In an effort to manage extreme volatility in the currency market, Iran has replaced the head of the Central Bank of Iran (CBI). But just days after the appointment, it is evident that Adolnasser Hemmati is not a solid planner, and that he may be less than ready to take on the challenges he faces.
On July 25, the Iranian government thanked Valiollah Seif for his services and brought in Hemmati as the new governor. The move was inevitable following upheavals in Iran’s currency market, the national currency’s freefall and the damage caused by unlicensed financial institutions. But Hemmati, who received a doctoral degree from the University of Tehran in economics, is more of a traditional bureaucrat who owes his rise to the political establishment than an innovator or financial whizz. His background, like so many others in the political establishment, includes working for revolutionary institutions in the early years of the Islamic Republic, rapid promotion during the 1980s and becoming a fixture of Iran’s banking and insurance industries in the 1990s while studying for his doctoral degree. So Hemmati is taking charge at the CBI more as a trusted hand than as an economist. His credentials and work experience single him out as someone who will prioritize political concerns over economic interests.
Photographs from the early years of the revolution show a beaming young Hemmati next to Mohammad Ali Rajayi, Iran’s second president and considered a martyr of the revolution after he was killed in a bomb explosion, as well as with Akbar Hashemi Rafsanjani, at the time Speaker of the Majlis (parliament) and a founding father of the Islamic Republic of Iran’s political system. Hemmati left his studies at the University of Tehran as a master student of economics ready to pursue his political goal. First he worked for Jahad e Daneshgahi, a revolutionary organization for academia. He left it to join the Islamic Republic of Iran Broadcasting (IRIB). At the time, the war with Iraq was raging and IRIB, as the only media organization in Iran with a monopoly over radio and TV channels, was the regime’s main propaganda machine. Hemmati enjoyed a successful career at the IRIB, becoming one of the leading figures for war propaganda and the IRIB Vice President for Political Affairs.
As the war ended, Hemmati returned to the University of Tehran to receive his doctoral degree in economics and to establish his academic credibility. His political affiliations and credit already established, he was recognized as a member of the close circle of people who are trusted by both the Leadership and the political establishment. When the Iran Economists Association (IEA), an academic society that was closed down during the war years, became active again, he joined two other doctoral students, Farhad Rahbar, later the head of Iran’s Budget and Planning Organization, and Ali Tayyebnia, the minister of economic affairs during President Rouhani’s first administration, in founding the Islamic Society of Economists, condemning IEA as an association with links to a liberal conspiracy. But the Islamic Society of Economists never moved on from the idea stage and failed to take shape. However, it paved the way for the three doctoral students, who all assumed public offices in the following years.
In the meantime, Hemmati traveled to London on a sabbatical to study at the University of London. His professional biography highlights his time in the United Kingdom, stating that he finished his doctoral thesis at the university. Today, as a banker and an economist, Hemmati is a product of the Islamic Republic political establishment, and remains one of its favorites.
The 1990s and 2000s saw Hemmati as a prominent figure in the banking and insurance industries. He was appointed as the head of Bimeh Markazi (the Central Insurance Company of Islamic Republic of Iran) and served as the chairperson of the Insurance High Council. Since 2001, he has headed the Asian Reinsurance Corporation, an intergovernmental organization established in May 1979 under the auspices of the United Nations Economic Social Commissions for Asia and the Pacific (UN-ESCAP) based in Bangkok, Thailand. At the same time, he remained active in political affairs. During Hassan Rouhani's time as General Secretary of the National Security Council between 1989 and 2005, he appointed Hemmati to the Economic Committee of the council. Hemmati has also served as the Chief Executive Officer of Iran’s Bank Melli and Sina Bank. In both positions, he had to deal with mounting unpaid loans, which made it impossible to value the banks' assets. He threatened to expose the major borrowers, but he never did.
In December 2011, when the Council of the European Union blacklisted 180 Iranian individuals and entities, Hemmati’s name was on the list as the CEO of Sina Bank. Hemmati sued the Council in the Court of Justice of European Union (CURIA), which ordered his name to be removed from the list. This earned Hemmati a reputation as an internationally savvy banker able to deal with complicated situations.
As critics increasingly blamed former governor Seif for Iran’s economic woes and the government’s failing currency policy, the administration had to act. Its clumsiness in dealing with the crisis at the Central Bank is not something Iran’s business community will easily forget. Hemmati had been selected as the Ambassador to China and was getting ready to move to Beijing when it was decided he would become governor of the CBI instead.
There is little debate about the nature of the challenges for the new CBI governor. But when it comes to the solutions, these are open to discussion, and there seems to be little agreement within the government regarding them. On the other hand, the Central Bank alone does not have the necessary authority to meet all these challenges. It is true that the increase in the supply of money and monetary instruments has increased the probability of an explosion in prices. Yet there is no market that is not being distorted by either the government or military organizations such as the Islamic Revolutionary Guards Corps. The Central Bank cannot overrule anyone, and almost everyone can overrule the Central Bank. On the other hand, toxic assets have significantly reduced Iranian banks’ ability to issue credit and loans. Banks’ balance sheets leave a lot to be desired. The new governor will need to decide how to set the currency exchange rates to protect Iran’s hard currency reserves and to reform the banking sector so it can survive the United States’ unilateral sanctions.
If Hemmati continues to support the official policy of selling hard currency to keep the price of necessities down, rent-seeking behavior will intensify, resulting in more volatility pushing inflation higher. If he chooses to use a market approach, he risks angering Iran’s manufacturers and consumers alike while losing an important instrument at his disposal to secure his place in the political establishment. Ironically, currency policy won’t be Hemmati’s main challenge. That will be to deal with unlicensed financial institutions, often established by the members of the ruling elite to benefit at the expense of deposit holders. So far billions of rials have been lost to satisfy their greed, and no one has been punished yet. Consequently, the public does not trust the banks anymore. So Hemmati needs to reinforce public trust in the banking sector if he is to have a chance of succeeding in his new job.
But he is a banker. To enforce the law, he needs both the support of the judiciary and the security apparatus. Both have other priorities, making it less likely for a major change in public opinion. Hemmati is not known as someone who will rock the boat too harshly. He is a member of the establishment, he knows where the red tape is, and he will not stray far. This means the new equilibrium in Iran’s economy is here to stay. With Hemmati in charge, there will not be any real shakeup.