Iran Opens Up-Slowly

By Parsons, Nick | Global Finance, February 2002 | Go to article overview

Iran Opens Up-Slowly


Parsons, Nick, Global Finance


EMERGING MARKETS

IRAN

Politics and economics are prying open a door to the West in Teheran.

Troubled times often produce unlooked-for benefits, and the attack on the Taliban and al-Qaeda in neighboring Afghanistan has made Iran even more of a regional pivot. Combined with recent economic reform and strengthening finances, that has provided the Iranian government with a platform to emerge from more than 20 years in the international financial wilderness.

Key totem of this shift: The Islamic

Republic of Iran is set to launch its first Eurobond since the 1979 Islamic Revolution. Iranian officials hope a successful issue will open the taps on future funding for the country's strained oil and gas sector.

Not everyone's ready to forget the past quite yet, though. Continuing sanctions against the country mean Iran will have to do without US banks and investors. And US companies will be conspicuous by their absence in any overhaul of Iran's oil and gas industry.

Little surprise, then, that it was bankers from five European institutions-BNP Paribas, Commerzbank, and Deutsche Bank are known to be in the pack-who were invited to give presentations in Teheran in mid-January for a planned 6500 million bond issue.

New Money on Easy Terms

By all accounts, the Teheran government may be able to borrow on finer terms than its new-boy status would otherwise suggest. The reason? For would-be investors, Iran is a major play on oil and other vital resources. In geopolitical terms it is an important player-one of the Near East region's big three, along with Russia and Turkey.

Albrecht Frischenschlager, managing director of Teheran-based consultancy firm FTZ Services, lists Iran's assets: "A domestic market of 65 million people, approximately 9% of the world's proven oil reserves, and approximately 9% of its proven gas reserves, plus 11 petrochemical complexes producing 13% of the Persian Gulf's output, as well as having major deposits of copper, iron ore, zinc, and much more."

Political risk remains the major hindrance to foreign investment in Iran, but Western analysts are optimistic that the reform-minded agenda of President Mohammad Khatami has legs."President Khatami faces the inherent difficulty of balancing the objectives of his reformist support base while accommodating conservative forces and the clergy," says Juergen Odenius, global head of emerging markets strategy at Commerzbank in London. Viewing Iran in terms of a liberal/conservative divide may mask the complexities of the country's politics, some observers say. "The West finds it convenient to admire the reformers," says Maria O'Shea, an Iran specialist at the School of Oriental and African Studies (SOAS) in London. "But in reality it is difficult to divide [Iranian politicians and clergy] into such neat categories."

What is clear are the, albeit faltering, steps Iran has taken toward opening the economy. Commerzbank's Odenius points out that since the last legislative elections in February 2001, Parliament has passed a series of financial sector reforms.They've emerged against a background of a steady improvement in public finances: Moody's Investor Services gave Iran a rating of B2 back in 1999 and upped the outlook from stable to positive last November.

That should underpin Iran's attempts to coax back international investors. In reality, they've been creeping back for some years, largely on the back of reviving trade flows with long-standing partners such as France and Germany. …

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