Iran entered the coronavirus crisis with a crippled economy that has left it ill-equipped to battle the disease and poorly positioned to eventually rebound from the pandemic’s myriad ravages.
Deprived of financial resources due to relentless rounds of US economic sanctions, Tehran did something in March it had not done in over a half a century: go cap in hand to the International Monetary Fund to request a $5bn emergency loan to fight COVID-19.
But asking is not getting. And even if the IMF is inclined to step up with an aid package, there is a massive obstacle to overcome. The US is the Fund’s biggest shareholder and can use its heft to obstruct financial assistance to Iran.
Iran has called US sanctions “economic terrorism”, while Washington says Tehran’s support of armed groups in the Middle East is evidence that Iran has sufficient funds to fight the virus.
But analysts say the IMF could find a way around this impasse by harnessing an asset created by the Fund to get Iran more money to fight the pandemic.
Maximum pressure unabated
There is no doubt Iran is struggling with COVID-19. The number of confirmed cases in the country has surpassed 79,000, and at least 4,958 people have lost their lives to the disease, according to Johns Hopkins University.
Among the dead are dozens of front-line health workers, says Iran’s health ministry. Healthcare professionals have shared harrowing accounts of inadequate personal protective equipment, and shortages of medicines and medical devices, including respirators.
Iran’s President Hassan Rouhani – who has been criticised for not reacting quickly enough to contain the virus – has defended his actions, saying he had to weigh a lockdown against the blow such measures would deliver to the country’s already beleaguered economy.
Since 2018, after US President Donald Trump’s administration unilaterally withdrew from the nuclear deal between Iran and world powers, Washington has relentlessly squeezed Iran’s oil and banking sectors through successive rounds of sanctions. The punishment has continued unabated even as Iran emerged as a regional epicentre of the pandemic.
While humanitarian goods like medicines are technically exempt, sanctions “have drastically constrained the ability of Iranian entities to finance humanitarian imports,” a Human Rights Watch report found.
United Nations officials have called on the US to ease sanctions on countries fighting coronavirus. Russia and China – signatories to the Iran nuclear deal – have also stepped up calls for Washington to ease sanctions on Iran.
Opposition is even building within the US. Last week, Democratic Presidential candidate Joe Biden joined members of Congress in urging the Trump administration to suspend sanctions on Iran.
But the Trump administration has not altered course, which bodes poorly for an IMF loan to Tehran.
“Secretary of State [Mike] Pompeo argues that Iran will divert IMF funds away from coronavirus relief and towards weapons of mass destruction programmes and terrorist organisations,” William W Burke-White, a visiting fellow at the Brookings Institution, told Al Jazeera.
“The US administration also claims that Iran has adequate financial resources to deal with the virus if it used its existing funds more responsibly.”
A volunteer and his son disinfect a car in Qom, Iran [File: WANA via Reuters]
The US Department of State considers Iran a state sponsor of “terrorism” – a designation that obliges the US to vote against extending IMF aid to Iran.
Labels notwithstanding, the US holds nearly 17 percent of the Fund’s voting shares. The next-largest shareholders, Japan and China, only have about 6 percent each.
While a group of countries could technically gather enough votes to overcome US opposition to greenlight an aid package for Iran, analysts say that scenario is unlikely.
“The IMF usually seeks to avoid contentious votes, and may decide not to call one if there is a lack of clarity as to whether the vote will pass,” Burke-White said. “The US will likely put significant pressure on allies to try and create at least the appearance of broader opposition to the loan, and thereby hope to avoid a vote.”
There is powerful support within the IMF for an emergency loan for Iran. The European Union announced on March 23 that it would support Iran’s IMF bid, in addition to giving Tehran 20 million euros ($21.8m) to help it fight the coronavirus.
“These countries have also privately and in public pressed the US to ease sanctions to allow Iran better access to humanitarian goods needed to fight coronavirus,” Ellie Geranmayeh, a senior policy fellow at the European Council on Foreign Relations told Al Jazeera. “The EU doesn’t have an ocean between it and Iran; the problems of the Middle East seep into Europe.”
Analysts say there are ways in which the IMF could work around US opposition and throw a financial lifeline to Iran.
“The Trump administration is obviously concerned with appearing politically isolated over the vote,” said Esfandyar Batmanghelidj, publisher of Bourse & Bazaar, a media company that supports business diplomacy between Europe and Iran.
“It is possible that the IMF granting Iran a loan could create tensions with the administration that would derail larger negotiations, such as the discussions now taking place about increasing the Fund’s crisis powers, a move which the Trump administration opposes,” he told Al Jazeera.
One way to bypass a Washington roadblock, says Batmanghelidj, involves the use of Special Drawing Rights, or SDRs.
SDRs are created by the IMF from a basket of so-called “freely usable” currencies, including the US dollar, Japanese yen, the renminbi, the euro and British pound sterling. Crucially, SDRs can be exchanged by IMF member states into freely usable currencies.
Iran has $2.1bn worth of SDRs within the Fund. Batmanghelidj believes the IMF could facilitate the sale of part of those holdings to a buyer that would exchange them for freely usable currency – like euros. The money could then be transferred to an account outside Iran but maintained by the country’s central bank.
This kind of swap can happen directly between IMF member states and essentially gives the Fund an avenue for getting funds to Iran to help it fight coronavirus, without holding a vote among member states.
“This wouldn’t require a vote at the board of governors and might give the IMF a way to help Iran without earning the ire of the United States,” said Batmanghelidj.
He adds that the money could then be moved through a secure payment channel similar to one Swiss authorities set up to allow Swiss companies to sell humanitarian goods to Iran without landing in the crosshairs of US sanctions.
“You are basically taking two things that have been done before – an SDR sale and the use of a humanitarian trade payments channel – and combining them,” said Batmanghelidj. “Of course, in such a scenario Iran would have still been denied recourse to the Rapid Financing Instrument [the IMF programme that disperses emergency loans] – the Fund is between a rock and a hard place.”