise the awareness of the UK’s role in international financial markets and to highlight the contribution of financial services to the UK economy.

Oil Tanker Fire Extinguished
Emergency workers extinguished a fire caused by a collision between an oil tanker and a container vessel off the Dubai coast.
The oil tanker, called Kashmir, was carrying 30,000 tons of oil condensates worth about $9 million from Iran to the UAE when it collided with the container vessel, called Sima Buoy, which had just left the port of Jebel Ali.
According to Press TV, the crew on board both vessels were safely evacuated, said a spokeswoman for Dubai’s port operator DP World.
“The (Jebel Ali) channel is now clear and traffic in the channel is back to normal,“ she said.
Authorities did not mention the cause of the incident but a witness told Reuters that the oil tanker appeared to be badly damaged. It is unclear if there has been any oil spill.
Kashmir was reportedly a Malta-registered vessel owned and managed by Italy’s Martinoli Consulting Srl, and operated by Greece’s Petroships.

Pragmatic Partnerships
The bulk of Iranian strategy has been characterized by a high component of pragmatism, as the country has aimed at intensifying economic ties with the rest of the world.
Iranian economic cooperation and energy policy within the developing world serve as pillars of its foreign policy strategy.
To increase its economic capital and international standing, Tehran is not only investing in its most vital area of interest (the Middle East) and in its regional geopolitical environment--which encompasses Central Asia and the Caspian Sea region--but is also acting globally, extending its influence well beyond its traditional area of reach through political-economic alliances.
This trend seems to be confirmed by Iran’s current diplomatic, political and economic global partnerships in Asia and Latin America, a powerful tool to consolidate old alliances and gain new partners, reported

Looking East
On the Asian continent, the Iranian strategic realignment seems to rely on organizational and bilateral cooperation, extending beyond existing relations with other states. On the contrary, Iran aims at reaching out to friendly countries, such as India and Pakistan, as well as to emerging global powers, especially to China.
First, Iran is investing heavily in existing structures to facilitate continental cooperation and coordination, trying to capitalize on the recent diplomatic and political gains obtained in the Caspian Sea area (where Tehran succeeded in consolidating an embryonic cooperation and security organization with the neighboring littoral states). In the Asian context, this agenda is implemented by pushing for a greater role within the Shanghai Cooperation Organization (SCO).
The SCO is a permanent intergovernmental organization created in 2001 and composed of six permanent members (China, Kazakhstan, Russia, Kyrgyzstan, Tajikistan and Uzbekistan) and, since 2003, five states with observer status (Iran, India, Pakistan, Afghanistan and Mongolia).
Iran has been demanding to change its observer status and gain full permanent membership in the organization, as reiterated by First Vice President Parviz Davoudi in the course of the last November 6 meeting of the SCO in Tashkent.
On that occasion, he explained Iran’s regional agenda by stating that “the new experience of Caspian Sea summit in Tehran indicated the cooperative morale among regional countries is very high,“ and emphasized that “the SCO can emerge as an effective weight in the international arena and play an effective role in improving the new world order upon interests of the countries of the region.“
Second, besides investing in pre-existing regional organizations, Iran is also increasing its bilateral relations by leveraging its energy resources to create powerful economic incentives to increase state-to-state cooperation. An important example of this trend is the recent finalization on November 10 of an agreement between Pakistan and Iran to proceed with the creation of the Iran-Pakistan-India (IPI) gas pipeline.
Furthermore, Pakistan-Iran energy cooperation will also be enhanced by a $60 million, 100 kilometer electric line that will allow Pakistan to import an extra 100 megawatts of electricity from Iran. Consolidating economic ties and increasing the mutual level of interdependence with Pakistan has a high strategic value for Iran, which is also trying to achieve a similar agreement with India.

In the Americas
Iranian policies in Latin America have been driven by positive relations with Venezuela. The two countries share a series of significant trade, commerce, energy and development agreements.
Most recently, Iran and Venezuela announced the ratification of an agreement to create a $1 billion oil and gas venture company, the Venezuelan-Iranian Oil and Gas Co. (VENIROGC), a 50-50 partnership between Petroleos de Venezuela SA (PDVSA) and Petropars. Also, in November 2007, the two countries agreed to set up a joint project with Syria and the Malaysian group al-Bukhari to build a 140,000 bpd refinery in the al-Farkalas region east of Homs, Syria.
The solid relationship with Venezuela is used by Tehran to facilitate the creation of new regional alliances. President Mahmoud Ahmadinejad explained this strategy by saying, “Iran and Venezuela can prepare grounds for the expansion of Iran’s ties with independent Latin American countries by improving their cooperation in different fields.“
With this objective, Iran also joined as an observer, at the invitation of Venezuela, the Bolivarian Alternative for the Americas (ALBA), which includes the main allies of Venezuela (Cuba, Nicaragua and Bolivia) and is conceived as an alternative to the US-supported Free Trade Area of the Americas (FTAA).
Through this alliance, Iran has already begun to improve its regional standing and increase its local allies. For instance, it led to the establishment of energy and cooperation ties with Bolivia, with which Iran signed a significant energy cooperation deal in September 2007, while the Iranian Petropars is already assisting Venezuela’s PDVSA to assess the vast oil reserves in the Orinoco Belt region.
Moreover, the two countries agreed on a five-year industrial cooperation plan. Similarly, Iran has reached out to Nicaragua to initiate commercial and energy projects, including the financing of four hydroelectric plants.

Oman Gas Deal Sealed
Gas has started flowing from the West Bukha offshore field shared by Oman and Iran, and will be processed in the UAE by the Ras al Khaimah Gas Commission (RAKGAS).
The field’s developers started pumping gas on Monday on a test basis, said PK Bagchi, the commercial manager of RAKGAS.
“If all goes well, we expect about 40 million cubic feet per day (cfd) of production by early next year,“ he told The National on the sidelines of an Abu Dhabi gas conference.
RAKGAS signed an agreement with Oman four years ago to purchase and process gas produced from the Omani side of the field, located in the Persian Gulf off Oman’s Musandam Peninsula. The gas is being sent to Ras al Khaimah (RAK) through an undersea pipeline that connects with Oman’s Bukha field, which has been producing gas and shipping it to the emirate since 1994.
The international consortium producing the gas for Oman includes Indonesia’s Medco Energi, South Korea’s LG International and Canada’s Heritage Oil.
RAK badly needs more gas to fuel its power and cement plants, after the expiry in 2007 of a two-year contract with Abu Dhabi’s Dolphin Energy, under which it received about 40 million cfd of gas from Oman.
Dolphin now exports Qatari gas to Oman in return for the earlier imports and continues to supply RAKGAS on an intermittent basis.
But to secure more year-round gas supplies, government-owned RAKGAS is seeking further agreements related to field developments in and around RAK’s territorial waters.
Currently, it processes about 77 million cfd of gas from Umm al Qaiwain’s Atlantis offshore field. Last year, it entered negotiations with Iran to import gas from the more conveniently located Iranian side of the West Bukha field. Decisions on exploring and developing two gas prospects off the RAK coast are pending, according to Bagchi.
As of Tuesday, there was no news on whether RAKGAS had made any progress in its talks with Iran. But the company is already eyeing a bigger Iranian gas target: the Hengam field, less than a kilometer from the West Bukha production platform.
“We haven’t started talks yet, but the pipeline is already there,“ said Bagchi. He suggested a future deal between RAK and Iran over Hengam might resemble an agreement that Oman signed last year with Tehran to develop Kish offshore gas field.
But another deal to import Iranian gas to the UAE has been stalled for more than three years, leaving empty an undersea pipeline built by Sharjah’s Crescent Petroleum. Crescent’s partner, Dana Gas, also based in Sharjah, said last month it hoped the imports would start later this year.
RAK is among a number of potential regional gas customers frustrated by the lack of progress on that deal. The emirate was forced to ration gas last year and has been burning diesel and coal in some of its power plants.
The RAKGAS chief operating officer, Ruurd Abma, said RAK would have to overcome “political considerations“ to conclude any deals with Iran. He also noted that terms of oil and gas deals with the Islamic Republic were typically “not so attractive“ to foreign partners.
Still, RAK’s need for gas is pressing, and there are tentative signs of a thaw in US-Iranian relations following last month’s inauguration of Barack Obama as the US president.

Call for Prioritizing Vision 2025
Majlis Speaker Ali Larijani said on Tuesday that implementation of the Vision 2025 and Article 44 of the Iranian Constitution should be at the top of the agenda in the fourth decade of the Islamic Revolution.
“Our duty in the fourth decade of the revolution is to implement the 20-Year Vision and the general policies of Article 44 of the constitution pertaining to large-scale privatization. That is, we should hand over the management of economic affairs to people,“ he told thousands of demonstrators in Isfahan.
According to IRNA, demonstrations were held across the country on February 10 to mark the 30th anniversary of the victory of the Islamic Revolution.
“If we want to avert danger from the nation, the economy should be handled by people. This does not mean that the administration should have no role. The administration will play the role of regulator.“
Larijani made reference to the earlier remarks of Supreme Leader Ayatollah Seyyed Ali Khamenei who urged the government to seriously pursue the implementation of Article 44, which calls for the privatization of state-run companies, and added, “This means that the future of Iran depends on the implementation of Article 44.“
May 21 marks the anniversary of Leader’s decree issued vis-�-vis Article 44. In 2005, Ayatollah Khamenei requested that government officials speed up implementation of the general policies outlined in the amendment of Article 44, and move towards economic privatization.
The Leader also suggested that ownership rights should be protected in courts set up by the Justice Ministry; the hope was that this new protection would give an additional measure of security and encourage private investment.
The current privatization effort calls for an initial public offering (IPO) of five percent of the firms being privatized.
Once the five percent is public, it will establish a market price on which further offerings can be based.
According to a study conducted by the IMF in 18 countries, privatization adds 2 percent to the government’s GDP per annum.
According to Article 44, the economy of Iran is to consist of three sectors: state, cooperative, and private; and is to be based on systematic and sound planning.
A strict interpretation of the above has never been enforced in the Islamic Republic but the private sector has been able to play a much larger role than is outlined in the constitution.
In recent years, the role of the private sector has been rising steadily. Furthermore, an amendment of the article in 2004 allowed 80 percent of the state assets to be privatized.

High-Level Meeting on Turkmen Ties
President Mahmoud Ahmadinejad will soon confer with his Turkmen counterpart Gurbanguly Berdimuhamedov on bilateral ties and economic cooperation. During the scheduled meeting, they will review further steps needed to further cooperation in regional/international affairs, IRNA wrote.
The two sides will also discuss the legal status of the Caspian Sea, cooperation in trade and energy sectors, and expansion of relations in humanitarian affairs.
Iran purchases gas from Turkmenistan for its north provinces. Lately, Turkmenistan and Iran implemented large-scale projects, including construction of the Dostluk reservoir, Tedjen-Sarakhs-Mashhad railway, and Korpece-Kurtuki gas pipeline among others. The annual trade turnover between Iran and Turkmenistan is above $2.5 billion.
The last high level meeting was in summer 2007. In December 2008, the two countries signed an agreement on judicial cooperation and extradition of criminals, as well as customs and border trade.

HPCL to Triple Crude Imports
State-owned Hindustan Petroleum Corp Ltd (HPCL) will triple crude oil imports from Iran while reducing supplies from Iraq next fiscal year.
HPCL plans to import 3 million tons of Iranian crude from the National Iranian Oil Co (NIOC) on term contract in 2009-10 as against the current year import of one million tons, sources told Fars News Agency.
Current imports from Iran are on a 30-day credit period, which, too, would be raised to 90 days in 2009-10. Sources said imports from Iraq’s State Oil Marketing Organization (SOMO) will be reduced to 1.25 million tons from 3.25 million tons in the current year.
HPCL’s total crude oil requirement for 2009-10 has been estimated at 15.50 million tons. Considering the availability of domestic crude oil at 4.58 million tons (based on the 2008-09 allocation), the imported crude oil requirement is estimated to be 10.92 million tons.
Of this, 9.38 million tons would be imported on term contract from national oil companies while the remaining 1.54 million tons from the spot market.

On Track
Oil and gas exploration projects are on track and there will be no changes in the months ahead, said Managing Director of Exploration Affairs at the National Iranian Oil Company Seyyed Mahmoud Mohaddes.

Water Sector Budget
Next year’s budget for water sector will be up by 34 percent, said Energy Minister Seyyed Parviz Fattah.

US Unveils $1.5 Trillion Plan
US Treasury Secretary Timothy Geithner has unveiled a comprehensive bank bailout plan worth at least $1.5 trillion.
Under the plan, the size of a key Federal Reserve lending program will be expanded to $1 trillion from $200 billion, AP reported.
In addition, a public-private investment fund of $500 billion will be created to absorb banks’ toxic assets and could be expanded to $1 trillion.
“Critical parts of our financial system are damaged,“ Geithner said. “Instead of catalyzing recovery, the financial system is working against recovery and that’s the dangerous dynamic we need to change.“
The new plan is aimed at restoring confidence in the damaged financial system and restarting bank lending. The key question now is how eager the private sector will be to participate both in the new investment fund and the new Federal Reserve lending program.

EU for Joint Economic Action
EU finance ministers have urged coordinated action to tackle the economic crisis, against a backdrop of increasing criticism over French protectionist moves in its auto sector.
With Europe in a growing recession, the ministers agreed to work together on ways to deal with their banks’ toxic assets that are hampering lending, AFP wrote.
They also looked at the progress of a 200-billion euro stimulus package designed to kickstart their ailing economies. Overall the cry went out to avoid the temptation of protectionism at all costs.
Belgium faces a serious recession this year, central bank governor Guy Quaden said on Wednesday after most economic indicators, apart from inflation, slumped in 2008.
“Unfortunately, we are talking at the moment about a contraction of 1.9 percent of gross domestic product (GDP) in 2009. It’s not a depression, but it’s a serious recession,“ he told Forbes.
Quaden said the economy would shrink by at least 0.2 percent in 2009. The drastic downward revision was due in large part to a decline in GDP of 1.3 percent in the final quarter of last year and to the global downturn.

Oil Above $38
Oil prices crept above $38 a barrel on Wednesday in Asia as a new US bank rescue plan failed to convince investors in crude and equities that the government can revive an ailing financial system.
According to AP, light, sweet crude for March delivery rose 47 cents to $38.02 a barrel by late afternoon in Singapore on the New York Mercantile Exchange. The contract fell $2.01 overnight to settle at $37.55.
“Oil is following the stock market,“ said Clarence Chu, a trader at market maker Hudson Capital Energy in Singapore. “Oil could fall further if there’s more really bad economic news, but I don’t think it will go below $30.“
Oil had been trading near $40 for about two weeks, underpinned by OPEC production cuts.
The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global crude supply, said earlier this week it has completed about 80 percent of 4.2 million barrels per day of output cuts announced since September.
“OPEC is following through and that’s supporting prices,“ Chu said.

Chinese Exports Fall
China’s exports fell by the most in almost 13 years as demand dried up in the US and Europe, worsening the outlook for jobs and industrial production in the world’s third-biggest economy.
Shipments declined 17.5 percent in January from a year earlier, the customs bureau said on its website, after falling 2.8 percent in December.
The latest number was worse than the 14 percent decline forecast in a Bloomberg News survey of 14 economists.
China’s economic slide has already cost the jobs of 20 million migrant workers, adding pressure on the government to boost consumption and expand a 4 trillion yuan ($585 billion) stimulus package.
China has issued new rules making it harder to fire workers, state media said Wednesday, in a sign Beijing is seriously concerned about the rising unemployment caused by the global financial crisis.

GM to Cut 10,000 Jobs
US carmaker General Motors has confirmed it is cutting 10,000 jobs from its workforce by the end of 2009.
GM said it would reduce its global salaried staff to about 63,000 from its current level of 73,000, AFP reported.
The company said it was forced to act by a severe drop in vehicle sales worldwide and by the need to restructure for long-term viability.
About 3,400 cuts will be made in the US. These had already been outlined in a plan put forward to the government.