Friday, January 20, 2006

Credit Check

Vance Serchuk, The Weekly Standadrd:
AFTER TWO YEARS of patient diplomacy with Iran, representatives of the E.U.-3--Germany, France, and Great Britain--recently acknowledged that their negotiations with the Islamic Republic had reached a "dead end." Spurred by Teheran's decision to restart work at its enrichment facility in Natanz, the Europeans condemned Iran's "documented record of concealment and deception" and called for an emergency meeting of the International Atomic Energy Agency, to be held next month in Vienna. There they intend to demand a referral to the U.N. Security Council, strongly backed by the Bush administration. It's likely they will get it.

And what then? With international consensus at last hardened around the notion that the Iranians are determined to develop nuclear weapons, the debate and speculation have already begun over precisely what action Washington and its allies should propose. In brainstorming the different measures that could put the screws to Iran, however, it's useful to remember that the United Nations is not the only international organization in town. The Bush administration could also look to the World Bank. READ MORE

According to the World Bank's 2005 Annual Report, Iran is the ninth largest borrower from the IBRD--the branch of the bank that gives loans to middle income and credit-worthy poor countries. Iran has received over $1.1 billion over the past three years, more than half of that in the last year alone. That's more than Ukraine, Poland, or Pakistan.

Putting an end to this practice wouldn't be hard. The United States has had the option to block these loans for years, thanks to the fact that the distribution of power inside the World Bank, unlike at the United Nations, bears a vague relation to reality. The Bush administration, however, has chosen to abstain rather than vote against Iran.

Skeptics are likely to point out that the loans are geared toward a humanitarian purpose and thus, shouldn't be linked to Iran's nuclear misconduct. Providing Iran with money for sewage treatment plants and irrigation systems, after all, can't possibly help the regime in its quest for weapons of mass destruction.

The problem with this argument is that money is fungible. Every dollar of aid the Iranian government receives from international sources to invest in its economic infrastructure is a dollar that the government is free to invest somewhere else. Without World Bank aid, Teheran might still prefer to prioritize weapons of mass destruction over the well-being of its people--but that is the choice the regime would be forced to make. Regardless of the sums involved, international financial institutions shouldn't be subsidizing Teheran's budget.

Others might argue that international financial institutions such as the World Bank shouldn't be dragged into geopolitical disputes. But this ignores history. From the moment of its creation, in fact, the bank has been used for great power purposes. Harry Dexter White, one of the intellectual architects of the IBRD at Bretton Woods, explicitly justified its purpose as a bulwark against the Soviet Union: "There is nothing that will serve to drive . . . countries into some kind of ism--communism or something else--faster than having inadequate capital." And for better or worse, throughout the Cold War, U.S. policymakers used cheap World Bank credits to prop up friendly governments.

There are more recent precedents for the intersection of the World Bank and geopolitics. During the 1990s, for instance, the Clinton administration adroitly made use of the bank to spearhead its efforts at economic reconstruction in Bosnia, leveraging its promises of massive aid as an incentive for warring parties to accept compromises and lay down their arms.

It also used the bank for punitive purposes. In 1998, after India conducted five nuclear tests, Washington pressured the bank to implement an "indefinite delay" on $865 million in loans for an electrical power grid, road construction, and assorted other projects in the country. The bank cutoff was part of a broader range of measures the Clinton administration adopted to punish Delhi for its nuclear activities.

The Bush administration could take a similar approach toward Iran. Granted, axing Iranian loans at the World Bank isn't likely to bring about regime change any time soon. But it will reinforce the message that the regime's behavior is turning the country into a pariah state, not just at the United Nations, but in other international forums as well. That's far from being a complete solution--but it's also not a bad place to start.

Vance Serchuk is a research fellow at the American Enterprise Institute.