Wednesday, Aug 20
The IMF on Iran
- 08.20.2008 - 4:38 PMThe IMF’s assessments of Iran’s economy have arrived. They offer an interesting snapshot of the Iranian economy and a glimpse into the effectiveness of international and U.S. sanctions. Basically, the report boils down to this:
1. “UN and U.S. sanctions against certain Iranian institutions have created difficulties for trade financing and payments, discouraged foreign investment, and adversely affected the profitability of the targeted financial institutions.”
2. The overall economic situation is not bad, however, and could vastly improve through a number of economic reforms.
3. Its current strength is related to high oil prices and a significant reduction of the price of crude would adversely affect Iran’s internal situation.
4. Several structural problems remain, which prevent the system from performing better–chiefly high inflation.
So, according to the IMF, if
prices for Iranian crude remain at $85-$90 per barrel, reforms advance unevenly, double-digit inflation persists, and oil production stagnates . . . Iran’s growth potential would dwindle, a budget deficit most likely requiring CBI financing would emerge, and the economy’s vulnerability to a possible fall in oil prices would increase.
There is a lesson to be learned in this assessment: short of finding the magic wand necessary to reduce oil prices below $85 a barrel, the West can only increase pressure on Iran by smart sanctions that will make the other problems more acute. Otherwise, we can only rely on Iran’s governmental incompetence in managing its own economy–not exactly a strong strategy, despite Ahmadinejad’s record to date.

















