The central bank is developing a new bank accounting framework, which represents a move towards international accounting standards, while taking account of the special features of Islamic finance. The authorities are also developing an action plan for implementing supervision reforms. These developments ought to be good news for prospective investors in Iran. They also help illustrate that international best practice standards can be flexible enough to accommodate individual country circumstances. The move to a more market-oriented environment brings with it new challenges. For example, liberalising exchange controls and freeing the exchange rate to market forces brings risks as well as opportunities. A sequenced approach to capital account liberalisation helps mitigate these risks and that is the route Iran has pursued. But that is not to say reform has stalled. Since mid-1999, the central bank has taken important steps to improve and simplify the foreign exchange market, including allowing the exchange rate to depreciate to market clearing levels. In March 2000, requirements to surrender non-oil export receipts to the central bank were abolished. The intention now is to introduce a direct, interbank foreign exchange market, and to eliminate an advance import deposit requirement by March 2001. These will be important further steps in increasing Iran’s exposure to international competition which in turn can contribute to its productive efficiency. Exchange rate unification and the partial liberalisation of trade and exchange controls will make greater demands on the effectiveness of monetary policy. For example, monetary expansion may arise from the phased reduction in banks’ reserve requirements.

It will be important for the central bank to develop effective monetary instruments to sterilise the monetary impact of these reforms, and support the central bank’s target for inflation. The issuance of CDs, together with the partial liberalisation of credit allocation, are all sensible and commendable steps. And I know that the central bank is actively considering additional possibilities. These measures will make for a financial system in Iran that is more efficient, liquid and transparent - and thereby more attractive to potential market entrants. Mr Chairman, economic progress in any one country is not just a question of that country’s national interest, it is - in today’s increasingly economically and financially integrated world - a matter of collective, international interest. That is true both at the macro- and at the microeconomic level - the level of individual businesses and firms. That’s why I think it is important that we encourage the forces working for reform and liberalisation by engaging constructively with them. Iran has embarked upon an ambitious, but realistically measured, programme of reform and liberalisation through the Third Five-Year Development Plan, and it is taking advantage of the present more favourable conditions in the world economy to advance that programme. I wish you, Governor Nourbakhsh, and the authorities in Iran all possible success in achieving your objectives in the interests of the Iranian people and in the interest of us all. 3  BIS Review 83/2000