Tehran should compromise on bond issues

25 April 2008

Bond issues are a thing of the past for Iran, which needs to compromise with its critics if its economy is to progress.

The end of Iranís access to the worldís capital markets came in a brief statement of just four sentences. Fitch Ratings, the last of the three big agencies to rate Iran, announced on 24 April that it would no longer provide sovereign ratings for the Islamic Republic.

Fitch withdrew its B+ rating three days after Iran finished paying back a E325m ($513m) eurobond, the countryís last outstanding sovereign debt. Without any debt to rate, the company says there is no longer any need to provide a rating.

It is symptomatic of the difficulties facing Tehran. The Central Bank of Iran has not ruled out future bond issues, but no one expects new sovereign debt any time soon. Even if it wanted to raise more finance, few, if any, investment banks would be willing to arrange it. International sanctions because of Iranís disputed uranium enrichment programme have made most major financial institutions shun the country.

The lack of foreign capital is being felt throughout the economy. One example is the $18.5bn scheme to expand Tehranís metro system. Having failed to attract foreign capital to the project, the Tehran Urban & Suburban Railway Company has made some progress by offering land to local developers on the condition that they incorporate metro stations into their plans. Some $300m worth of contracts have already been signed and 25 stations will be built.

Other such innovative deals will be needed if Iran is to develop its infrastructure as quickly as it needs to.

A better solution would be for Tehran to come to a sensible compromise with its international critics over its nuclear programme. Failing that, Iranians will increasingly blame their leaders for their failure to attract investment even as neighbouring states, such as the UAE and Qatar, race ahead.

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