IranDaily.gif IranDaily.gif
Domestic Economy
Tue, Dec 16, 2008

Advanced Search
ADVERTISING RATES
PDF Edition
Front Page
National
Domestic Economy
Iranica
Society
Science
Middle East
World
Sports
Art & Culture
RSS
Archive
Fallacy of US Economy
7 Refineries Under Construction
Energy Tenders Up for Grabs
Miniator Sales Next Year
Italy Keen on Banking Cooperation
Iran-Syria Maritime Commission to Meet
Rls4 Trillion in Credit Paid to Co-ops
Health Insurance for Carpet Weavers
Housing Scheme on Track
Rail Privatization Underway
TSE Shares Down

Fallacy of US Economy
130314.jpg
Over the past decade, the US borrowed a cumulative total of $5 trillion from foreigners at relatively low interest rates.
The current financial crisis has unraveled the fundamental fallacy of the US economy.
All along, the world assumed that the American economy was a low-risk, good-return investment. This belief drove the entire structure of global trade and finance for the past 10 years. And when the subprime crisis showed this assumption of low risk to be false, the financial crisis resulted.
Consider this: Since the Asian financial crisis of 1997-98, the rest of the world has been willing to lend money to finance the US’s huge and growing trade deficit.
Not just small amounts of cash either: Over the past decade, the US borrowed a cumulative total of $5 trillion from foreigners at relatively low interest rates, reported Business Week.

Why Were Foreigners So Generous?
Without this flow of easy money into the US, globalization in its current form would not have been possible. The US was the consumer of last resort, absorbing cars from Germany and Japan, electronics from Taiwan and Korea, and clothes and furniture from China. The earth was flat, and why not?
Pluck a laptop from Taiwan and pay for it with a home equity loan, which--if you trace back the connections--was at least partly funded with foreign money, too.
The big unanswered question, for years, was why this money flow persisted. Why the heck were foreign investors willing to lend the US such large amounts of money on such good terms?
Economists and journalists spun out hypothesis after hypothesis, but there was no agreement on why.
Now we see what happened. Wall Street firms--big operators like Lehman and relatively small fish like Bernie Madoff--told foreign investors they could put their money into the US--the world’s safest economy--and still make decent returns. Madoff, of course, appears to have lied. He allegedly ran an investment scam that has resulted in billions of dollars of losses reported around the world, including $4 billion in Switzerland and $3 billion in Spain.

Low-Risk Derivatives
But it wasn’t simply Madoff. The Wall Street boom of recent years was built on selling the low-risk story to foreign investors. In fact, most of the financial innovations of recent years were about making investments in the US ’safer’ for foreign investors.
The enormous growth of foreign exchange derivatives enabled those abroad to protect their US investments from exchange-rate fluctuations. The sudden increase in credit default swaps could be used to protect foreign bond investors from problems with individual countries. And collateralized debt obligations, which could be divided into high-risk and low-risk pieces, increased the supply of low-risk investments to be sold outside the US.
This low-risk, good-return story attracted investors from around the world. One example: Lehman sold $2 billion in ’mini-bonds’ to Hong Kong investors, including many retirees.
However, the low-risk, good-return story simply wasn’t true, for two key reasons: First, the US economy was supposed to be on the cutting edge of innovation. And innovation through technological change, by nature, is a very risky activity. Sometimes it pays off and sometimes it doesn’t. If the investment in innovation pays off, the economy booms, as it did during the second half of the 1990s.

US Regulation Failed
But innovation has fallen short in recent years. Biotech and nanotech still have not come to fruition, and alternative energy is moving slowly. As a result, the US economy has fallen short of expectations. The income isn’t there, and the debt just piles up.
The second reason was the breakdown of regulation. And that’s where we come back to the alleged Madoff scam.
His was no complicated global securitization. Instead, it appears to be a good old-fashioned Ponzi scheme, enabled by a lack of government supervision.
What comes next? The fallacy is punctured. Globalization will be seen as what it is--a game with risks that can’t be wished away. And US prosperity will depend on the success or failure of its ability to innovate--not its ability to tell an implausible story to foreign investors.

7 Refineries Under Construction
130326.jpg
National Iranian Oil Refining and Distribution Company (NIORDC) is constructing 7 refineries nationwide.
These refineries include Persian Gulf Star Refinery, Shahriar Refinery, Anahita Refinery, Hormuz Refinery, Caspian Refinery and Pars Refinery, Mehr News Agency reported.
When these refineries are completed, the nation’s refining capacity of crude oil and gas condensates will rise by 1,560,000 barrels while 110 million liters will be added to gasoline production.
Khuzestan heavy crude oil refinery will be built by 2011 in Arvand Free Zone, seven kilometers southwest of Abadan City. The refinery would have a daily output capacity of 180,000 barrels and would cost 2.8-3 billion euros.
The government and parliament have approved that the private sector establish and manage the refinery.
Persian Gulf Star Refinery in the southern region of Assalouyeh aims to refine 360,000 barrels of gas condensates per day and produce gasoline, jet fuel and other products.
The refinery is now 10 percent complete and will come on stream in 2011.
More than 2 billion euros will be invested to complete Shahriar Refinery in the city of Tabriz. When the refinery becomes operational, 150,000 barrels per day will be added to Iran’s refining capacity and 70,000 barrels to gasoline production capacity.
The refinery aims to increase oil products output and improve the quality of products. Lowering gas oil’s sulfur content, complying gas oil with EURO-V standard and constructing an FCC unit are among other features of this project.
Anahita Refinery in the western Kermanshah province is expected to come on stream in 2012. It would have a daily output capacity of 150,000 barrels and cost $3.5 million.
Hormuz Refinery, with a capacity of refining 300,000 barrels of heavy and super-heavy crude oil per day, is being built in Bandar Abbas. It is planned to maximize the nation’s production of gasoline and middle distillate products according to European standards. The refinery, which is 5 percent complete, would cost $4 billion.
Caspian Refinery in the city of Gorgan in northeastern Golestan province is projected to daily refine 300,000 barrels of crude produced by the Caspian Sea countries. The refinery will be completed in four years.
It will daily produce 20 million liters of gasoline and 11 million liters of diesel while some portion of its products will be exported to neighboring countries such as Turkey, Afghanistan and Pakistan.
The implementation of Shiraz’s Pars Refinery, with a capacity of refining 120,000 barrels of crude per day, would cost 800 million euros. The refinery is 3 percent complete and will come on stream in 2012.

Energy Tenders Up for Grabs
Iranian Central Oilfields Company says 30 domestic and foreign companies have expressed interest in a tender for developing 12 oil and gas fields in central Iran.
ICOC’s director for construction and engineering affairs, Mahmoud Borzou, also told Shana.ir that 70 percent of these firms are domestic, which indicates their technical and scientific progress. “ICOC experts are reviewing the documents received from these companies,“ he said.
Borzou noted that data concerning the 12 oilfields should be submitted to these companies by Dec. 16.
The oilfields include two packages: one about the development of Mokhtar, Assalouyeh, Gardan, Salkh, Kabir-Kouh, Kouh-Mand gas fields and Kouh-Mand, Changouleh, Doodro, Shourom and Kouh-Rig oilfields, and the other about Boushgan, Bushehr and Kouh-Kaki fields.

Miniator Sales Next Year
The new Miniator will be marketed next year, managing director of Saipa Auto-Manufacturing Group said.
Mehrdad Bazrpash told ISNA that pre-sales will begin in February.
“Miniator will be produced in Kashan’s Saipa Factory with a capacity of 200,000 units per annum. The price of the car will certainly be less than 100 million rials (roughly above $10,000), but we will try to lower it to less than 90 million rials,“ he said.
Bazrpash noted that the product has been made completely by Iranian engineers.
Saipa unveiled the newly-designed domestically-manufactured Miniator on Saturday. At the inauguration of the production line, Bazrpash said the car averages 7 liters of gasoline per 100 kilometers and has 80 horsepower with a displacement of 1500cc. Bazrpash said Saipa is seeking to establish a foothold for the car in the markets of Middle East, Africa, Central Asia and Latin America.

Italy Keen on Banking Cooperation
By Ghanbar Naderi

Iran-Italy banking cooperation lays the ground for further economic ties in other sectors, Italian Ambassador to Tehran Alberto Bradanini said in a meeting with Isfahan Chamber of Commerce board of directors on Sunday.
Bradanini noted that Italian banks have been less hit by the global financial crisis and can help Iranian tradesmen with currency transfer and credit opening.
“Cooperation in the banking and agricultural field can be the first step in the expansion of economic ties,“ he added.
130479.jpg
Cooperation in the banking and agricultural field can be the first step in the expansion of economic ties between Iran and Italy.
Pointing out that Isfahan and Florence are sister cities, he stated that a delegation of Florence businesspersons will visit Isfahan in the near future to examine ways to boost industrial, economic and tourism relations.
Bradanini also noted that holding Iranian exhibitions in Italy would display Iranian capacities and bring Iran to Italian investors’ attention.
Mostafa Safavi, the chamber’s deputy chairman, expressed satisfaction over Italian companies’ participation in Iranian steel projects and said Isfahan is Iran’s second biggest industrial center, Fars News Agency reported.

Potentials
Iran Chamber of Commerce, Industries and Mines Chairman Mohammad Nahavandian said relations between Iran and Italy could be doubled.
Nahavandian said the current global economic and political turmoil could in fact help enhance bilateral relations between Tehran and Rome.
In a meeting with the Italian ambassador, Nahavandian stated that Iran will soon play a greater role in the region’s economy just like Italy in the EU.
Referring to the two countries’ long-term relations, Bardanini said Rome and Tehran have great potentials that could be enhanced by their chambers of commerce.
The ineffectiveness of US calls on Italy to halt its trade ties with Iran for putting pressure on the country has annoyed the Washington officials.
The US Energy Secretary Samuel Bodman has expressed ’concern’ over Italy’s continued business relations with Iran. The US official urged Italy to support further illegal sanctions against Iran over its civilian nuclear program. However, he maintained that relations between the US and Italy will remain sound no matter how Italy would respond to his call.
“Even though we are concerned by commercial relations between Italy and Iran, we will remain friends whatever the outcome would be,“ Bodman told a news conference in Rome after meeting with Italian Industry Minister Pierluigi Bersani.

Opportunities
In late October, Iran and Italy held a one-day seminar in Rome to discuss opportunities for expanding cooperation in economic and trade activities.
Italian President Giorgio Napolitano said Rome attaches ’significance’ to relations with Iran.
“Italy does have important economic relations with Iran, similar to its ties with other countries in the Middle East,“ he said.
“Italy has always fully endeavored to boost the level of all-out cooperation with Iran,“ Ambassador Bradanini said at a meeting with Iran’s Parliament National Security and Foreign Policy Commission Alaeddin Boroujerdi.
The ambassador also underlined the influential role of Iran-Italy parliamentary friendship group on promoting bilateral cooperation and called for setting up the group.
Boroujerdi, for his part, said there are grounds for further cooperation on economic, industrial and political fields, adding that Europe needs to review its policy regarding Iran to open a new room for a constructive interaction and mutual cooperation.
As a succeeding heir to the proud Iranian and Italian civilizations, Tehran and Rome for the most part have enjoyed subsistent, long and cordial relations in history.
Iran-Italy trade stood at $US 2.7 billion in 2001 and 3.852 billion euros in 2003. The figure has been rising ever since. In 2005, Italy was the third largest trading partner of with 7.5 percent of all exports to Iran. Italy was Iran’s top trading partner in the European Union in 2006 and 2007.

Iran-Syria Maritime Commission to Meet
130485.jpg
The fourth meeting of the Iran-Syria Maritime Transport Commission will be held in Damascus on December 23, Iran’s economic counselor in Syria, Seyyed Morteza Mortazavi, told IRIB. Deputy Road and Transportation Minister Ali Taheri and his Syrian counterpart will co-chair the two-day meeting. Taheri is also director of Iran’s Ports and Shipping Organization.
“The participants will discuss ways to develop cooperation in shipping and ports construction,“ Mortazavi said, adding that the commission holds biannual meetings rotationally in Tehran and Damascus.
Iran and Syria have already signed cooperation agreements in various fields such as banking, insurance, telecommunications and house construction.
Iran’s Minister of Industries and Mines Ali-Akbar Mehrabian, in his return from Syria on September 14, marked the bilateral relations as “strategic.“
He stated that the two sides cooperate in 16 development projects valued at well over $1 billion dollars, predicting that the figure would reach $10 billion by 2012.
On December 12, 2007, Iran inaugurated a cement factory and an automobile manufacturing plant in Damascus.

Rls4 Trillion in Credit Paid to Co-ops
130482.jpg
Four trillion rials worth of credit have been offered to cooperatives during March-December, the managing director of State Cooperative Fund said.
Mashallah Azimi told ISNA that the fund has also extended facilities over seven trillion rials to the cooperatives since last year.
According to him, the fund also wants to conduct research on reasons behind the current recession and mismanagement in certain housing cooperatives. The initiative is aimed at organizing the sector.
He said close to 30,000 new jobs have been created in the cooperative sector last year, adding that public cooperation will help establish justice in the national economy.
Since its establishment, the State Cooperative Fund has received 200,000 loan applications and provided financial facilities worth 14 trillion rials to the qualified applicants. It also created 150,000 new jobs in 2006 and 2007.
The fund also supports cooperatives in line with policies of Article 44 of the constitution which envisages privatization of major industries. If the Cabinet increases the fund’s resources, it will be able to pay more facilities to applicants after a waiting period of six months.

Health Insurance for Carpet Weavers
Failure to meet the customers’ taste is Iran carpet industry’s main problem, said the head of National Carpet Center for economic affairs.
Ali Malekijou referred to the lack of experienced and skilled weavers in carpet weaving centers as one of the main hurdles, adding that many work from home.
He told ISNA that they will be working at weaving complexes once the necessary infrastructures have been built to pave the way for mass production.
“Apart from insurance cover, carpet weavers are also entitled to health insurance cover as of this year,“ he added.
According to him, the necessary credits have been offered to major producers over the past three years and that close to 40 carpet factories recently opened for business.
Carpet weaving is an ancient tradition in Iran. The Persian carpet with its fast colors, fine designs and unique texture, has always been the most tangible manifestation of Iranian art for other nations.
Although carpet production is now mostly mechanized, traditional hand woven carpets are still widely found all around the country, and usually have higher prices than their machine woven counterparts due to their being artistic presentations.
Iran exports more than $500 million worth of hand-woven carpets each year. There is an estimated population of 1.2 million weavers in Iran producing carpets for local markets as well as export.
In recent times Iranian carpets have come under fierce competition from other countries producing fakes of the original Iranian designs as well as genuine cheaper substitutes.

Housing Scheme on Track
130488.jpg
Over 700,000 first-time home-buyers have registered in the Mehr Housing Scheme, said the minister of Ta’aavon on Monday.
Mohammad Abbasi told IRNA that each applicant has paid 15 million rials (roughly $15,000) for his/her contribution thus far and that the scheme has equally motivated the officials to seek further funds for implementing it.
According to him, Mehr Housing Scheme which is aimed at constructing low-cost housing units for low-income households, also provides the opportunity for the government to solve the problem of unemployment to a great extent.
Through the scheme, the executive body is removing land prices from the final cost of homes on a 99-year lease contract. Over 1.5 million people have already asked for banking loans and the figure is expected to pass the 2.5 million mark.
According to the latest reports by the government, over the past few months, house prices have gone down by 25 percent nationwide and the downturn is expected to continue in the moths that follow.
The biggest factor behind the huge fall in prices has been attributed to the efficient policies put into action by the government in the housing market. After the unprecedented boom in 2006, when house prices went up through the roof, the trend took a speedy and unprecedented downturn as of April this year. The new Mehr Housing Scheme, discontinuation of purchase loans, as well as introduction of construction loans and national coding system to track down real estate deals helped bring down prices and regulate the housing market.
The biggest factor behind the recent slump, though, has been attributed to a U-turn in state policies to support supply and cut off middleman activities in the real estate market. To this end, the government of President Mahmoud Ahmadinejad initiated the Mehr Housing Scheme.
Under the scheme, real estate developers are offered free lands in return for building cheap residential units for first-time buyers on 99-year lease contracts. The government then commissioned agent banks to offer loans to the real estate developers to prepare the lands and begin construction projects in an attempt to increase production and create equilibrium in the supply and demand curve.

Rail Privatization Underway
130491.jpg
Private enterprises are expected to operate 5,000 wagons in the near future, the deputy head of Iran’s State Railways Company said.
Mahmoud Keimanesh said the company will hold a tender in January for the purpose, Fars News Agency wrote.
He noted that almost 50 percent of all available wagons are now being operated by private companies, adding that the locomotives will also go private in due course.
According to him, the Railways Staff Fund is willing to purchase new locomotives. The State Railways Company has 300 locomotives with an average lifespan of 40 yeas.
In Iran, for every wagon, some 1,050 tons of freight are being transported. Every passenger wagon annually carries 7,340 passengers per kilometer on average, whereas the figure is 3,950 people per kilometer in Turkey and 5,220 passengers per kilometer in Egypt. This means Iran ranks first among these 10 countries, an indication that rail transport is a major form of public transport.

TSE Shares Down
The Tehran Stock Exchange (TSE) has suffered an unprecedented loss, as the index plummeted to its lowest level in the past five years, Press TV reported.
The TSE index (Tepix) fell to 8,974 upon opening on Saturday, dropping below the symbolic 9,000 points for the first time since 2003, the market’s website said on Monday.
The index has fallen 18 percent since October when it was at 11,000 points. As most of the companies listed on the exchange are producers of steel, copper and chemicals, the drop is mainly attributed to the falling prices of such commodities.
The government directly holds 35 percent of the TSE, while securing another 40 percent through pension funds and investment companies. Foreign investment accounts for only about 2 percent of the stock market.
Despite the Saturday news, Tehran Stock Exchange is still the best-performing market in the Persian Gulf. It has also prepared a fruitful ground for foreign investors whose robust participation can ensure its long-term prosperity.
Last month, investors pushed up the value of shares on the exchange as more of Iran’s state-owned companies floated stakes. The market’s main index, Tedpix, grew by 41 percent since the start of the year, while markets in the rest of the Persian Gulf lost value.
The MSCI PGCC index, which measures the performance of seven major Persian Gulf markets, lost 17 percent of its value since the beginning of 2008. Emerging markets as a whole fell by 21 percent.
So far, Tedpix has been driven by domestic investors, including wealthy Iranians, public sector pension funds and the investment arms of state-owned banks.
For the index to prosper in the longer term, foreign investors need to make significant share purchases. The stock exchange has no restrictions on foreign ownership.

Economic Bill
A bill on Economic Overhaul Plan will be presented to Majlis for
consideration by Dec. 30, said Deputy Economy Minister Behrouz Alishiri.

OPEC Output Cut
Oil Minister Gholamhossein Nozari said Tehran will ask OPEC for an output cut of 2 million barrels per day at the group’s Wednesday summit in the Algerian city of Oran.

EconomyCol3
Oil Rises
130323.jpg
Oil prices rose to above $47 a barrel on Monday in Asia as investors anticipated OPEC will announce a large production cut at its meeting this week.
Light, sweet crude for January delivery was up 92 cents to $47.20 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore, AP reported.
The contract fell $1.70 to settle at $46.28. The Organization of Petroleum Exporting Countries (OPEC), which accounts for 40 percent of global supply, has signaled it plans to announce a substantial reduction of output quotas at its meeting Wednesday in Algeria.
Analysts have questioned whether OPEC members will follow through with any announced cut.
“They’re talking about a severe cut, but the question is their discipline,“ said Christoffer Moltke-Leth, head of sales trading at investment firm Saxo Capital Markets in Singapore. “Unless they really surprise the market, this cut may not support the price much.“

Latam Summits in Brazil
A Brazilian coastal resort is the venue for three days of summits by Latin American leaders preoccupied with the economic crisis creeping across their region.
According to BBC, 33 presidents from Latin American and Caribbean nations gathered in the upmarket tropical village of Costa do Sauipe under heavy security to discuss ways to promote trade, integration and development.
Significantly, the main meeting excludes the United States, which has traditionally participated in high-level political events in the region as a reflection of its continued influence.
The first summit, on Tuesday, will be between the leaders of the Mercosur trade bloc, which comprises Brazil, Argentina, Paraguay and Uruguay. Venezuela, which hopes to join, may also be represented.
Late Tuesday, the broader two-day summit of all leaders of Latin America and the Caribbean will take place. A summit by the Rio Group, which counts 23 nations in the region, including new member Cuba, is to follow on Wednesday.

Chinese Industrial Output Down
130320.jpg
China’s industrial production grew at the weakest pace in almost a decade as export growth collapsed, increasing pressure on the government to do more to revive the slumping economy.
Output rose 5.4 percent in November from a year earlier, the statistics bureau said. None of the 14 economists surveyed by Bloomberg predicted such a small increase. Production grew 8.2 percent in October.
The central bank may add to the steepest interest-rate cut in 11 years to revive consumer and business confidence after the CSI 300 Index of stocks fell 63 percent this year and exports declined last month.
Money-supply growth slowed to the weakest pace in three years, a second statement showed two days after China’s Cabinet pledged to boost liquidity to spur consumption.

ASEAN Charter in Force
130317.jpg
The Association of South-East Asian Nations (ASEAN) took a major step for becoming an EU-style community on Monday with the passing into force of a new charter setting benchmarks for democracy.
The charter sets out rules of membership, transforms ASEAN into a legal entity and envisages a single free trade area by 2015 for the region of 500 million people, AFP reported.
It came into force with a meeting of ASEAN foreign ministers at the bloc’s Jakarta secretariat, 30 days after Thailand became the last member to deposit its ratifying documents.
ASEAN consists of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Ireland Announces $13b Bank Rescue
The Irish government announced a 10-billion-euro ($13 billion) rescue of Ireland’s six main banks.
The money will be used to recapitalize banks by buying their shares and other measures, AFP reported.
“The government has decided either through the National Pensions Reserve Fund or otherwise to support, alongside existing shareholders and private investors, a recapitalization program for credit institutions in Ireland of up to 10 billion euros,“ the finance ministry said in a statement.
It said the aim was to ensure the long-term sustainability of banks and to help the recession-hit economy by increasing credit flows. Ireland was one of the first countries to respond to the global credit crisis with a two-year unlimited guarantee scheme for banks that involves a contingency liability of 485 billion euros.