June 11, 2009 | Print | Back to Library |
Lend Money to Iran: Why Not?
Originally published in Across the Aisle.
Yesterday, I attended a House Foreign Affairs subcommittee meeting on the foreign policy implications of our response to the international financial crisis. The controversial security issue discussed was America’s funding for international financial institutions (IFIs) that lend money to nations like Iran, Sudan, and Syria. It would be great if we could convince the IFIs to stop loaning to regimes we don’t like. However, these institutions will play a critical role in the world’s economic recovery, and funding multilateral institutions necessarily requires that we sacrifice some control over where our money goes.
At the hearing, Representatives Brad Sherman (D-CA) and Ed Royce (R-CA) castigated President Obama for his recent promise of billions of dollars in new funding to the IMF and the World Bank. Dr. Nancy Birdsall of the Center for Global development testified that IFIs can stimulate growth in developing countries. That growth in turn boosts the American economy by providing markets and trading partners. It also keeps America safe by combating the poverty and economic instability that foster extremism and failed states.
During the hearing, Iran was of particular concern. Though the World Bank has not approved new loans to Iran since 2005, it continues disbursements on loans negotiated between 2000 and 2003. Sherman and Royce excoriated the World Bank for continuing disbursements to Iran, even though the money was designated for earthquake recovery, sanitation, and development projects. Loaning to IFIs does mean that American tax dollars will end up in countries whose policies we oppose. But it does not compromise our security interests.
Again, take the example of Iran. The truth is, cutting off loans won’t force Iran to give up its nuclear program, make democratic reforms, or concede anything else important to American strategic interests. Tough sanctions on Iran in the second half of the 1990s prompted the Iranian government to cut back on civilian programs while maintaining military spending and making progress towards a nuclear weapon. If we stop loans from IFIs, the effect will be similar. Preventing the World Bank and IMF from loaning to Iran won’t hurt the repressive regime or cripple the nuclear program. Instead, Iran will stop spending on disaster relief and clean water. If anything, denying the funds will only hurt the nascent democratic movement in Iran.
The United States should follow through on President Obama’s promises and increase funding for IFIs. At the same time, we can pressure those institutions not to loan to our adversaries, but we must be prepared to accept that IFIs will not always follow our lead—they’re multilateral organizations, after all. As Dr. Birdsall pointed out, the IMF is at least partly responsible for the rise of democracy in sub-Saharan Africa since 1989. More recently, IFIs have contributed crucially to social spending in developing nations that will help to blunt the pain of global recession. Reducing funds for IFIs risks the reversal of that progress, and that would be a real threat to our long-term security and stability.