Significantly Iran’s nationwide demonstrations began in Mashhad – the second biggest city - where many now bankrupt financial institutions were based and whose collapse already provoked protests across the country.
The background to the recent wave of finance institutions’ bankruptcies is the protracted economic crisis the Iranian economy has been suffering. The adviser to the Iranian president listed water resources, environment, pension funds, the national budget, the banking system and unemployment as the six gigantic aspects of the crisis to which the regime has not been able to present a solution.
In the last two decades, the growth of banks and their dominance over the economy has been an evident feature of the economy. However, this dominance has led to more problems. First of all, the banks act like leeches on the body of the economy. The interest rate in Iran is very high. The banks give an interest with a rate of more than 20% to deposits, while getting income by charging higher rates on loans they grant. Medium industries have been heavily damaged by this policy. Most of these industries suffer from a lack of financial resources as the result of these high interest rates. Many of them became bankrupt, especially after the international sanctions imposed against Iran during the dispute over its nuclear programme.
The Central Bank decided to reduce interest rates by a few per cent recently but it is not known to what extent this policy was successful because the banks cunningly find loopholes and tricks to use the same high rates.
Iranian banks were almost completely nationalised during the 1979 revolution. During the 1980-88 war with Iraq, banks were used by the government to overcome its budget deficit. The government’s debt to banks has steadily increased over the years so that today the government has a debt of 2,200,000 bn rials (55 bn dollars) to banks.
After the war, the country started to revive the economy by increasing oil and raw material exports. In the early 2000s, the country experienced a relative boom, mostly in housing construction. The lucrative housing market caused the banks to heavily invest in this sector. Furthermore, the government allowed the establishment of private banks and the so-called financial and credit institutions.
The difference between the banks and the institutions is that the latter were not obliged to put a fixed per cent of their capital as a guaranteeing deposit with the Central Bank. The Central Bank holds this deposit to guarantee the banks’ obligations towards their customers. Additionally, the institutions were free in determining their interest rates. Some of them have had the crazy interest rate of 29 per cent in competition with banks!
The newly established “private” banks and institutions are affiliated to different factions and organisations. As an official said, in the early 2000s every organisation decided to establish its own banks and financial institutions. Many of the founders of the institutions are corrupt officials from the security and military forces or the bureaucratic apparatus of the regime.
In the 2000s, both the banks and financial institutions put huge funds in housing and in non-productive activities such as import, land and gold speculation. Former President Ahmadinejad’s affordable housing plan stimulated the financiers’ greed and lust for huge profits.
The high interest rates were tempting to both finance capitalists and ordinary people. Because of the high rate of unemployment and falling purchasing power, many low-income people deposited their money with the hope that the interest income could improve their lives a bit. Some people even sold their houses to put money into the banks and institutions. Of course, the rich people who deposited enormous amounts made great profits. An official said recently that 20 per cent of the money in circulation is deposited in the institutions.
However, this race for plundering the working class was a short-lived bubble. Around 2011 a slump in the housing crisis began. This was intensified with the sanctions and the sharp devaluation of the national currency. The result was predictable; all the financial institutions, with those fabulous interest rates failed to pay interest to their clients, and when people rushed to take back their money there was nothing left! The bankrupts closed their doors one after another. One of the largest and most infamous institutions, the Caspian Credit Institution, owes 1.4 bn dollars to around half a million clients.
The Central Bank has tried to bail out and appoint other banks to take over the remnants of the bankrupt institutions’ assets but it has not been successful until now. Recently a member of parliament said about 20 million Iranians are involved in the financial institutions’ crises! The Central Bank has frequently promised to solve the problem but appointed some banks to take over the bankrupt institutions. However, what has actually happened is that only a percentage of the money was returned to some depositors, and the Central Bank said no interest will be paid for the years that the institutions had the deposits.
The depositors of the institutions, mostly poor people, staged demonstrations across the country. During the summer of 2017, when the Central Bank governor was visiting the Tehran Book Fair, they chanted against him, and he fled the fair. In some cities the protesters came into conflict with the police but the regime has not been able to use extreme force. Almost every week, they rallied in front of the Central Bank and ask the bank governor to be accountable. The police broke up their rally in Tehran’s Enghelab Square when they decided to march towards Khamenei’s residence. Sometimes, these protests met protests by other groups of people, for example in Book Fair, where depositors and people who paid for houses from a corrupt housing project joined together in a demonstration. A solution to the problem is the unconditional and immediate repayment of the funds less than $50,000. The Central Bank promised to do so, but so far it is just empty words.
The story of these institutions is the story of savage exploitation of the working class by an emerging finance capitalism class in cahoots with the corrupt officials of a Bonapartist regime; another aspect of the sharpening social and economic tensions and class struggles in Iran.