Can the IMF Overcome US Roadblocks to Help Iran? | Business and Economy
Iran has entered the coronavirus crisis with a crippled economy that has left it ill-equipped to fight the disease and ill-placed to ultimately bounce back from the countless ravages of the pandemic.
Deprived of financial resources due to relentless rounds of US economic sanctions, Tehran did something in March that it hadn’t done in over half a century: go to the International Monetary Fund to ask for an emergency loan $ 5 billion to fight COVID-19.
But to ask is not to obtain. And while the IMF is inclined to step up its aid plan, there is a huge hurdle to overcome. The United States is the Fund’s largest shareholder and can use its weight to hamper financial aid to Iran.
Iran has called the US sanctions “economic terrorism,” while Washington says Tehran’s support for armed groups in the Middle East is proof that Iran has sufficient funds to fight the virus.
But analysts say the IMF could find a way around this impasse by tapping into an asset created by the Fund to get more money from Iran to fight the pandemic.
Maximum pressure relentlessly
There is no doubt that Iran is grappling with COVID-19. The number of confirmed cases in the country has exceeded 79,000 and at least 4,958 people have lost their lives from the disease, according to Johns Hopkins University.
Among the dead are dozens of frontline health workers, according to Iran’s health ministry. Medical professionals have shared heartbreaking tales of inadequate personal protective equipment and shortages of drugs and medical devices, including respirators.
Iranian President Hassan Rouhani – who has been criticized for not reacting quickly enough to contain the virus – has defended his actions, saying he must weigh a lockdown against the blow such measures would bring to the already besieged economy. country.
Since 2018, after the administration of US President Donald Trump unilaterally withdrew from the nuclear deal between Iran and world powers, Washington has relentlessly forced Iran’s oil and banking sectors through successive rounds of sanctions. The punishment continued unabated even as Iran became the regional epicenter of the pandemic.
While humanitarian products like drugs are technically exempt, the sanctions “have severely limited the ability of Iranian entities to fund humanitarian imports,” a Human Rights Watch report revealed.
United Nations officials have called on the United States to ease sanctions on countries battling the coronavirus. Russia and China – signatories to the Iran nuclear deal – have also stepped up calls on Washington to ease sanctions against Iran.
The opposition is growing even in the United States. Last week, Democratic presidential candidate Joe Biden joined members of Congress in urging the Trump administration to suspend sanctions against Iran.
But the Trump administration has not changed course, which bodes ill for an IMF loan to Tehran.
“Secretary of State [Mike] Pompeo says Iran will divert IMF funds from coronavirus relief and to weapons of mass destruction programs and terrorist organizations, ”William W Burke-White, visiting scholar at the Brookings Institution, told Al Jazeera.
“The US administration also says Iran has sufficient financial resources to fight the virus if it uses its existing funds more responsibly.”
The US State Department views Iran as a sponsor state of “terrorism” – a designation that forces the United States to vote against extending IMF aid to Iran.
Labels notwithstanding, the United States owns nearly 17% of the Fund’s voting shares. The next shareholders, Japan and China, only have about 6% each.
While a group of countries could technically muster enough voices to overcome US opposition to the green light of an Iran aid plan, analysts say this scenario is unlikely.
“The IMF generally seeks to avoid contentious votes and may decide not to call one if there is a lack of clarity as to whether the vote will pass,” Burke-White said. “The United States is likely to exert significant pressure on its allies to try to at least create the appearance of broader opposition to the loan, and thus hope to avoid a vote.”
There is strong support within the IMF for an emergency loan to Iran. The European Union announced on March 23 that it would support Iran’s candidacy for the IMF, in addition to giving Tehran 20 million euros ($ 21.8 million) to help it fight the coronavirus. .
“These countries have also privately and publicly lobbied the United States to relax sanctions to allow Iran better access to the humanitarian goods needed to fight the coronavirus,” Al Jazeera told Al Jazeera. Ellie Geranmayeh, Policy Officer at the European Council on Foreign Relations. “The EU has no ocean between itself and Iran; the problems of the Middle East are seeping into Europe.
Analysts say there are ways the IMF could bypass US opposition and throw a financial lifeline on Iran.
“The Trump administration is obviously concerned about appearing politically isolated on the vote,” said Esfandyar Batmanghelidj, publisher of Bourse & Bazaar, a media company that supports trade diplomacy between Europe and Iran.
“It is possible that the IMF lending to Iran could create tensions with the administration that would derail broader negotiations, such as the ongoing discussions on increasing the Fund’s crisis powers, a decision to which the Trump administration opposes, ”he told Al Jazeera. .
One way to bypass a roadblock in Washington, Batmanghelidj says, involves the use of Special Drawing Rights, or SDRs.
SDRs are created by the IMF from a basket of so-called “freely usable” currencies, including the US dollar, Japanese yen, renminbi, euro and British pound sterling. Importantly, SDRs can be exchanged by IMF member states in freely usable currencies.
Iran has $ 2.1 billion in SDRs in the Fund. Batmanghelidj believes the IMF could facilitate the sale of part of these assets to a buyer who would exchange them for freely usable currencies, such as euros. The money could then be transferred to an account outside of Iran but maintained by the country’s central bank.
This type of exchange can happen directly between IMF member states and essentially gives the Fund a way to channel funds to Iran to help it fight the coronavirus, without holding a vote between member states.
“It would not require a vote in the board of governors and could give the IMF a way to help Iran without winning the wrath of the United States,” Batmanghelidj said.
He adds that the money could then be transferred through a secure payment channel similar to that set up by the Swiss authorities to allow Swiss companies to sell humanitarian goods to Iran without falling under the crosshairs of US sanctions.
“You basically take two things that have been done before – a sale of SDRs and the use of a humanitarian trade payment channel – and you combine them,” Batmanghelidj said. “Of course, in such a scenario, Iran would still have been denied the use of the rapid finance instrument. [the IMF programme that disperses emergency loans] – the Fund is between a rock and a hard place.