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US Congressional Panel Reviews Controversial World Bank Loans to Iran - 2003-10-30

Experts have told U.S. lawmakers that multilateral pressure is most likely to influence the government of Iran to change its policies on support for terrorist groups and suspected nuclear weapons development. A congressional panel heard testimony Wednesday on the question of World Bank lending to Iran.

Since World Bank lending to Iran resumed more than three years ago, about $400 million has gone to Iran for a variety of projects.

Iran remains on the State Department list of countries identified as being key sponsors of terrorism. Under anti-terrorism laws already in force, the United States is required to oppose World Bank lending to Iran.

However, such efforts have been unsuccessful since May 2000 when what had been a consensus against loans to Iran changed, with key bank contributors citing the need to support Iranian political reformers.

William Schuerch, deputy assistant secretary for international development in the U.S. Department of Treasury, said the Bush administration has been unable to reverse this, but not for lack of trying.

"This administration agrees with Congress that Iran should not have access to MDB [multilateral development bank] lending," he said. "I want to assure you the Treasury Department and the U.S. Executive Director of the World Bank, while not fully successful, have consistently and actively sought to block all proposals for assistance for Iran."

That does not satisfy Brad Sherman, a California Democrat. He says lending to Iran accomplishes little more than supporting a "terrorist regime." "What does it do when the World Bank sends subsidies to the terrorists in Teheran? It puts the stamp of approval of the most prestigious economic institution in the world on doing business as usual with that government," he said.

For Congressman Sherman, the Bush administration has not done enough to oppose loans. He is primary sponsor of House legislation proposing to reduce U.S. payments to the World Bank or other institutions which provide loans to Iran.

Two experts told lawmakers that trying to pressure Iran into changing its policies by trying to cut off World Bank lending would not have much effect.

Ray Takeyh of the National Defense University believes Iran, including conservatives and reformists, appears to have made development of a nuclear deterrent a "centerpiece" of national strategy. He calls for sustained multilateral action.

"A carefully-crafted international consensus, that combines American pressure and European determination in my view is the best manner and the only manner of obstructing Iran's proliferation tendencies," he said. Patrick Clawson, Deputy Director of The Washington Institute for Near East Policy, says World Bank loans could play a larger role if the Iran nuclear issue shifts to the United Nations security council, which could suspend all multilateral financial assistance.

In the meantime, Mr. Clawson says the United States should continue to pressure the bank on economic issues linked to its loans.

"It would be entirely consistent with World Bank procedures for the United States government to vigorously lobby the bank's management and executive board about the inappropriateness of lending to a country with as poor economic policies as those of Iran," he said.

Answering questions at the National Press Club in Washington, World Bank President James Wolfensohn said the bank is trying to build relationships with Iran while walking a fine line between various political forces in Teheran.

"We are trying to support more moderate actions, and we are doing some few projects there in relation to social programs," he said. "This is not uncontroversial. Our board is significantly supportive of this, but the United States at the moment is very guarded."

The World Bank president says it is his hope that in the process of building links to Iran, the bank can contribute to stability in the country.