After positive developments occurred from mid-2015 to early 2016 around Iran's potential nuclear capabilities, stalled economic reintegration into the global economy threatens to embolden extremists in Iran and far-right politicians within the United States. Visiting Washington, Iran's central bank chief Valiollah Seif highlighted serious economic barriers that have halted international financing and trade finance within Iranian banks. The ability to access US financial institutions or trade in US dollars was not part of the Iranian deal, and has unfortunately made reintegration into the global economy even more difficult.
In a renewed push to kick-start Iran's economic and financial reintegration, US Secretary of State John Kerry and British Foreign Secretary Philip Hammond have used their significant influence to call on European banks to work closer with Iranian businesses. Yet in private conversations, European bank officials have warned of the possibility of inadvertently financing criminal activity in a state that is not integrated into world finance compliance systems. Presumptive Republican presidential nominee Donald Trump has used strong rhetoric in regards to the Iranian deal as key points to deflect the calls of Kerry and Hammond. In fact, when one banking official said “Kerry is not long for this world”, meaning that with the Obama administration would soon be replaced, it was clear that any renewed push for international banks to deal with Iran will almost certainly fall on deaf ears. This then begs the question: what happens from here?
The IMF has used a recent trip to Iran to call for macroeconomic reform to not only stabilise the Iranian economy, but to also soften its perception of international banks. Of great concern, however, is the potential direction in which the IMF would like to induce macroeconomic reforms. In recent times, a strong criticism of the IMF has been its perceived use of a “blanket approach” to macroeconomic policy. Yet, the IMF press release does hint at a positive direction. The IMF highlights that core initiatives for the Iranian government would be to undertake steps to attracting foreign direct investment, implementing transparency reforms and focusing on youth unemployment. Transparency reforms will be crucial for allaying concerns that Iran is still a hub for terrorism financing, and a strong focus on youth unemployment will provide growing legitimacy for an ideologically moderate parliament under President Rouhani. Thankfully, in recent publications IMF officials are beginning to move away from their austerity fixation to focus on numerous other policy prescriptions. Despite this suggesting a seemingly positive change in IMF ideology, problems still exist.
Recent US Election polling has placed Democrat Hillary Clinton neck-and-neck with Republican Donald Trump. If Trump was able to secure the presidency and alter the reconciliation process between both states, hardline Iranian critics of the moderate parliament would begin to gain legitimacy. Hillary Clinton must continue to urge Trump to find a middle ground position on Iran. Hardline and extreme elements of the Iranian political elite are already beginning to question the economic outcome of the US-Iran nuclear deal. If support for international banks and sensible macroeconomic reforms are not put in place and far-right US politicians not kept in check, President Rouhani will face an increasingly hostile parliament and have little ability to seek changes. Ultimately, this would lead to a self-fulfilling circle where Iranian political elites revert to a hardline pathway—fuelling their anxiety over international banks seeking to invest in Iran, while also enabling far-right US politicians to control the US-Iranian dialogue.
The road forward is fraught with potential potholes. There are, however, a few steps both sides could take to help reintegrate Iran back into the world economy. Firstly, President Rouhani should seek to pass economic transparency reform to help ease concerns surrounding the potential funding of terrorism and crime. Secondly, Iran must begin to wind back the extensive economic assets owned by the Islamic Revolutionary Guard in favour of foreign investment and private ownership. Iran’s olive branch should then be met by US efforts to grant it access to US financial institutions and trade in US dollars. These might seem like small gestures, but the economic positivity they would engender is significant.
Charles Bryant holds a Master of International Affairs from Murdoch University.
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Image credit: Miguel Librero (Flickr: Creative Commons)