Iran pulls reserves from Italy 'because of court case'

Gareth Smythin, The Financial Times:

Mohammad-Jaafar Mojarrad, Iran's central bank vice-governor, said on Tuesday Tehran had withdrawn foreign reserves from Italian banks but not from elsewhere in Europe.

In an interview with the Financial Times, Mr Mojarrad said comments suggesting a switch away from Europe from Ebrahim Sheibani, the bank governor, had been "misquoted" on Friday by Iranian news agencies.

Iran had long liked "some mystery" over the size and whereabouts of its foreign exchange holdings as a precaution, he said. But its withdrawal of funds from Italy resulted from a specific legal case, he said, rather than fear of international sanctions over Tehran's nuclear programme.

A Rome court in December ordered Banca Nazionale del Lavoro to freeze an Iranian government account over Iran's alleged culpability for the deaths of three Americans at the hands of Palestinian militants in Israeli-occupied Gaza.

Reports of Mr Sheibani's remarks caused flutters in exchange markets, reflecting wider concerns over possible sanctions if the European Union and US persuade next week's board meeting of the International Atomic Energy Agency, the United Nations nuclear watchdog, to send Iran's nuclear case to the UN Security Council.

Mr Mojarrad said he wanted to "reassure the financial community" that Iran could redeposit funds in Italy if it received a favourable legal opinion requested from the Bank of Italy on the immunity of the funds of central banks. READ MORE

But he argued Friday's reports had backed up Iran's view that sanctions would create a "lose-lose" situation if they were imposed.

Mr Mojarrad said the chance of financial sanctions was "very low", and doubted the US would stop Iran receiving oil revenue in dollars. But he said the bank had made contingency plans.

According to the International Monetary Fund, Iran has foreign exchange reserves of $30.6bn (€25bn, £17bn) in hard currency and $9bn in foreign, possibly illiquid, assets. Mr Mojarrad estimated total foreign exchange receipts for the Iranian year ending March 2006 at $52bn, with $42bn from oil sales.

He said about $10bn would be transferred into the Oil Stabilisation Fund, which collects windfall oil revenue for development projects, private-sector loans and budget stabilisation in the event of falling oil prices.

The OSF would contain $18bn at year end, double the level at the end of 2004-05. Mr Mojarrad said Iran could achieve 13.5 per cent inflation in 2006-07 in spite of a draft budget from President Mahmoud Ahmadi-Nejad that envisages a 27 per cent increase in spending, a level most analysts say will push inflation above the current 15 per cent.

Mr Ahmadi-Nejad's proposals, which include new commitments to loans for the less well-off and development schemes in the provinces, still need parliamentary approval.

*Iran on Tuesday blamed outsiders for two bombs that killed eight people and injured more than 40 in Ahvaz, capital of Khuzestan province, south-west Iran. The explosions came after Mr Ahmadi-Nejad cancelled, late on Monday, a four-day visit to the province due to "bad weather". The bombs went off close to the time and venue of a speech the president was due to make.