Iran’s New Partner;

$231 million after seven years! That was a result of the World Bank’s latest move toward Iran seven years after the country filed an application to receive a loan. The story of Iran’s association with the World Bank, however, goes back a little more than seven years.
Iran is a founding member of the World Bank. Some 80 Iranians work for the World Bank, one of whom is Afsaneh Mashayekhi, a deputy head of the Treasury of this international body. Also, Mohammad Khazaee has been officially representing the Islamic Republic of Iran in the World Bank for about 10 years. The following note focuses primarily on the World Bank, its creation and mission, the role Iran plays in it and the loans the Bank has agreed to grant to Iran.

Mohsen Noorbakhsh, Governor, Central Bank of Iran

The World Bank is a product of thoughts and actions of economists and politicians of the era after the World War II. The objective pursued in setting up of the World Bank, was providing financial support for the war-stricken countries which could not afford the costs of their reconstruction plans. The founders of the World Bank were 24 countries which included Iran.
A total of 184 countries are now members of the World Bank comprising 24 different groups. Iran is a member of a group which also includes Iraq, Algeria, Pakistan, Afghanistan, Ghana, Morocco and Tunisia.
The requirements for membership in the World Bank groups are very complicated relating to historical, political and other specific issues of that country. World Bank regulations are such that if a member country votes in favor of a country during the election of heads of the groups, it will automatically becomes a member of that certain group.
Iran prefers to remain in its current group until it can achieve a more appropriate organization. The country has not yet accepted membership in subdivisions relating to foreign investment guarantees.
The core of the World Bank activities is development in its general sense. The Bank, using tools such as granting loans or credits, and economic and technical consultancy, tries to help the development of poor countries.

Development, Everyone’s Challenge: The global challenges of the past several years have been unprecedented, and the World Bank has played a central role in dealing with many of these situations. The Bank is involved in efforts to assist countries emerging from conflict situations, as well as those struggling to deal with natural disasters.
But while global crises have succeeded in focusing attention and resources on these problems, a sobering fact remains: the number of people living in poverty is rising. Yes, some progress has been made: life expectancy has risen, infant mortality has dropped, and more girls are in school than ever before. But in many of the world’s poorest countries, progress on poverty reduction and sustainable development is lagging.
Whether you look at it from the social or the economic or the moral perspective, development is a challenge we cannot afford to ignore. We breathe the same air and share the same environment. We have the same health problems. AIDS, crime, drugs, terrorism and famine are not problems that stop at borders. The fight against poverty is the fight for peace, security, and growth for us all.

Bank’s Credits: Based on the Bank regulations, any plan offered to the Bank by the countries applying for loans, should determine how it would help the elimination of poverty in the recipient country. Therefore, “poverty elimination” is an undeniable principle in the Bank.
The Bank grants credits in the framework of an economic structural adjustment which has started since 1980’s. The requirements for receiving these loans include reduction of government interference in the economy, transparency of subsidies in various economic sectors, adopting floating exchange rates, prevention of budget deficit, etc.
The Central Bank of Iran has been very successful managing its foreign debts and obligations. The CBI initiatives have been the reason for Iran’s exclusion from the list of the countries incapable of repayment of their loans. Moreover, national elections held in Iran in recent years and the détente policy adopted by President Mohammad Khatami have had a positive impact on the international image of Iran. The world now views Iran as a more stable country comparing to the past. Today, Iran enjoys more credibility within the World Bank and this means it can use World Bank resources more than before.

The Bank in the 21st Century: As the world enters the 21st century, there is room for neither gloom nor complacency. For the countries emerging from financial crisis, the worst appears over; prospects are brighter, to different degrees. Success for the developing world will depend in part on economic developments in the United States, Europe and Japan. Equally important is whether developing countries are able to put in place the policies and structural reforms which can provide the basis for strong growth. Worldwide, those countries will prosper which are best able to capitalize on the opportunities of globalization while effectively managing its risks. Those which do not adapt will fall farther and farther behind - creating wider gaps, globally, between the haves and have-nots.
Mindful of the challenges ahead, the Bank is working with developing countries to pilot a more inclusive and more integrated approach to its development mission - the Comprehensive Development Framework (CDF). As the Bank has moved beyond simply financing projects to addressing broader issues such as human and social development, governance, and institutions, the need for an integrating framework of this kind became apparent. The CDF approach calls for a development plan “owned” by the country itself, focused on a long-term vision of the results to be achieved, and supported by strong partnerships among governments, donors, civil society, the private sector and other development factors.

The New Partnership: World Bank decided to grant some $231 million in loans to Iran and this could pave the way for Iran to borrow even more. Ignoring fierce objections from the United States, the World Bank approved the two loans to fund health care and sewerage projects in Iran. The loans were the first World Bank credits to the Islamic Republic since 1994.
World Bank President James Wolfensohn said new funding would depend on additional reforms in Iran. The United States voted against the loans, while Canada and France abstained. Washington had lobbied other countries not to approve the loan.
During a historic meeting on May 20, 2000, the World Bank agreed to grant a $231 billion loan to Iran. This agreement was reached despite the opposition by certain influential members of the Bank. The members of the Bank’s Executive Board agreed with the said loan, which will be used for building sanitary installations and improvement of health standards in Iran. The deputy executive director of the group comprising eight countries of the Baltic Sea, which holds 36.3% of the total vote, said the World Bank loans to Iran are pursuing very clear objectives.
The United States, the largest shareholder of World Bank, holds 5.16% of the vote in the executive board. According to a Financial Times report, Britain is among the majority of 24 countries in the board of directors which believes grating loans to Iran could fulfill the “human needs” of this country.
Iran submitted its application for two loans of $145 billion and $87 billion several years ago, for the execution of Tehran sewerage system and improvement of public health in the country.
Continuation of the policy of détente by the Iranian Administration as well as receiving loans from the World Bank have had very positive impacts on the investment risk, the level of which has improved to 5th from a previous 6th level.