March 26, 2020 | Policy Brief

IMF Should Reject Islamic Republic’s Loan Request

March 26, 2020 | Policy Brief

IMF Should Reject Islamic Republic’s Loan Request

The Islamic Republic of Iran has requested a $5 billion loan from the International Monetary Fund (IMF) as Tehran confronts a perfect economic storm combining President Donald Trump’s maximum pressure campaign, an unexpected plunge in oil prices, and the COVID-19 pandemic. Were the IMF to approve this loan, the nature and structure of the Islamic Republic would likely result in the misuse of these funds in a manner that benefits the regime but not the people.

The Islamic Republic runs a corrupt economy where freedom is scarce, accountability nonexistent, and transparency rare. Transparency International’s corruption index ranks Iran 146th among 180 countries. The Central Bank of Iran – designated by the United States for its direct financing of terrorism – lacks the independence of a normal central bank and engages in a range of money laundering activities. The country’s banking system is an inefficient structure where politically connected figures embezzle billions of dollars from ordinary depositors. Firms controlled by the military or by the supreme leader, Ali Khamenei, dominate the economy.

The Islamic Republic’s rampant corruption and money laundering practices are rooted in a financial structure that runs contrary to IMF rules by operating multiple currency exchange rates. While the IMF allows its members to operate multiple rates temporarily, Tehran relies on its multiple rates as a means of distributing political spoils, by granting regime loyalists access to hard currency on favorable terms.

In addition to these structural issues, Iran diverts its revenues to fund terrorism, missiles, and illicit nuclear capabilities. In response, the Trump administration imposed “maximum pressure” sanctions, vowing to add additional pressure until the regime halts its sponsorship of terrorism, removes its forces from the Middle East, dismantles its nuclear and missile programs, and releases all U.S. hostages. The IMF would be right to worry that its loan may never be repaid and – worse – that Tehran will use it to subsidize malign activities.

The influence of the Islamic Revolutionary Guard Corps (IRGC), a U.S.-designated foreign terrorist organization whose leaders and affiliates are subject to UN sanctions, also seriously compromises the integrity of the Iranian financial system. The IRGC controls roughly 25 to 30 percent of the Iranian economy, while Khamenei sits on a $200 billion empire, which also operates above the law. Businesses owned and controlled by the IRGC or supreme leader account for 20 to 25 percent of the value of all firms listed on the Tehran Stock Exchange. The U.S. Treasury Department’s Financial Crimes Enforcement Network has found Iran’s entire financial system, including its central bank, to be a jurisdiction of primary money laundering concern.

For the IMF to have confidence in Iran’s ability to repay a loan – or even use such funds in a responsible manner – the Islamic Republic would have to halt all sponsorship of terrorism; stop investment in its illicit missile and nuclear programs; disentangle the supreme leader, clerics, and IRGC from the economy; and comply with all the requirements and recommendations of the Financial Action Task Force (FATF), which just last month ordered the global banking community to defend itself against Iranian money laundering practices.

The World Health Organization and various countries and non-governmental organizations are taking proactive steps to deliver medical supplies and technical assistance to help the Iranian people combat COVID-19. America would be doing the same, but Tehran has rejected multiple offers of assistance, while the supreme leader promotes baseless conspiracy theories accusing the United States of inventing the coronavirus. While transfers of goods and supplies directly to the Iranian people serve a crucial need, cash payments, loans, and other lines of credit to the Islamic Republic of Iran pose grave threats to international security and do not help ordinary Iranians. Without wholesale behavioral changes by Iran’s government and structural changes to its economy, the United States and other IMF shareholders should reject Iran’s request for any IMF loan.

Richard Goldberg, who previously served as National Security Council director for countering Iranian weapons of mass destruction, is a senior advisor at the Foundation for Defense of Democracies (FDD), where Saeed Ghasseminejad is a senior Iran and financial economics advisor. They both contribute to FDD’s Center on Economic and Financial Power (CEFP). For more analysis from Saeed, Richard, and CEFP, please subscribe HERE. Follow Saeed and Richard on Twitter @SGhasseminejad and @rich_goldberg. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.


COVID-19 International Organizations Iran Iran Global Threat Network Iran Politics and Economy Iran Sanctions Iran-backed Terrorism Sanctions and Illicit Finance