The IMF vision of debt and Obama’s boldness with Iran

Jul 19, 2015 Features / Columnists, Ronald Sanders

By Sir Ronald Sanders

The debt crisis in Greece and the historic accord to limit Iran’s nuclear capability thus lifting crippling sanctions will have global repercussions.
US President Barack Obama has shown strong and courageous leadership on the Iran issue.  In doing so, he has fulfilled promises on another of two prickly problems that he inherited.
The first, of course, was establishment of diplomatic relations with Cuba after more than five decades of US government attempts to isolate the Caribbean island and bring down its Castro-led regime.  The second is halting the threat that a radical Iran, with a nuclear capability, poses to global peace.  In dealing with both these issues, amidst intense hostility from the Republican Party, Obama has shown that he is willing to “step out of the rut of history”.
At his inauguration in 2009, he had signalled his intention to close down the detention camp at Guantanamo Bay which, for two decades, has imprisoned terrorist suspects without trial.  That promise is as yet unfulfilled, but by establishing diplomatic relations with Cuba, Obama has undone the senseless stand-off policy toward Cuba that had clearly failed.
It is now only a matter of time before the US Congress will be compelled to lift the trade embargo which it codified in law in the Cold War years.  The closure of Guantanamo Prison is bound to follow as should the return of Guantanamo Bay to Cuban sovereignty.
From the day of his inauguration, Obama made it clear that he wanted an end to the protracted hostile relations between the US and Iran. In a pointed statement to the Iranian government, he offered to “extend a hand of friendship if you are willing to unclench your fist”.
For the last six years, his administration has worked toward that goal.  It has now reached a historic agreement by which sanctions against Iran will be lifted in return for its acceptance that the development of its nuclear programme must be halted for more than a decade.
The battle within the US is not yet won.  Congress still has to approve the accord with Iran and the Republicans have vowed to reject it.  But Obama is resolute.   While he would like Congressional approval for the accord, he says he will veto any legislation that seeks to derail it.
Over the next ten-year period or more, Obama anticipates a verifiable halt to Iran’s development of a nuclear capability.  The alternative is a continuing build-up of such a capability into a nuclear weapon that an isolated Iran might be tempted to use with frightening consequences.
The Republicans and others, such as Israel and Saudi Arabia, argue that the removal of sanctions against Iran will allow the country to earn hundreds of billions of dollars from its oil and manufacturing industries that will facilitate the intensification of hostility toward them.
What is now certain is that big European and US companies regard the lifting of sanctions against Iran as an opportunity for selling the country billions of dollars in goods and services it urgently needs in sectors such as aviation, energy and manufacturing.   Already, Royal Dutch Shell, Total and Eni are seeking opportunities.  The Iranians also want foreign investment, especially in tourism, technology, mining and banking.
It is by permitting international business with Iran that the accord, signed by five nations led by the US, will have a productive effect on the global economy.  As Iran revives its oil and gas industry and other sectors of the economy, it will help to expand global growth through the purchase of goods and services from abroad.
The strengthening effect on the economies of countries from which Iran makes direct purchases will ripple through the international community.  Further, if Iran re-develops its oil and gas production to pre-2011 levels, it could have the beneficial effect of keeping world prices below the crippling costs that obtained until last November.
Analysts from financial institutions such as the Swiss Private Bank, Norbert Ruecker, have concluded that “Iran’s return is set to keep oil prices lower for longer alongside even cheaper shale oil and peaking western world oil demand”.   That’s good news for small economies that have been battered by high oil prices.
Despite all his critics – and the often coloured criticism – Obama has shown himself to be amongst the most progressive and visionary Presidents of the United States.
On the matter of vision, the Greek debt crisis and the tailspin into which it has plunged the nations that participate in the Eurozone, coughed up an interesting new perspective from the International Monetary Fund (IMF).  The Fund is contending that Eurozone creditors should write off part of Greece’s debt or at least allow the country to make no payments for 30 years.
Stating that the level of Greek debt is “unsustainable” and that the country’s financial shortfall is now approximately US$94.12 billion, the IMF, in a leaked memorandum, argued strongly for write-off of a significant portion of Greece’s debt, estimated at in excess of US$324 billion.   It is clear that what the IMF is saying is that without a write-off or arrangements for no repayment for at least three decades, Greece will never repay its debt, and the country will never recover.
It is refreshing to hear the IMF taking such a stance on debt write-off, or forbearance over a long enough period for the country to try to recover.  It would be helpful to economies in many Caribbean countries if the IMF were to take a similar approach with them.  While poor government policies did contribute to their high debts in some cases, a significant portion of those debts was incurred as a result of external factors, such as the devastating effects of hurricanes and the global financial crisis created in the US and Europe in 2008.
A successful IMF-led initiative which argues that, like Greece, these countries should be eased from their current high debt repayments at expensive interest rates, would give them the fiscal space they urgently need to grow their economies.
If what’s good for the goose is equally good for the gander, then what’s good for the Greeks, should be good for the Caribbean and other small and vulnerable states.
(The writer is a Senior Fellow at the Institute of Commonwealth Studies, University of London and Massey College, University of Toronto)
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