OpinionIran in the World PressIran's economic suicide

Iran’s economic suicide

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Wall Street Journal – By STUART LEVEY: Tehran’s pursuit of nuclear weapons and its radical foreign policies have provoked international sanctions. Its financial subterfuge has led key banks and businesses world-wide to sever their Iranian business ties, and President Mahmoud Ahmadinejad’s blunders are debilitating Iran’s economy. As a result of the regime’s choices, Iran is headed toward isolation and economic hardship. The Wall Street Journal

By STUART LEVEY

Tehran’s pursuit of nuclear weapons and its radical foreign policies have provoked international sanctions. Its financial subterfuge has led key banks and businesses world-wide to sever their Iranian business ties, and President Mahmoud Ahmadinejad’s blunders are debilitating Iran’s economy. As a result of the regime’s choices, Iran is headed toward isolation and economic hardship.

Through intense diplomacy, the United States and its allies have built a multilateral coalition resulting in two unanimous U.N. Security Council sanctions resolutions that impose financial measures targeting Iran’s nuclear and ballistic-missile programs. Sustained international pressure on Iran is having an impact. The Bush administration is committed to continuing this diplomatic approach.

Voluntary actions by the private sector are reinforcing governmental pressure. One year ago, U.S. Treasury Secretary Hank Paulson launched a world-wide effort to inform the public, government partners and private-sector leaders about the danger Iran’s financial deception poses to the international financial system. We have shared information with these groups about how this deceptive conduct enables Iran to support terrorism and its nuclear and missile programs, and about Iran’s attempts to lure reputable banks unwittingly into those activities. We cautioned that, absent a change in course, the regime would find it exceedingly difficult to locate partners among the world’s reputable banks. That prediction has become a reality.

Iran uses its state-owned banks to finance proliferation and terrorism: The United Nations has blacklisted Bank Sepah for its role as the financial linchpin of Iran’s missile programs, and Bank Saderat has been cut off from the U.S. financial system for financing terrorism. Iranian banks, including its central bank, take special care to hide their involvement in illicit business by asking other banks to remove their names and all references to Iran from transactions — a clear acknowledgment of their wrongdoing. This routine practice is specifically designed to deceive those who might reject the transaction if they knew who, or what, was really involved.

Before the passage of U.N. Security Council Resolution 1747, which imposed financial sanctions on Iran’s nuclear and missile programs, the Central Bank of Iran abused its relationships with upstanding financial institutions to shield Bank Sepah’s assets from the impact of impending sanctions. Other Iranian banks also helped Sepah evade sanctions after its Security Council designation.

As they become aware of this misconduct, more banks world-wide are refusing to deal with Iran in any currency, determining the business is too risky. Foreign-based branches and subsidiaries of Iran’s state-owned banks are increasingly isolated — threatening their viability — as banks and companies resist dealing with them for fear that their business will be disrupted by additional U.N. sanctions. And there has been a devastating reduction in the foreign investment Iran needs to develop its vast oil reserves. France has now asked its largest firms not to bid for projects in Iran.

This financial pressure is amplified by the regime’s economic mismanagement. Despite Iran’s increasing oil revenues, President Ahmadinejad has failed to deliver on his promises to improve the lot of average Iranians. Most independent experts estimate Iran’s unemployment rate to be double the regime’s claim of “only” 11%. Similarly, Iran admits its inflation rate is 17%; experts estimate the true figure is even higher. Instead of trying to ease inflation, President Ahmadinejad has thrown fuel onto the fire, ordering the central bank to cut interest rates far below the inflation rate despite objections by the bank’s former governor — an act of economic malpractice.

Corruption is widespread, depriving average Iranians of economic opportunity. The Ahmadinejad regime awards lucrative “no-bid” contracts to cronies in Iran’s Revolutionary Guards Corps, whose leadership has been sanctioned under U.N. resolutions.

Yet the regime continues to send hundreds of millions of dollars every year to support deadly terrorist groups abroad while the population is neglected. At a time of record oil prices, the country’s oil revenue reserve fund should be growing to benefit the future of the Iranian people. Instead, it is being spent down to mask the effects of the regime’s misguided economic policies.

All of this has not gone unnoticed. The OECD recently increased Iran’s risk classification for the likelihood that the country will pay its external debts to its second-worst rating — equal to that of Gabon and Swaziland — thereby increasing the cost of financing for Iranian companies.

Those who have dared to tell the truth about the pain these policies are inflicting on the country have paid the price. President Ahmadinejad just ousted the central bank governor who resisted cutting interest rates in the face of persistent high inflation. He also sacked Iran’s oil minister, who acknowledged that Tehran was having difficulty funding oil projects as a result of decreased cooperation from overseas banks and financiers and who called Iran’s energy problems a looming “catastrophe.”

Iran is experiencing the consequences of its deceptive financial conduct and defiant policies. Its leaders are inflicting hardship on the Iranian people and steadily turning their country into a financial pariah. Whether to continue down this path of isolation is a choice Iran must make.

Mr. Levey is undersecretary for terrorism and financial intelligence in the U.S. Treasury Department.

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