Reuters, Aug 15, 2008, (excerpts) – Stepped-up international pressure and sanctions against Iran over its nuclear program are hurting its economy, making trade financing and payments difficult and discouraging foreign investment, according to an IMF report published on Thursday.
The International Monetary Fund said profits of state-owned banks have been hit hard by U.S. and U.N. economic sanctions, forcing the government to recapitalize three banks.
“Intensified international pressures on Iran have negatively affected economic activity,” the report said.
The U.N. Security Council has imposed three rounds of sanctions on Iran for refusing to suspend its nuclear activities, which the West says is a cover for building bombs. Tehran has denied the charge.
The U.S. Treasury has banned dealings with several Iranian banks — including its largest, Bank Melli — and that has forced many businesses to steer clear of Iran.
IMF staff said the recent increase in inflation suggested the economy was overheated because of high oil prices. One way to deal with it was to tighten monetary policy, staff said. Still, they said, the central bank’s influence over monetary policy had been curtailed through administrative changes last year.
But if oil prices for Iranian crude fell to $75 per barrel, the country would register current account deficits in the medium term, which would be unsustainable because of Iran’s limited access to international financial markets, the IMF added.
“There has been no political consensus to implement other (IMF) recommendations such as tightening monetary policy and reducing government interference in resource allocation,” the IMF report said.