As the World Bank prepared to approve its first guarantee for an investment in Iran, the United States lobbied hard to convince other member countries to oppose the move.
A US Treasury document obtained by Reuters, which outlines US opposition before a meeting of the Multilateral Investment Guarantee Agency (MIGA) board in May, argues that supporting the investment would send the wrong signal.
The United States also said the timing was "highly questionable," just days before American Paul Wolfowitz was set to take the reins of the institution on June 1; weeks before Iran's presidential elections; and ahead of a UN Security Council debate on Iran's nuclear program.
"Many observers in our country will find in the rushing of these projects through the board (their) ... worst suspicions about international institutions such as the bank," it said. "They will see their tax dollars going to a government that their government has determined is a state sponsor of terrorism, making a mockery of the Bank's commitment to combating the financing of terrorism," the document said.
MIGA announced last week it would insure the Mehr Petrochemical investment for $122 million to help develop Iran's non-oil sector and create jobs.
The Mehr plant is being developed by Cementhai Chemicals Co Ltd, a wholly owned unit of Siam Cement Public Co and National Petrochemical Public Co, both of Thailand, as well as for Itochu Corp of Japan.
The plant will develop high-density polyethylene, used in the manufacture of cars and plastics, to be exported mainly to China. The US document said if there were any rationale for bank engagement with Iran, it should be as a catalyst for reform.
It said hard-line Iranian lawmakers had, however, resisted economic reform and were hostile toward foreign investors.
It also pointed out that the World Bank had been unable to agree with Iran on terms of a new lending program, while just 10 percent of $1 billion in already approved World Bank loans for Iran had been issued because Tehran failed to follow the bank's fiduciary rules.
"Staff acknowledges that disbursement is a problem on which they are working closely with (government of) Iran officials and that reconciliation of Iranian regulations with bank procedures is a key problem," the US said.
The US said it would have been more appropriate to wait to approve the guarantees after Iran's new leader, President Mahmoud Ahmadinejad, renewed a commitment to reform.