Sanctions hurting Iran economic activity, says IMF

By Lesley Wroughton

WASHINGTON (Reuters) - Stepped-up international pressure and sanctions against Iran over its nuclear program are hurting its economy, making trade financing and payments difficult and discouraging foreign investment, according to an IMF report published on Thursday.

The International Monetary Fund said profits of state-owned banks have been hit hard by U.S. and U.N. economic sanctions, forcing the government to recapitalize three banks.

Boosting banks' capital was the right move, the IMF staff report said, but it also said some banks were still undercapitalized as of the end of March.

"Intensified international pressures on Iran have negatively affected economic activity," the report said.

The U.N. Security Council has imposed three rounds of sanctions on Iran for refusing to suspend its nuclear activities, which the West says is a cover for building bombs. Tehran has denied the charge.

The U.S. Treasury has banned dealings with several Iranian banks -- including its largest, Bank Melli -- and that has forced many businesses to steer clear of Iran.

IMF staff met with Iranian Central Bank Governor Tahmasb Mazaheri and senior government officials in May for annual consultations on the economy.

Such visits by IMF staff are conducted in all of the IMF's 185 member countries, many of which agree to publish details of the meetings.