Speaking at the National Conference on Smart Economy and Financial Development, Mehdi Ghazanfari expressed concerns about the officials' limited understanding of fund management, resulting in damage to the fund. He explained, "Typically, countries rich in oil have established national wealth funds to manage their resources, while other countries have their own methods for handling their resources. Some allocate these resources to their current budget, some to the development sector, and some for future generations. Although our country's constitution defines the National Development Fund as serving the purpose of development and protection, in practice, it has been primarily utilized for budget stabilization rather than its intended objectives.
The lack of intelligent understanding of concepts stands as the primary reason behind the failure of the currency reserve account.
He emphasized that in order to enhance the intelligence of our economy, it is crucial to elevate the understanding and application of concepts. Citing an example, he stated that the economic concept underlying the establishment of the foreign exchange reserve account was inadequately explained. Presently, even the National Development Fund faces similar challenges. Interestingly, the major responsibility falls upon the rulers and auditors, who, with the assistance of intelligent computer systems, may unintentionally expedite the adoption of incorrect concepts.
Regarding the extension of construction and asking for a respite for projects funded by the National Development Fund, the Chairman of the Executive Board noted that the fundamental issue lies in a conceptual discrepancy between production and development. Some regard production as sacred and refuse to repay loans, while the pursuit of development requires distinguishing between the two. It is crucial to refrain from depositing funds from the fund solely into the production sector. Such an approach fails to foster development and is fundamentally counterproductive. Instead, development should stem from resource iteration in production, rather than mere accumulation of resources within one or more production plans.
Slow Development Path of Power Plants and the Need for Formalizing the Energy Market
Ghazanfari highlighted: One of the challenges we face in the economic governance of our country is the incorrect definition of concepts related to development, particularly in the energy market. This misinterpretation has significantly impeded the progress of the power plant sector.
He emphasized the importance of adopting a smart approach in the fund's direction. He stated: Smart strategies should be the foundation, followed by intelligent tactics and tools. Comparing our National Development Fund to other national wealth funds worldwide has raised serious concerns. While the average rate of return for those funds stands at approximately 6%, the National Development Fund has yielded zero returns on average. This indicates a significant decrease in the fund's value over the past 10 years. If this trend of resource depletion continues, the fund will face complete depletion, leaving practically nothing for future generations instead of a trillion-dollar fund.
Referring to the activities of over 100 national wealth funds worldwide, the Chairman of the Executive Board of the National Development Fund noted: Comparative analysis reveals notable differences between the governance of the National Development Fund and certain other national wealth funds, which demonstrate smarter decision-making by those funds. Sometimes, it seems feasible to emulate their practices. Strikingly, the National Development Fund of Iran appears to be the only fund globally that provides facilities, while other oil-producing countries have funds actively involved in the oil sector and the development of oil fields.
Drawing attention to the capital increase of the Dubai fund exceeding one trillion dollars, as well as the impressive growth rates of the funds in Norway and China, he mentioned: The Iranian fund currently stands at $150 billion, of which around $100 billion was withdrawn by previous governments, and approximately $40 billion has been utilized for facilities.
Transparency of Fund Resources and the Need to Disclose Information to the Public
Ghazanfari emphasized the importance of making the funds of the National Wealth Fund accessible to the public. He stated: It is essential for the public to have a clear understanding of the general approach regarding withdrawals from the fund and the government's utilization of its resources. In my opinion, there is no justification for keeping the fund's finances confidential. The people are the primary beneficiaries of the fund, and through transparent information provided by us, they can better comprehend the National Development Fund's status and its management practices.
Referring to the 12th principle of the Santiago Principles, the Chairman of the Executive Board of the National Development Fund added: According to this principle, the financial statements must be prepared annually and consistently in accordance with accepted national and international standards. However, our interactions with the audit organization have not yielded satisfactory results. Sometimes, the fund's foreign exchange resources decrease, but our audit system portrays a profit in Iranian rials for the fund. Such an approach demonstrates a concerning level of ignorance in the auditing process.
Ghazanfari further announced that an important section of the Santiago Principles addresses fund investments. He stated: Principle 18 emphasizes the need for a clear investment policy of the IPC fund that aligns with the defined goals. And risk tolerance and investment strategies must belong to the fund's owner or managers. A governance charter exists for fund management, and it would be prudent to adhere to its provisions to enhance the necessary intelligence and specificity in decision-making.
Transforming the National Development Fund into a National Wealth Fund
Highlighting the need to convert the National Development Fund into a National Wealth Fund, he expressed: It is crucial that this concept is accurately conveyed to those responsible for formulating the 7th Development Plan. Failure to achieve the desired goals, due to the lack of necessary expertise, is a possibility outlined in the current statutes. Consequently, legal reforms are necessary to effectuate the transformation of the National Development Fund into a National Wealth Fund.
The Chairman of the Executive Board of the National Development Fund, underscoring the inclusion of all oil and gas revenues in the fund and the allocation of investment profits from these resources to the budget, remarked: The current confusion in the governance of the fund stems from the ambiguous interpretation of three fundamental concepts within the country. Firstly, the distinction between capital and wealth has been blurred over the past 40 years. Oil, incorrectly considered wealth, has been entirely allocated to the budget, with any surplus directed to the fund. Governments have frequently withdrawn from the fund whenever the need arose. However, oil represents capital, not wealth. Capital is not meant to be used for daily expenses; instead, it generates investment profits. If this crucial principle had been implemented in the fund over the past decade, we would now possess a fund of $1 trillion, rather than $150 billion.
Clarifying the Distinction between Capital and Wealth for Government Officials
Highlighting the importance of accurately explaining the disparity between capital and wealth to government authorities, he stated: The National Development Fund is fully prepared to meet the country's budgetary needs if all oil and gas revenues are channeled into this sector and invested accordingly. Through investments, an amount equivalent to the average of the past 10 years can provide for the country's budget. As such, direct allocation to the budget is unnecessary. This represents the first fundamental concept that should be implemented in intelligent governance.
Ensuring Annual Growth of the Fund
Ghazanfari emphasized that intelligence is attained through data, and in economic governance, it is crucial to redefine economic concepts before implementing intelligent tools. He expressed concern over the misuse of the term "production" to acquire funds from the National Development Fund and not pay it back, which he regarded as counterproductive to development and should be avoided.
Highlighting the need for the fund to expand each year, he stated: If the fund diminishes, we leave nothing for future generations. Those who fail to safeguard resources for the next generation cannot claim to be acting intelligently. Some representatives insist on accessing fund resources without considering the feasibility studies, disregarding the financial implications. However, when it comes time for repayment in five years and the project faces difficulties in meeting installments, none of these respected representatives will approach the fund seeking solutions for retrieving the resources they advocated for. This, too, reflects a form of ignorance.