Key Questions for Senator Hillary Clinton, Nominee for Secretary of State, by Steven Groves
Heritage, January 12, 2009WebMemo #2201
Excerpts:
On January 20, the incoming Administration will confront a multitude of international issues. The challenges facing the new secretary of state include intractable regional problems such as Iran, Pakistan, and the status of Taiwan; challenges to U.S. sovereignty posed by multilateral treaties and international organizations; and important national security issues such as NATO expansion and missile defense.
In order to determine where the next secretary of state stands on these crucial issues, the following questions should be put to the nominee during her confirmation hearing:
Question #1: American Sovereignty and International Organizations
What is your view regarding the status within the international system of the independent, sovereign state in general, and the importance of preserving and protecting American sovereignty in particular? Do you ascribe to traditional views of national sovereignty or to the theory of "global governance"?
Answer: There are two competing viewpoints regarding national sovereignty: The traditional view is that the sovereign state has been and should remain the basic operating entity within the international system[1] and that while states participate in international coalitions or organizations (such as the United Nations) in pursuit of goals that transcend their borders, those organizations are restricted to serving the goals of states, not governing them.[2] The competing view advocates "global governance," a system in which sovereignty is a passé notion in an increasingly interconnected world and where international organizations have the same, if not greater, authority to determine the policies of sovereign states. In fact, former Deputy Secretary of State Strobe Talbott once predicted that some day "nationhood as we know it will be obsolete; all states will recognize a single global authority."[3]
The United States should continue to act in concert with its allies to pursue ends of an international nature such as multilateral efforts to combat piracy on the high seas, stabilizing Afghanistan with our partners in NATO, maintaining open global markets, and interdicting banned weapons and technology through the Proliferation Security Initiative. The U.S. should not, however, cede to any nation, group of nations, or international organization the authority to bind the U.S. on matters relating to its national interests, including (but not limited to) nuclear arms,[4] humanitarian intervention,[5] "climate change,"[6] interpretation of the U.S. Constitution,[7] or any other matter that would erode American sovereignty.
Question #2: Pending and Proposed Multilateral Treaties
What are your views regarding several controversial multilateral treaties and efforts by the United Nations that, if supported or ratified by the United States, would erode American sovereignty?
Answer: The "international community," usually acting through the U.N. system, often seeks to influence U.S. foreign policy and constrain American power by enmeshing the U.S. in multilateral conventions such as the U.N. Convention on the Law of the Sea and the proposed U.N. Arms Trade Treaty. Similarly, international organizations and U.N. treaty committees often seek to impose upon America their collective views on controversial and personal matters such as the care and education of children, the death penalty, abortion rights, gun control, and any number of issues traditionally left to Congress, the President, and the American people.
Efforts by international organizations to shape U.S. domestic policy should be opposed, including attempts to modify U.S. law regarding the rights of women and children,[8] the criminal justice system,[9] free speech,[10] and other matters traditionally determined by domestic democratic processes. Moreover, the U.S. must reject attempts by the international community that would limit its options to navigate the high seas and explore the deep seabed,[11] as well as its ability to arm resistance movements against tyrannical regimes.
Question #3: Afghanistan and Pakistan
How will you deal with the threat from a resurgent Taliban that is undermining coalition efforts in Afghanistan and destabilizing parts of northwest Pakistan? How will you martial U.S. diplomatic resources and assistance programs to build up Afghan institutions and convince the Pakistani leadership to stiffen its resolve against the Taliban and other violent extremist groups finding refuge within its borders?
Answer:Sending new U.S. troops to Afghanistan is a welcome step that signals continuing U.S. commitment to the region. However, Washington must also convince its NATO allies to pull their weight in overcoming the terrorist challenge in Afghanistan, which threatens all civilized nations.[12]The U.S. also needs to be cautious in attempting to engage with Taliban elements. Political reconciliation is indeed necessary to stabilize Afghanistan and Pakistan's tribal border areas. But Washington must avoid making statements that could embolden the Taliban leadership and dishearten the Afghan population, who do not support Taliban policies but are intimidated by their violent tactics. While the idea of peeling off lower-level Taliban who are not ideologically committed to the cause may be worthwhile, the U.S. should not overestimate the willingness of senior Taliban leaders to break ranks with their al-Qaeda allies.[13]
The U.S. should also better integrate its strategy toward Afghanistan and Pakistan, focusing more attention on regional diplomacy and building bridges between the two nations.[14]It is essential that Pakistan and Afghanistan work together to combat terrorism, which constitutes an existential threat to both their countries. Washington needs to recalibrate its relationship with Pakistan in a way that draws the country back from the brink of political and financial collapse and convinces the military establishment that Pakistan's national security interests are no longer served by supporting extremists, whether they operate in Afghanistan or India.[15] This should be done through both a calibrated carrot-and-stick policy that targets the military's interests and through increased regional diplomacy.
The Obama Administration, however, should avoid falling into the trap of trying to "resolve" Kashmir. Any effort to inject a direct U.S. role in the Indo-Pakistani bilateral peace process risks encouraging both Pakistani adventurism and unrealistic expectations for a settlement in its favor.[16] Moreover, the Indians would be unreceptive to attempts at direct U.S. mediation and would assume that Washington is reverting back to policies that view India only through the South Asia lens, rather than as the emerging global power it has become.
Question #4: A Nuclear Iran
What is your view on how the United States can best take action to halt Iran's nuclear weapons program?
Answer: The U.S. should mobilize an international coalition to significantly boost the diplomatic, economic, domestic political, and potential military costs to Tehran of continuing on its present path toward acquisition of nuclear weapons. This coalition should seek to isolate Iran's radical theocratic regime, weaken it through targeted economic sanctions, explain to the Iranian people why their government's nuclear policies will impose growing economic costs and military risks on them, cooperate to contain and deter Iran's military power, encourage democratic change within Iran, and prepare for the use of military force as a last resort.[17]
Unfortunately, the U.N. Security Council is a diplomatic dead end whose actions will likely continue to be insufficient to stop Iran's drive for nuclear weapons.[18] Past U.S. and European efforts to ratchet up sanctions against Iran in the council have been blocked by Russia and China, which have lucrative trade relationships with, and strategic ties to, Tehran. Britain, Germany, and France have entered a diplomatic dialogue with Tehran to dissuade it from continuing its nuclear program by offering substantial economic and political incentives. But diplomatic carrots alone will not work because for Tehran, attaining a nuclear weapon is the biggest carrot of all.
Therefore, tougher disincentives for Iran's suspected nuclear efforts are needed. When Tehran perceives the costs of a continued nuclear program to be very high, as it did after the overthrow of regimes in Iraq and Afghanistan, it will be more likely to make concessions and freeze its uranium enrichment program. The Obama Administration should press its European allies--particularly Germany, which is Iran's biggest trading partner--to increase economic sanctions outside the U.N. framework.[19] To give diplomacy a chance, the U.S. and its allies must credibly threaten to impose rising costs on Tehran, particularly in ways that endanger the regime's highest priority--its hold on power.
Question #5: The Visa Waiver Program
Please describe your views regarding the Visa Waiver Program's role in America's overall public diplomacy strategy, including ongoing efforts to strengthen the program. What opportunities and challenges do you see to its continuance in the next Administration?
[...]
Question #6: China and Taiwan
While you are secretary of state, will the Administration reaffirm that Taiwan's status remains unsettled and that the U.S. therefore does not accept the sovereign right of any third country to use force of any kind against Taiwan?
Answer: While current U.S. relations with China make it impossible to declare that Taiwan is a state, nothing can justify the assertion that Taiwan is not a state. Under the 1933 Montevideo Convention, Taiwan possesses all the attributes of a state, and under any interpretation the U.S. tacitly accepts that Taiwan functions in the international community as a sovereign state. All treaties in force between the U.S. and Taiwan prior to January 1, 1979, remain in force, and the U.S. continues to conduct defense and security affairs, including arms sales, with Taiwan as an entity wholly autonomous from the People's Republic of China.[30]
The U.S. must reaffirm that Taiwan's future rests on the assent of the Taiwanese people. While current U.S. diplomatic formulas include assertions that the Taiwan issue is a matter for "the Chinese people on both sides of the Taiwan Strait" to resolve, the context of such positions must be clarified. As President Ronald Reagan pledged, the U.S. "will not ... prejudice the free choice of, or put pressure on, the people of Taiwan" about their future. As a reflection of America's democratic values, the U.S. must give preferential weight to the people of Taiwan in determining their own future.[31]
Question #7: Missile Defense
The NATO Alliance recently recognized in its Bucharest communiqué "the substantial contribution to the protection of Allies from long-range ballistic missiles to be provided by the planned deployment of European-based United States missile defence assets." Will you stand with our NATO allies and reaffirm the importance of missile defense?
Answer: At NATO's April 2008 Bucharest Summit, NATO leaders endorsed U.S. plans to install 10 long-range, ground-based missile defense interceptors in Poland and a mid-course radar in the Czech Republic--the "third site."[32] At NATO's December 2008 foreign ministerial summit in Brussels, all 26 members of the alliance re-endorsed the third site deployment. These endorsements represent a major success both for American diplomacy and transatlantic security.[33] If the United States abandons its Central and Eastern European allies as well as its obligations to NATO, it will not only make itself vulnerable to rogue nations and non-state actors seeking ballistic missile capabilities, but it will also reduce America's influence within the transatlantic alliance.
The threat of ballistic missile attack has grown exponentially, with 27 nations now possessing such capabilities, nearly double that of 15 years ago.[34] It is incumbent upon the United States to consider these growing threats seriously by taking steps to protect itself, its forward-deployed troops, and its friends and allies. As a purely defensive capability, U.S. missile defense plans for Europe will also act as a deterrent to bad actors from acquiring ballistic missiles and weapons of mass destruction in the first place.
It is further incumbent upon the United States to stand by its existing commitments to Warsaw and Prague, as well as to the NATO alliance as a whole. Mr. Obama should begin his presidency by reaffirming the Bucharest communiqué, as well as his vow to rebuild a strong NATO.
Question #8: NATO Expansion
Do you support President-elect Barack Obama's statement that "Ukraine and Georgia ... have declared their readiness to advance a NATO Membership Action Plan. ... They should receive our help and encouragement as they continue to develop ties to Atlantic and European institutions"?[35]
[...]
Question #9: Public Diplomacy
How do you intend to improve the effectiveness of the United States's public diplomacy and strategic communication, and would you support the creation of a new government agency to take the lead on these issues?
[...]
Question #10: Durban II and the U.N. Human Rights Council
In its first few months, the Obama Administration will decide whether to change existing U.S. policy to attend the Durban Review Conference (Durban II) and fully participate in the United Nations Human Rights Council by seeking a seat in the upcoming May election. Would you recommend that the President continue current policy or reverse it?
[...]
[References can be seen at the original link]
Steven Groves is Bernard and Barbara Lomas Fellow in the Margaret Thatcher Center for Freedom, a division of the Kathryn and Shelby Cullom Davis Institute for International Studies, at The Heritage Foundation. The following Heritage Foundation analysts contributed to this report: Daniella Markheim, Lisa Curtis, James Phillips, Jena Baker McNeill, James Dean, John J. Tkacik, Jr., Sally McNamara, Helle C. Dale, Baker Spring, and Brett D. Schaefer.
Sunday, January 11, 2009
Lee Myung-bak will not demand a new apology from Tokyo for its 1910-45 invasion and rule of Korea
Japan, S Korea agree to boost economic cooperation
Japan Today, Monday 12th January, 06:31 AM JST
SEOUL — The leaders of South Korea and Japan agreed Sunday they must boost bilateral cooperation to weather the ongoing global financial storm, as the neighbors try to move beyond their bitter shared history.
Prime Minister Taro Aso, who arrived in Seoul early Sunday, is expected to discuss economic cooperation and international efforts to end the North Korean nuclear standoff at a summit with President Lee Myung-bak on Monday.
Since taking office 11 months ago, Lee has been pushing for improved ties with Japan and has held five summits with Japanese leaders. He has also resumed top-level visits, which were suspended in 2005 to protest then-Prime Minister Junichiro Koizumi’s repeated trips to a controversial Tokyo shrine that honors war dead, including convicted war criminals.
Lee has also said he will not demand a new apology from Tokyo for its 1910-45 invasion and rule of the Korean peninsula. Japanese leaders have repeatedly issued apologies about their country’s colonial past, but many South Koreans say the apologies are insincere.
Addressing a meeting of Korean and Japanese business leaders at his presidential mansion Sunday, Lee called for the two countries to increase their “substantial cooperation” to cope with difficulties arising from the international financial meltdown and jointly tackle other global issues.
Aso told the meeting he felt ties between the traditional rivals had “greatly” improved since Lee came to power.
He earlier told a business forum that Japan and South Korea should cooperate to surmount the financial crisis.
South Korea and Japan are key trade partners with two-way trade reaching $82.6 billion in 2007.
The two countries have taken steps toward restarting stalled free trade talks—which ground to a halt in late 2004 over disagreements on how much to lower trade barriers on agricultural goods. The sides held working-level meetings twice last year to prepare for reopening negotiations.
Aso said both Japanese and South Korean governments have been receiving requests from businessmen to reach the deal.
Bilateral trade has favored Japan with South Korea recording a nearly $30 billion trade deficit with Japan in 2007.
Yasuhisa Kawamura, deputy press secretary at Japan’s Ministry of Foreign Affairs, told reporters in Seoul that South Korea’s trade deficit is “definitely one of the issues, challenges” that free trade talks have to address.
Lee’s diplomatic overtures toward Japan took a hit in July when Tokyo announced it would recommend that a government teaching manual include Japan’s claim to uninhabited islets claimed by both countries.
South Korea temporarily recalled its ambassador in Tokyo and heightened security near the islets. Activists staged near-daily protests in front of the Japanese Embassy and many scholars and newspaper editorials demanded Lee toughen policy on Japan.
Japan Today, Monday 12th January, 06:31 AM JST
SEOUL — The leaders of South Korea and Japan agreed Sunday they must boost bilateral cooperation to weather the ongoing global financial storm, as the neighbors try to move beyond their bitter shared history.
Prime Minister Taro Aso, who arrived in Seoul early Sunday, is expected to discuss economic cooperation and international efforts to end the North Korean nuclear standoff at a summit with President Lee Myung-bak on Monday.
Since taking office 11 months ago, Lee has been pushing for improved ties with Japan and has held five summits with Japanese leaders. He has also resumed top-level visits, which were suspended in 2005 to protest then-Prime Minister Junichiro Koizumi’s repeated trips to a controversial Tokyo shrine that honors war dead, including convicted war criminals.
Lee has also said he will not demand a new apology from Tokyo for its 1910-45 invasion and rule of the Korean peninsula. Japanese leaders have repeatedly issued apologies about their country’s colonial past, but many South Koreans say the apologies are insincere.
Addressing a meeting of Korean and Japanese business leaders at his presidential mansion Sunday, Lee called for the two countries to increase their “substantial cooperation” to cope with difficulties arising from the international financial meltdown and jointly tackle other global issues.
Aso told the meeting he felt ties between the traditional rivals had “greatly” improved since Lee came to power.
He earlier told a business forum that Japan and South Korea should cooperate to surmount the financial crisis.
South Korea and Japan are key trade partners with two-way trade reaching $82.6 billion in 2007.
The two countries have taken steps toward restarting stalled free trade talks—which ground to a halt in late 2004 over disagreements on how much to lower trade barriers on agricultural goods. The sides held working-level meetings twice last year to prepare for reopening negotiations.
Aso said both Japanese and South Korean governments have been receiving requests from businessmen to reach the deal.
Bilateral trade has favored Japan with South Korea recording a nearly $30 billion trade deficit with Japan in 2007.
Yasuhisa Kawamura, deputy press secretary at Japan’s Ministry of Foreign Affairs, told reporters in Seoul that South Korea’s trade deficit is “definitely one of the issues, challenges” that free trade talks have to address.
Lee’s diplomatic overtures toward Japan took a hit in July when Tokyo announced it would recommend that a government teaching manual include Japan’s claim to uninhabited islets claimed by both countries.
South Korea temporarily recalled its ambassador in Tokyo and heightened security near the islets. Activists staged near-daily protests in front of the Japanese Embassy and many scholars and newspaper editorials demanded Lee toughen policy on Japan.
In 2000 about 150,000 people moved into California - in 2008, 135,000 people got out
California's Gold Rush Has Been Reversed. By Devin Nunes
Entrepreneurs are fleeing heavy taxes in the state.
WSJ, Jan 10, 2009
Excerpts:
Tulare, Calif.
On Jan. 24, 1848, James Wilson Marshall found gold at Sutter's Mill, in Coloma, Calif., sparking a mad rush of some 300,000 people desiring to strike it rich. San Francisco grew from a tiny hamlet to a boomtown in no time, and in 1850 California entered the Union as the 31st state.With this history at their back, state leaders might have understood that people have a propensity to get up and move when a better life is to be had elsewhere. But no. After more than 150 years of being a destination, California is becoming a place entrepreneurs, investment capital and the hardy workers who made it a global leader in agriculture, technological innovation and scientific research are fleeing. This exodus is the marker of something deeper than a national recession. It's a sign that the attempts by state leaders to spend their way back to prosperity are killing California.
While it has the sixth highest tax burden in the nation, according to the nonpartisan Tax Foundation, California is facing a breathtaking $40 billion budget deficit this year. This comes on the heels of a decade-long spending spree. Last year the state budget was $131 billion, up from $56 billion in 1998.
Citizens are burdened by all manner of state regulations. To mention just one example, this year a new law enacted by ballot initiative bans cages chicken farmers use on the grounds that it is inhuman to put birds in cages that prevent them from spreading their wings. [...] that will force us to buy our eggs from other states and, possibly, others nations, such as Mexico.
And just as a fallen tree can divert the flow of water in a creek, bad economic policies divert the flow of investment. Entrepreneurs and investors, seeking the path of least resistance, leave when it becomes easier to make a living in more business-friendly states. In 2000, according to the state's Department of Finance, about 150,000 people moved into California. But in the years that followed the in-migration slowed, and in 2005 it reversed, when a net 52,000 people moved out. In 2008, the outflow topped 135,000 people.
Consequently, Idaho, Utah and Wyoming all have unemployment rates around 5% at a time when California is suffering an unemployment rate of 9%. Californians are moving east and creating jobs in their new home states.
Over the past few years, we've witnessed the state government's response to the capital and entrepreneur flight out of our state: Taxes remain high, and lawmakers employ all the tricks in the book to produce "balanced" budgets from shifting expenses around to borrowing ever larger sums of money.
It's now time to turn to the ballot initiative and enact needed reforms that elected representatives in Sacramento have been unwilling to tackle on their own. We're on a dangerous fiscal course, and the people themselves will have to fundamentally change state government to correct it.
Two broad reforms are needed. The first is that we must create a part-time, nonpartisan citizen legislature -- a model that has proven effective in states like Texas (part-time) and Nebraska (part-time and nonpartisan). Californians need to be able to elect leaders whose primary interest is public service, not furthering political careers.
The second fundamental reform is on taxes and spending. Other states have passed a Taxpayers' Bill of Rights. We need to do the same, so I and others will soon be launching a campaign to enact the following:
- Two-year budgeting. [...]
- End budget stalemates. [...]
- New spending controls. [...]
- Refund budget surpluses. When the state government is flush with funds, taxpayers should get some of their money back. We need a mandate for the state to send tax-rebate checks to all taxpayers when surpluses exceed the rate of inflation. Had this reform been law in 2001, that year's $10 billion budget surplus would have yielded each taxpayer a rebate of about $667.
My family has farmed the San Joaquin Valley for three generations. And my first lesson in capital flows came when I was 14. I had cracked open my piggy bank to buy seven head of young cattle to raise and sell. I had two choices: I could buy feed or I could fix fences in exchange for free grazing. Like water flowing down a furrow, my cattle went to pasture where I could make a higher profit.
These are big reforms, but we need to stop buying feed to eat for today and start mending fences to make the state better off in the long term. California commerce can again be the envy of the world if we fix the problems that created the financial and economic crisis.
The bottom line is that we should let the water of prosperity flow again unobstructed into our state. If it does, investors, businesses and jobs will return to the Golden State.
Mr. Nunes, a Republican, is a congressman from California.
Entrepreneurs are fleeing heavy taxes in the state.
WSJ, Jan 10, 2009
Excerpts:
Tulare, Calif.
On Jan. 24, 1848, James Wilson Marshall found gold at Sutter's Mill, in Coloma, Calif., sparking a mad rush of some 300,000 people desiring to strike it rich. San Francisco grew from a tiny hamlet to a boomtown in no time, and in 1850 California entered the Union as the 31st state.With this history at their back, state leaders might have understood that people have a propensity to get up and move when a better life is to be had elsewhere. But no. After more than 150 years of being a destination, California is becoming a place entrepreneurs, investment capital and the hardy workers who made it a global leader in agriculture, technological innovation and scientific research are fleeing. This exodus is the marker of something deeper than a national recession. It's a sign that the attempts by state leaders to spend their way back to prosperity are killing California.
While it has the sixth highest tax burden in the nation, according to the nonpartisan Tax Foundation, California is facing a breathtaking $40 billion budget deficit this year. This comes on the heels of a decade-long spending spree. Last year the state budget was $131 billion, up from $56 billion in 1998.
Citizens are burdened by all manner of state regulations. To mention just one example, this year a new law enacted by ballot initiative bans cages chicken farmers use on the grounds that it is inhuman to put birds in cages that prevent them from spreading their wings. [...] that will force us to buy our eggs from other states and, possibly, others nations, such as Mexico.
And just as a fallen tree can divert the flow of water in a creek, bad economic policies divert the flow of investment. Entrepreneurs and investors, seeking the path of least resistance, leave when it becomes easier to make a living in more business-friendly states. In 2000, according to the state's Department of Finance, about 150,000 people moved into California. But in the years that followed the in-migration slowed, and in 2005 it reversed, when a net 52,000 people moved out. In 2008, the outflow topped 135,000 people.
Consequently, Idaho, Utah and Wyoming all have unemployment rates around 5% at a time when California is suffering an unemployment rate of 9%. Californians are moving east and creating jobs in their new home states.
Over the past few years, we've witnessed the state government's response to the capital and entrepreneur flight out of our state: Taxes remain high, and lawmakers employ all the tricks in the book to produce "balanced" budgets from shifting expenses around to borrowing ever larger sums of money.
It's now time to turn to the ballot initiative and enact needed reforms that elected representatives in Sacramento have been unwilling to tackle on their own. We're on a dangerous fiscal course, and the people themselves will have to fundamentally change state government to correct it.
Two broad reforms are needed. The first is that we must create a part-time, nonpartisan citizen legislature -- a model that has proven effective in states like Texas (part-time) and Nebraska (part-time and nonpartisan). Californians need to be able to elect leaders whose primary interest is public service, not furthering political careers.
The second fundamental reform is on taxes and spending. Other states have passed a Taxpayers' Bill of Rights. We need to do the same, so I and others will soon be launching a campaign to enact the following:
- Two-year budgeting. [...]
- End budget stalemates. [...]
- New spending controls. [...]
- Refund budget surpluses. When the state government is flush with funds, taxpayers should get some of their money back. We need a mandate for the state to send tax-rebate checks to all taxpayers when surpluses exceed the rate of inflation. Had this reform been law in 2001, that year's $10 billion budget surplus would have yielded each taxpayer a rebate of about $667.
My family has farmed the San Joaquin Valley for three generations. And my first lesson in capital flows came when I was 14. I had cracked open my piggy bank to buy seven head of young cattle to raise and sell. I had two choices: I could buy feed or I could fix fences in exchange for free grazing. Like water flowing down a furrow, my cattle went to pasture where I could make a higher profit.
These are big reforms, but we need to stop buying feed to eat for today and start mending fences to make the state better off in the long term. California commerce can again be the envy of the world if we fix the problems that created the financial and economic crisis.
The bottom line is that we should let the water of prosperity flow again unobstructed into our state. If it does, investors, businesses and jobs will return to the Golden State.
Mr. Nunes, a Republican, is a congressman from California.
Saturday, January 10, 2009
U.S. Rejected Aid for Israeli Raid on Iranian Nuclear Site
U.S. Rejected Aid for Israeli Raid on Iranian Nuclear Site, by David E Sanger
TNYT, January 11, 2009
WASHINGTON — President Bush deflected a secret request by Israel last year for specialized bunker-busting bombs it wanted for an attack on Iran’s main nuclear complex and told the Israelis that he had authorized new covert action intended to sabotage Iran’s suspected effort to develop nuclear weapons, according to senior American and foreign officials.
White House officials never conclusively determined whether Israel had decided to go ahead with the strike before the United States protested, or whether Prime Minister Ehud Olmert of Israel was trying to goad the White House into more decisive action before Mr. Bush left office. But the Bush administration was particularly alarmed by an Israeli request to fly over Iraq to reach Iran’s major nuclear complex at Natanz, where the country’s only known uranium enrichment plant is located.
The White House denied that request outright, American officials said, and the Israelis backed off their plans, at least temporarily. But the tense exchanges also prompted the White House to step up intelligence-sharing with Israel and brief Israeli officials on new American efforts to subtly sabotage Iran’s nuclear infrastructure, a major covert program that Mr. Bush is about to hand off to President-elect Barack Obama.
This account of the expanded American covert program and the Bush administration’s efforts to dissuade Israel from an aerial attack on Iran emerged in interviews over the past 15 months with current and former American officials, outside experts, international nuclear inspectors and European and Israeli officials. None would speak on the record because of the great secrecy surrounding the intelligence developed on Iran.
Several details of the covert effort have been omitted from this account, at the request of senior United States intelligence and administration officials, to avoid harming continuing operations.
The interviews also suggest that while Mr. Bush was extensively briefed on options for an overt American attack on Iran’s facilities, he never instructed the Pentagon to move beyond contingency planning, even during the final year of his presidency, contrary to what some critics have suggested.
The interviews also indicate that Mr. Bush was convinced by top administration officials, led by Defense Secretary Robert M. Gates, that any overt attack on Iran would probably prove ineffective, lead to the expulsion of international inspectors and drive Iran’s nuclear effort further out of view. Mr. Bush and his aides also discussed the possibility that an airstrike could ignite a broad Middle East war in which America’s 140,000 troops in Iraq would inevitably become involved.
Instead, Mr. Bush embraced more intensive covert operations actions aimed at Iran, the interviews show, having concluded that the sanctions imposed by the United States and its allies were failing to slow the uranium enrichment efforts. Those covert operations, and the question of whether Israel will settle for something less than a conventional attack on Iran, pose immediate and wrenching decisions for Mr. Obama.
The covert American program, started in early 2008, includes renewed American efforts to penetrate Iran’s nuclear supply chain abroad, along with new efforts, some of them experimental, to undermine electrical systems, computer systems and other networks on which Iran relies. It is aimed at delaying the day that Iran can produce the weapons-grade fuel and designs it needs to produce a workable nuclear weapon.
Knowledge of the program has been closely held, yet inside the Bush administration some officials are skeptical about its chances of success, arguing that past efforts to undermine Iran’s nuclear program have been detected by the Iranians and have only delayed, not derailed, their drive to unlock the secrets of uranium enrichment.
Late last year, international inspectors estimated that Iran had 3,800 centrifuges spinning, but American intelligence officials now estimate that the figure is 4,000 to 5,000, enough to produce about one weapon’s worth of uranium every eight months or so.
While declining to be specific, one American official dismissed the latest covert operations against Iran as “science experiments.” One senior intelligence official argued that as Mr. Bush prepared to leave office, the Iranians were already so close to achieving a weapons capacity that they were unlikely to be stopped.
Others disagreed, making the point that the Israelis would not have been dissuaded from conducting an attack if they believed that the American effort was unlikely to prove effective.
Since his election on Nov. 4, Mr. Obama has been extensively briefed on the American actions in Iran, though his transition aides have refused to comment on the issue.
Early in his presidency, Mr. Obama must decide whether the covert actions begun by Mr. Bush are worth the risks of disrupting what he has pledged will be a more active diplomatic effort to engage with Iran.
Either course could carry risks for Mr. Obama. An inherited intelligence or military mission that went wrong could backfire, as happened to President Kennedy with the Bay of Pigs operation in Cuba. But a decision to pull back on operations aimed at Iran could leave Mr. Obama vulnerable to charges that he is allowing Iran to speed ahead toward a nuclear capacity, one that could change the contours of power in the Middle East.
An Intelligence Conflict
Israel’s effort to obtain the weapons, refueling capacity and permission to fly over Iraq for an attack on Iran grew out of its disbelief and anger at an American intelligence assessment completed in late 2007 that concluded that Iran had effectively suspended its development of nuclear weapons four years earlier.
That conclusion also stunned Mr. Bush’s national security team — and Mr. Bush himself, who was deeply suspicious of the conclusion, according to officials who discussed it with him.
The assessment, a National Intelligence Estimate, was based on a trove of Iranian reports obtained by penetrating Iran’s computer networks.
Those reports indicated that Iranian engineers had been ordered to halt development of a nuclear warhead in 2003, even while they continued to speed ahead in enriching uranium, the most difficult obstacle to building a weapon.
The “key judgments” of the National Intelligence Estimate, which were publicly released, emphasized the suspension of the weapons work.
The public version made only glancing reference to evidence described at great length in the 140-page classified version of the assessment: the suspicion that Iran had 10 or 15 other nuclear-related facilities, never opened to international inspectors, where enrichment activity, weapons work or the manufacturing of centrifuges might be taking place.
The Israelis responded angrily and rebutted the American report, providing American intelligence officials and Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, with evidence that they said indicated that the Iranians were still working on a weapon.
While the Americans were not convinced that the Iranian weapons development was continuing, the Israelis were not the only ones highly critical of the United States report. Secretary Gates, a former director of the Central Intelligence Agency, said the report had presented the evidence poorly, underemphasizing the importance of Iran’s enrichment activity and overemphasizing the suspension of a weapons-design effort that could easily be turned back on.
In an interview, Mr. Gates said that in his whole career he had never seen “an N.I.E. that had such an impact on U.S. diplomacy,” because “people figured, well, the military option is now off the table.”
Prime Minister Olmert came to the same conclusion. He had previously expected, according to several Americans and Israeli officials, that Mr. Bush would deal with Iran’s nuclear program before he left office. “Now,” said one American official who bore the brunt of Israel’s reaction, “they didn’t believe he would.”
Attack Planning
Early in 2008, the Israeli government signaled that it might be preparing to take matters into its own hands. In a series of meetings, Israeli officials asked Washington for a new generation of powerful bunker-busters, far more capable of blowing up a deep underground plant than anything in Israel’s arsenal of conventional weapons. They asked for refueling equipment that would allow their aircraft to reach Iran and return to Israel. And they asked for the right to fly over Iraq.
Mr. Bush deflected the first two requests, pushing the issue off, but “we said ‘hell no’ to the overflights,” one of his top aides said. At the White House and the Pentagon, there was widespread concern that a political uproar in Iraq about the use of its American-controlled airspace could result in the expulsion of American forces from the country.
The Israeli ambassador to the United States, Sallai Meridor, declined several requests over the past four weeks to be interviewed about Israel’s efforts to obtain the weapons from Washington, saying through aides that he was too busy.
Last June, the Israelis conducted an exercise over the Mediterranean Sea that appeared to be a dry run for an attack on the enrichment plant at Natanz. When the exercise was analyzed at the Pentagon, officials concluded that the distances flown almost exactly equaled the distance between Israel and the Iranian nuclear site.
“This really spooked a lot of people,” one White House official said. White House officials discussed the possibility that the Israelis would fly over Iraq without American permission. In that case, would the American military be ordered to shoot them down? If the United States did not interfere to stop an Israeli attack, would the Bush administration be accused of being complicit in it?
Admiral Mullen, traveling to Israel in early July on a previously scheduled trip, questioned Israeli officials about their intentions. His Israeli counterpart, Lt. Gen. Gabi Ashkenazi, argued that an aerial attack could set Iran’s program back by two or three years, according to officials familiar with the exchange. The American estimates at the time were far more conservative.
Yet by the time Admiral Mullen made his visit, Israeli officials appear to have concluded that without American help, they were not yet capable of hitting the site effectively enough to strike a decisive blow against the Iranian program.
The United States did give Israel one item on its shopping list: high-powered radar, called the X-Band, to detect any Iranian missile launchings. It was the only element in the Israeli request that could be used solely for defense, not offense.
Mr. Gates’s spokesman, Geoff Morrell, said last week that Mr. Gates — whom Mr. Obama is retaining as defense secretary — believed that “a potential strike on the Iranian facilities is not something that we or anyone else should be pursuing at this time.”
A New Covert Push
Throughout 2008, the Bush administration insisted that it had a plan to deal with the Iranians: applying overwhelming financial pressure that would persuade Tehran to abandon its nuclear program, as foreign enterprises like the French company Total pulled out of Iranian oil projects, European banks cut financing, and trade credits were squeezed.
But the Iranians were making uranium faster than the sanctions were making progress. As Mr. Bush realized that the sanctions he had pressed for were inadequate and his military options untenable, he turned to the C.I.A. His hope, several people involved in the program said, was to create some leverage against the Iranians, by setting back their nuclear program while sanctions continued and, more recently, oil prices dropped precipitously.
There were two specific objectives: to slow progress at Natanz and other known and suspected nuclear facilities, and keep the pressure on a little-known Iranian professor named Mohsen Fakrizadeh, a scientist described in classified portions of American intelligence reports as deeply involved in an effort to design a nuclear warhead for Iran.
Past American-led efforts aimed at Natanz had yielded little result. Several years ago, foreign intelligence services tinkered with individual power units that Iran bought in Turkey to drive its centrifuges, the floor-to-ceiling silvery tubes that spin at the speed of sound, enriching uranium for use in power stations or, with additional enrichment, nuclear weapons.
A number of centrifuges blew up, prompting public declarations of sabotage by Iranian officials. An engineer in Switzerland, who worked with the Pakistani nuclear black-marketeer Abdul Qadeer Khan, had been “turned” by American intelligence officials and helped them slip faulty technology into parts bought by the Iranians.
What Mr. Bush authorized, and informed a narrow group of Congressional leaders about, was a far broader effort, aimed at the entire industrial infrastructure that supports the Iranian nuclear program. Some of the efforts focused on ways to destabilize the centrifuges. The details are closely held, for obvious reasons, by American officials. One official, however, said, “It was not until the last year that they got really imaginative about what one could do to screw up the system.”
Then, he cautioned, “none of these are game-changers,” meaning that the efforts would not necessarily cripple the Iranian program. Others in the administration strongly disagree.
In the end, success or failure may come down to how much pressure can be brought to bear on Mr. Fakrizadeh, whom the 2007 National Intelligence Estimate identifies, in its classified sections, as the manager of Project 110 and Project 111. According to a presentation by the chief inspector of the International Atomic Energy Agency, those were the names for two Iranian efforts that appeared to be dedicated to designing a warhead and making it work with an Iranian missile. Iranian officials say the projects are a fiction, made up by the United States.
While the international agency readily concedes that the evidence about the two projects remains murky, one of the documents it briefly displayed at a meeting of the agency’s member countries in Vienna last year, from Mr. Fakrizadeh’s projects, showed the chronology of a missile launching, ending with a warhead exploding about 650 yards above ground — approximately the altitude from which the bomb dropped on Hiroshima was detonated.
The exact status of Mr. Fakrizadeh’s projects today is unclear. While the National Intelligence Estimate reported that activity on Projects 110 and 111 had been halted, the fear among intelligence agencies is that if the weapons design projects are turned back on, will they know?
David E. Sanger is the chief Washington correspondent for The New York Times. Reporting for this article was developed in the course of research for “The Inheritance: The World Obama Confronts and the Challenges to American Power,” to be published Tuesday by Harmony Books.
TNYT, January 11, 2009
WASHINGTON — President Bush deflected a secret request by Israel last year for specialized bunker-busting bombs it wanted for an attack on Iran’s main nuclear complex and told the Israelis that he had authorized new covert action intended to sabotage Iran’s suspected effort to develop nuclear weapons, according to senior American and foreign officials.
White House officials never conclusively determined whether Israel had decided to go ahead with the strike before the United States protested, or whether Prime Minister Ehud Olmert of Israel was trying to goad the White House into more decisive action before Mr. Bush left office. But the Bush administration was particularly alarmed by an Israeli request to fly over Iraq to reach Iran’s major nuclear complex at Natanz, where the country’s only known uranium enrichment plant is located.
The White House denied that request outright, American officials said, and the Israelis backed off their plans, at least temporarily. But the tense exchanges also prompted the White House to step up intelligence-sharing with Israel and brief Israeli officials on new American efforts to subtly sabotage Iran’s nuclear infrastructure, a major covert program that Mr. Bush is about to hand off to President-elect Barack Obama.
This account of the expanded American covert program and the Bush administration’s efforts to dissuade Israel from an aerial attack on Iran emerged in interviews over the past 15 months with current and former American officials, outside experts, international nuclear inspectors and European and Israeli officials. None would speak on the record because of the great secrecy surrounding the intelligence developed on Iran.
Several details of the covert effort have been omitted from this account, at the request of senior United States intelligence and administration officials, to avoid harming continuing operations.
The interviews also suggest that while Mr. Bush was extensively briefed on options for an overt American attack on Iran’s facilities, he never instructed the Pentagon to move beyond contingency planning, even during the final year of his presidency, contrary to what some critics have suggested.
The interviews also indicate that Mr. Bush was convinced by top administration officials, led by Defense Secretary Robert M. Gates, that any overt attack on Iran would probably prove ineffective, lead to the expulsion of international inspectors and drive Iran’s nuclear effort further out of view. Mr. Bush and his aides also discussed the possibility that an airstrike could ignite a broad Middle East war in which America’s 140,000 troops in Iraq would inevitably become involved.
Instead, Mr. Bush embraced more intensive covert operations actions aimed at Iran, the interviews show, having concluded that the sanctions imposed by the United States and its allies were failing to slow the uranium enrichment efforts. Those covert operations, and the question of whether Israel will settle for something less than a conventional attack on Iran, pose immediate and wrenching decisions for Mr. Obama.
The covert American program, started in early 2008, includes renewed American efforts to penetrate Iran’s nuclear supply chain abroad, along with new efforts, some of them experimental, to undermine electrical systems, computer systems and other networks on which Iran relies. It is aimed at delaying the day that Iran can produce the weapons-grade fuel and designs it needs to produce a workable nuclear weapon.
Knowledge of the program has been closely held, yet inside the Bush administration some officials are skeptical about its chances of success, arguing that past efforts to undermine Iran’s nuclear program have been detected by the Iranians and have only delayed, not derailed, their drive to unlock the secrets of uranium enrichment.
Late last year, international inspectors estimated that Iran had 3,800 centrifuges spinning, but American intelligence officials now estimate that the figure is 4,000 to 5,000, enough to produce about one weapon’s worth of uranium every eight months or so.
While declining to be specific, one American official dismissed the latest covert operations against Iran as “science experiments.” One senior intelligence official argued that as Mr. Bush prepared to leave office, the Iranians were already so close to achieving a weapons capacity that they were unlikely to be stopped.
Others disagreed, making the point that the Israelis would not have been dissuaded from conducting an attack if they believed that the American effort was unlikely to prove effective.
Since his election on Nov. 4, Mr. Obama has been extensively briefed on the American actions in Iran, though his transition aides have refused to comment on the issue.
Early in his presidency, Mr. Obama must decide whether the covert actions begun by Mr. Bush are worth the risks of disrupting what he has pledged will be a more active diplomatic effort to engage with Iran.
Either course could carry risks for Mr. Obama. An inherited intelligence or military mission that went wrong could backfire, as happened to President Kennedy with the Bay of Pigs operation in Cuba. But a decision to pull back on operations aimed at Iran could leave Mr. Obama vulnerable to charges that he is allowing Iran to speed ahead toward a nuclear capacity, one that could change the contours of power in the Middle East.
An Intelligence Conflict
Israel’s effort to obtain the weapons, refueling capacity and permission to fly over Iraq for an attack on Iran grew out of its disbelief and anger at an American intelligence assessment completed in late 2007 that concluded that Iran had effectively suspended its development of nuclear weapons four years earlier.
That conclusion also stunned Mr. Bush’s national security team — and Mr. Bush himself, who was deeply suspicious of the conclusion, according to officials who discussed it with him.
The assessment, a National Intelligence Estimate, was based on a trove of Iranian reports obtained by penetrating Iran’s computer networks.
Those reports indicated that Iranian engineers had been ordered to halt development of a nuclear warhead in 2003, even while they continued to speed ahead in enriching uranium, the most difficult obstacle to building a weapon.
The “key judgments” of the National Intelligence Estimate, which were publicly released, emphasized the suspension of the weapons work.
The public version made only glancing reference to evidence described at great length in the 140-page classified version of the assessment: the suspicion that Iran had 10 or 15 other nuclear-related facilities, never opened to international inspectors, where enrichment activity, weapons work or the manufacturing of centrifuges might be taking place.
The Israelis responded angrily and rebutted the American report, providing American intelligence officials and Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, with evidence that they said indicated that the Iranians were still working on a weapon.
While the Americans were not convinced that the Iranian weapons development was continuing, the Israelis were not the only ones highly critical of the United States report. Secretary Gates, a former director of the Central Intelligence Agency, said the report had presented the evidence poorly, underemphasizing the importance of Iran’s enrichment activity and overemphasizing the suspension of a weapons-design effort that could easily be turned back on.
In an interview, Mr. Gates said that in his whole career he had never seen “an N.I.E. that had such an impact on U.S. diplomacy,” because “people figured, well, the military option is now off the table.”
Prime Minister Olmert came to the same conclusion. He had previously expected, according to several Americans and Israeli officials, that Mr. Bush would deal with Iran’s nuclear program before he left office. “Now,” said one American official who bore the brunt of Israel’s reaction, “they didn’t believe he would.”
Attack Planning
Early in 2008, the Israeli government signaled that it might be preparing to take matters into its own hands. In a series of meetings, Israeli officials asked Washington for a new generation of powerful bunker-busters, far more capable of blowing up a deep underground plant than anything in Israel’s arsenal of conventional weapons. They asked for refueling equipment that would allow their aircraft to reach Iran and return to Israel. And they asked for the right to fly over Iraq.
Mr. Bush deflected the first two requests, pushing the issue off, but “we said ‘hell no’ to the overflights,” one of his top aides said. At the White House and the Pentagon, there was widespread concern that a political uproar in Iraq about the use of its American-controlled airspace could result in the expulsion of American forces from the country.
The Israeli ambassador to the United States, Sallai Meridor, declined several requests over the past four weeks to be interviewed about Israel’s efforts to obtain the weapons from Washington, saying through aides that he was too busy.
Last June, the Israelis conducted an exercise over the Mediterranean Sea that appeared to be a dry run for an attack on the enrichment plant at Natanz. When the exercise was analyzed at the Pentagon, officials concluded that the distances flown almost exactly equaled the distance between Israel and the Iranian nuclear site.
“This really spooked a lot of people,” one White House official said. White House officials discussed the possibility that the Israelis would fly over Iraq without American permission. In that case, would the American military be ordered to shoot them down? If the United States did not interfere to stop an Israeli attack, would the Bush administration be accused of being complicit in it?
Admiral Mullen, traveling to Israel in early July on a previously scheduled trip, questioned Israeli officials about their intentions. His Israeli counterpart, Lt. Gen. Gabi Ashkenazi, argued that an aerial attack could set Iran’s program back by two or three years, according to officials familiar with the exchange. The American estimates at the time were far more conservative.
Yet by the time Admiral Mullen made his visit, Israeli officials appear to have concluded that without American help, they were not yet capable of hitting the site effectively enough to strike a decisive blow against the Iranian program.
The United States did give Israel one item on its shopping list: high-powered radar, called the X-Band, to detect any Iranian missile launchings. It was the only element in the Israeli request that could be used solely for defense, not offense.
Mr. Gates’s spokesman, Geoff Morrell, said last week that Mr. Gates — whom Mr. Obama is retaining as defense secretary — believed that “a potential strike on the Iranian facilities is not something that we or anyone else should be pursuing at this time.”
A New Covert Push
Throughout 2008, the Bush administration insisted that it had a plan to deal with the Iranians: applying overwhelming financial pressure that would persuade Tehran to abandon its nuclear program, as foreign enterprises like the French company Total pulled out of Iranian oil projects, European banks cut financing, and trade credits were squeezed.
But the Iranians were making uranium faster than the sanctions were making progress. As Mr. Bush realized that the sanctions he had pressed for were inadequate and his military options untenable, he turned to the C.I.A. His hope, several people involved in the program said, was to create some leverage against the Iranians, by setting back their nuclear program while sanctions continued and, more recently, oil prices dropped precipitously.
There were two specific objectives: to slow progress at Natanz and other known and suspected nuclear facilities, and keep the pressure on a little-known Iranian professor named Mohsen Fakrizadeh, a scientist described in classified portions of American intelligence reports as deeply involved in an effort to design a nuclear warhead for Iran.
Past American-led efforts aimed at Natanz had yielded little result. Several years ago, foreign intelligence services tinkered with individual power units that Iran bought in Turkey to drive its centrifuges, the floor-to-ceiling silvery tubes that spin at the speed of sound, enriching uranium for use in power stations or, with additional enrichment, nuclear weapons.
A number of centrifuges blew up, prompting public declarations of sabotage by Iranian officials. An engineer in Switzerland, who worked with the Pakistani nuclear black-marketeer Abdul Qadeer Khan, had been “turned” by American intelligence officials and helped them slip faulty technology into parts bought by the Iranians.
What Mr. Bush authorized, and informed a narrow group of Congressional leaders about, was a far broader effort, aimed at the entire industrial infrastructure that supports the Iranian nuclear program. Some of the efforts focused on ways to destabilize the centrifuges. The details are closely held, for obvious reasons, by American officials. One official, however, said, “It was not until the last year that they got really imaginative about what one could do to screw up the system.”
Then, he cautioned, “none of these are game-changers,” meaning that the efforts would not necessarily cripple the Iranian program. Others in the administration strongly disagree.
In the end, success or failure may come down to how much pressure can be brought to bear on Mr. Fakrizadeh, whom the 2007 National Intelligence Estimate identifies, in its classified sections, as the manager of Project 110 and Project 111. According to a presentation by the chief inspector of the International Atomic Energy Agency, those were the names for two Iranian efforts that appeared to be dedicated to designing a warhead and making it work with an Iranian missile. Iranian officials say the projects are a fiction, made up by the United States.
While the international agency readily concedes that the evidence about the two projects remains murky, one of the documents it briefly displayed at a meeting of the agency’s member countries in Vienna last year, from Mr. Fakrizadeh’s projects, showed the chronology of a missile launching, ending with a warhead exploding about 650 yards above ground — approximately the altitude from which the bomb dropped on Hiroshima was detonated.
The exact status of Mr. Fakrizadeh’s projects today is unclear. While the National Intelligence Estimate reported that activity on Projects 110 and 111 had been halted, the fear among intelligence agencies is that if the weapons design projects are turned back on, will they know?
David E. Sanger is the chief Washington correspondent for The New York Times. Reporting for this article was developed in the course of research for “The Inheritance: The World Obama Confronts and the Challenges to American Power,” to be published Tuesday by Harmony Books.
Should Israel seek a diplomatic settlement, or accept Hamas's invitation to a bloodier battle?
Crossroads in Gaza
Should Israel seek a diplomatic settlement, or accept Hamas's invitation to a bloodier battle?
WaPo Editorial, Saturday, January 10, 2009; A12
HAMAS'S QUICK rejection of the U.N. Security Council's call for a cease-fire in Gaza might have surprised some in the West who have followed the mounting civilian casualties and the near-breakdown of access to food, water, and medical services with growing concern. In fact, Hamas revels in the Palestinian suffering its terrorism has triggered. Thousands of its fighters have retreated into Gaza's most densely populated areas, where they continue to fire dozens of rockets a day at Israeli civilians. They want nothing more than to draw Israel into an even bigger and bloodier fight -- during which, Hamas calculates, Israeli forces will suffer heavy casualties, while the even bigger Palestinian losses will reap a propaganda windfall for Hamas across the Middle East and Europe.
Israel's leaders are on the verge of giving Hamas its wish. Its top leaders also rejected the U.N. cease-fire resolution passed Thursday night; now they appear to be debating whether to throw thousands of reserve soldiers into a street-by-street battle. It's not clear what the aim of the new offensive might be. Some Israelis are calling for the overthrow of Hamas's rule in Gaza; others urge a more limited operation to seize a strip of territory along the border with Egypt, which would allow Israel to more directly attack tunnels through which Hamas smuggles weapons.
Either operation would probably do Israel more harm than good -- while raising the already considerable political cost of the war for the United States as well as for Egypt and the Palestinian Authority, Israel's de facto allies against Hamas. Israeli officials have rightly been wary of taking action that would leave their troops bogged down in Gaza -- but several of the options being considered would do just that. For now, there is no responsible Palestinian party to which Israel could hand control of Gaza or even the land near the Egyptian border; the Palestinian Authority, even if willing, remains too weak. Nor is it clear that Israel is capable of stopping either the smuggling or the rocket launches by military means. During the last several years before Israel's withdrawal from Gaza in 2005, it was unable to do so.
Israel's best option remains a deal with Egypt under which action to stop smuggling would be intensified on the Egyptian side of the border. Israel would like international forces to join that effort; Egypt has refused, though it says it would accept more expert help and equipment. If Hamas is to accept a truce, Israel will be expected to open its border crossings with Gaza to normal commerce.
Any diplomatic settlement to the conflict, either between Israel and Egypt or including Hamas, would be unsatisfactory in some ways. Hamas would remain in power and declare itself victorious, and probably any effort to stop new arms smuggling would not be completely effective. Still, given the tremendous human costs of the war -- nearly 800 dead, of whom half may be civilians -- and the escalating political cost to Israel and its allies, a deal would be far better than another military escalation. The Bush administration, which so far has done little more than support Israel's decisions throughout this crisis, should now be pressing it to settle.
Should Israel seek a diplomatic settlement, or accept Hamas's invitation to a bloodier battle?
WaPo Editorial, Saturday, January 10, 2009; A12
HAMAS'S QUICK rejection of the U.N. Security Council's call for a cease-fire in Gaza might have surprised some in the West who have followed the mounting civilian casualties and the near-breakdown of access to food, water, and medical services with growing concern. In fact, Hamas revels in the Palestinian suffering its terrorism has triggered. Thousands of its fighters have retreated into Gaza's most densely populated areas, where they continue to fire dozens of rockets a day at Israeli civilians. They want nothing more than to draw Israel into an even bigger and bloodier fight -- during which, Hamas calculates, Israeli forces will suffer heavy casualties, while the even bigger Palestinian losses will reap a propaganda windfall for Hamas across the Middle East and Europe.
Israel's leaders are on the verge of giving Hamas its wish. Its top leaders also rejected the U.N. cease-fire resolution passed Thursday night; now they appear to be debating whether to throw thousands of reserve soldiers into a street-by-street battle. It's not clear what the aim of the new offensive might be. Some Israelis are calling for the overthrow of Hamas's rule in Gaza; others urge a more limited operation to seize a strip of territory along the border with Egypt, which would allow Israel to more directly attack tunnels through which Hamas smuggles weapons.
Either operation would probably do Israel more harm than good -- while raising the already considerable political cost of the war for the United States as well as for Egypt and the Palestinian Authority, Israel's de facto allies against Hamas. Israeli officials have rightly been wary of taking action that would leave their troops bogged down in Gaza -- but several of the options being considered would do just that. For now, there is no responsible Palestinian party to which Israel could hand control of Gaza or even the land near the Egyptian border; the Palestinian Authority, even if willing, remains too weak. Nor is it clear that Israel is capable of stopping either the smuggling or the rocket launches by military means. During the last several years before Israel's withdrawal from Gaza in 2005, it was unable to do so.
Israel's best option remains a deal with Egypt under which action to stop smuggling would be intensified on the Egyptian side of the border. Israel would like international forces to join that effort; Egypt has refused, though it says it would accept more expert help and equipment. If Hamas is to accept a truce, Israel will be expected to open its border crossings with Gaza to normal commerce.
Any diplomatic settlement to the conflict, either between Israel and Egypt or including Hamas, would be unsatisfactory in some ways. Hamas would remain in power and declare itself victorious, and probably any effort to stop new arms smuggling would not be completely effective. Still, given the tremendous human costs of the war -- nearly 800 dead, of whom half may be civilians -- and the escalating political cost to Israel and its allies, a deal would be far better than another military escalation. The Bush administration, which so far has done little more than support Israel's decisions throughout this crisis, should now be pressing it to settle.
Dawn Johnsen and Analysis of Powers of Federal Presidency
Obama Pick to Analyze Broad Powers of President. By Eric Lichtblau
TNYT, Jan 08, 2009, page A22
The legal memorandum, she wrote in a blog entry, was “shockingly flawed,” the constitutional arguments were “bogus,” the broad reading of presidential authority “outlandish,” and the “horrific acts” it encouraged against prisoners were probably illegal.
“Where is the outrage, the public outcry?!” Ms. Johnsen, a constitutional law professor at Indiana University, demanded in the posting.
Now, Ms. Johnsen will have the chance to overturn some of the legal opinions she so harshly condemned. President-elect Barack Obama said this week that he would nominate her to lead the Office of Legal Counsel, the Justice Department office that produced a series of hotly debated legal opinions on presidential power in the war on terror. She led the office on an acting basis during the Clinton administration but, in academia, has become one of the office’s fiercest critics.
Historically, the assistant attorney general for the Office of Legal Counsel, or O.L.C., has operated in obscurity, issuing dry, analytical legal opinions that often never become public.
But it has become a magnet for controversy since the Sept. 11 attacks because of its legal rationales in defense of the president’s wartime authority, and Ms. Johnsen’s nomination has generated unusually intense reactions.
Legal observers on the left have been galvanized by the prospect of a vocal critic of the Bush administration’s terrorism policies reversing eight years of legal policy. Since Ms. Johnsen was selected, some conservatives have criticized her not only for the stridence of her attacks on the Bush administration’s legal policies, but also for her past work as legal director for Naral Pro-Choice America, the abortion rights group.
The Obama transition declined to make Ms. Johnsen available for comment. Nick Shapiro, a spokesman for the transition, issued a statement on Wednesday saying,: “As someone with extensive experience working in the Office of Legal Counsel, Dawn Johnsen has tremendous respect for the traditions of the office and the career professionals who serve there, and if confirmed she will ensure that the law is faithfully interpreted and executed across the federal government.”
Noel J. Francisco, a former lawyer for the counsel’s office in the Bush administration, said the challenge for Ms. Johnsen would be to make the shift from opinionated academic to sober government lawyer.
“The danger that academics risk falling into is approaching things on too theoretical a basis,” he said. “You construct a legal theory that is either overly permissive or overly restrictive and then you apply it to specific circumstances — like a random interrogation tactic. The best heads of O.L.C. start out with a concrete legal question and try to answer that question as narrowly as possible without bringing in these broad-based legal theories.”
Bradford Berenson, who worked as a lawyer in the White House counsel’s office early in the Bush administration, said that under Ms. Johnsen, “the changes may be more marginal than the most rabid partisans might hope for.”
“Whatever her academic views, inevitably when you’re wielding government authority and you’re forced to function in the system, your views get tempered and moderated,” he said.
Mr. Berenson worked with Ms. Johnsen last year in drafting a Senate bill that would require the Justice Department to report to Congress when the counsel’s office issues an opinion finding that the executive branch is not bound by a Congressional statute. The Bush administration threatened to veto the bill, but Mr. Berenson said even if it did not make it into law, Ms. Johnsen would have the chance if confirmed to bring more openness to the office’s legal thinking.
Goodwin Liu, associate dean and law professor at the University of California-Berkeley School of Law, who worked with Ms. Johnsen on the board of the American Constitution Society, said, “She’s a first-rate scholar who will uphold the law, and that will allow her to give the office the independence it needs to restore its credibility.”
TNYT, Jan 08, 2009, page A22
The legal memorandum, she wrote in a blog entry, was “shockingly flawed,” the constitutional arguments were “bogus,” the broad reading of presidential authority “outlandish,” and the “horrific acts” it encouraged against prisoners were probably illegal.
“Where is the outrage, the public outcry?!” Ms. Johnsen, a constitutional law professor at Indiana University, demanded in the posting.
Now, Ms. Johnsen will have the chance to overturn some of the legal opinions she so harshly condemned. President-elect Barack Obama said this week that he would nominate her to lead the Office of Legal Counsel, the Justice Department office that produced a series of hotly debated legal opinions on presidential power in the war on terror. She led the office on an acting basis during the Clinton administration but, in academia, has become one of the office’s fiercest critics.
Historically, the assistant attorney general for the Office of Legal Counsel, or O.L.C., has operated in obscurity, issuing dry, analytical legal opinions that often never become public.
But it has become a magnet for controversy since the Sept. 11 attacks because of its legal rationales in defense of the president’s wartime authority, and Ms. Johnsen’s nomination has generated unusually intense reactions.
Legal observers on the left have been galvanized by the prospect of a vocal critic of the Bush administration’s terrorism policies reversing eight years of legal policy. Since Ms. Johnsen was selected, some conservatives have criticized her not only for the stridence of her attacks on the Bush administration’s legal policies, but also for her past work as legal director for Naral Pro-Choice America, the abortion rights group.
The Obama transition declined to make Ms. Johnsen available for comment. Nick Shapiro, a spokesman for the transition, issued a statement on Wednesday saying,: “As someone with extensive experience working in the Office of Legal Counsel, Dawn Johnsen has tremendous respect for the traditions of the office and the career professionals who serve there, and if confirmed she will ensure that the law is faithfully interpreted and executed across the federal government.”
Noel J. Francisco, a former lawyer for the counsel’s office in the Bush administration, said the challenge for Ms. Johnsen would be to make the shift from opinionated academic to sober government lawyer.
“The danger that academics risk falling into is approaching things on too theoretical a basis,” he said. “You construct a legal theory that is either overly permissive or overly restrictive and then you apply it to specific circumstances — like a random interrogation tactic. The best heads of O.L.C. start out with a concrete legal question and try to answer that question as narrowly as possible without bringing in these broad-based legal theories.”
Bradford Berenson, who worked as a lawyer in the White House counsel’s office early in the Bush administration, said that under Ms. Johnsen, “the changes may be more marginal than the most rabid partisans might hope for.”
“Whatever her academic views, inevitably when you’re wielding government authority and you’re forced to function in the system, your views get tempered and moderated,” he said.
Mr. Berenson worked with Ms. Johnsen last year in drafting a Senate bill that would require the Justice Department to report to Congress when the counsel’s office issues an opinion finding that the executive branch is not bound by a Congressional statute. The Bush administration threatened to veto the bill, but Mr. Berenson said even if it did not make it into law, Ms. Johnsen would have the chance if confirmed to bring more openness to the office’s legal thinking.
Goodwin Liu, associate dean and law professor at the University of California-Berkeley School of Law, who worked with Ms. Johnsen on the board of the American Constitution Society, said, “She’s a first-rate scholar who will uphold the law, and that will allow her to give the office the independence it needs to restore its credibility.”
Friday, January 9, 2009
Oil Price Volatility and India’s Energy Security: Policies and Options
Oil Price Volatility and India’s Energy Security: Policies and Options. By Zakir Hussain
IDSA, January 09, 2009
The recent downslide in crude oil prices from a peak of US $147 a barrel to below $40 and speculated to fall further to $25 has evidently provided relief to oil importing countries, which have been triply inflicted by huge oil pool deficits, growing food prices and global economic downturn. But based on current oil market fundamentals and past experience, there is no reason not to believe that the current fall in oil prices is likely to be temporary. Sooner or later prices will rise and may even be higher than the recent peak because of two particular reasons. One, the fall in prices has been precipitated by expected cuts in demand as a result of the global economic downturn. In contrast, prices had fallen in the 1980s and 1990s because of an excess of supply over demand. Second, the steep fall in prices is unfavourable to current and planned investment in the oil industry. This would potentially constrict fresh supplies of oil and thus fail to meet the additional demand which is expected to be generated when the world economy in general and emerging economies like India and China in particular revive. The expected timeframe of economic recovery is around 12 to 18 months. These concerns and apprehensions were expressed by the Saudi Oil Minister Ali al-Naimi on December 19, 2008, during an address in London to oil producing and consuming countries. Al-Naimi stated that the steep fall in oil prices is causing havoc with investment plans in oil producing countries and is jeopardizing future oil supplies. He further stated that $75 “is the price that marginal producers need to maintain investments sufficient to provide adequate supplies for future oil consumption needs.”
What is the Fair Price to Boost Oil Production?
It is difficult to decide on an appropriate oil price that could induce or maintain a sustained inflow of investment capital in the oil industry. This is most likely because of the nature of oil, which qualifies as both an economic and strategic commodity, making price analysis truly complex and controversial. Nevertheless, there are two approaches to the ‘great oil price debate’ – structural and cyclical. Structuralists maintain that an abnormal spike in prices is the result of structural changes in the oil industry reflecting the huge investment gap in the past or expected in future, whereas the cyclical group believes in the ‘bubble’ analogy caused by certain mutually reinforcing adverse factors pushing prices upwards. The latter approach believes in physical shortages as a result of geo-politically influenced supply bottlenecks, excess demand and bull-run in the futures market. The current downturn in oil prices reflects the situation portrayed by the ‘bubble’ approach. The global recession has burst the bubble and pushed oil prices to one of the lowest levels. Prices have come down by 74 per cent in the last four months. This has depressed the fundamentals of the oil market and potentially circumvents the inflow of investible funds to the oil industry. This is not a good sign to ensure stable and adequate oil supply in the future. In fact, the global economic downturn is strongly expected to reverse in a couple of years. This scenario predicts possible structural limitations of the oil industry in meeting future demand.
In fact, before the current economic recession set in, some agencies like the International Energy Agency (IEA) had already assessed the future oil demand and estimated the possible volume of investments required, particularly under a business-as-usual scenario, to meet it. In a 2004 report, the IEA estimated that by 2030 the world would be consuming around 121 million barrels per day (mbpd) and, to achieve this, the global oil industry requires an investment of approximately $3 trillion. In a 2006 report, the agency revised the estimated investment volume upwards to $4.3 trillion to produce a little less quantum of oil, 116 mbpd, by 2030. This rise of 43 per cent in investment volume to produce 5 mbpd less oil for the same period has been attributed to the end of ‘cheap oil era’. This in turn is a function of the ageing of existing giant and super giant oil fields as well as the need to drill for oil in new and small sized wells, whose marginal cost would be much higher than that of existing giant and super giant fields.
Thus, under this scenario future oil prices would be in the range of $75 to $90 a barrel. This would perhaps be an appropriate price line to induce a sustained inflow of investment in the oil industry, at least for the foreseeable future. According to Goldman Sachs, 30 ongoing oil projects require $55 a barrel to break even. Due to the current comparatively lower prices, oil companies and those producing oilfield equipment are putting some projects on hold. As a representative of OPEC, Saudi Oil Minister al-Naimi has repeatedly asserted that $75 a barrel was a “fair and reasonable” price for crude oil. During his December 2008 speech in London mentioned earlier, he stated that “when oil is priced lower, such as it is now, there will be less investment and less future supply.” Lufkin Industries, a maker of oil and gas equipment has expressed the same apprehension. According to the median estimates of 33 analysts compiled by Bloomberg, “Oil may rebound next year to average $60 a barrel as the OPEC makes record production cuts to counter the deepest economic slump since World War II.” The IEA has projected that oil prices will rebound to more than $100 a barrel as soon as the world economy recovers, and will exceed $200 by 2030. This view was understandably shared by oil-producing countries, and was articulated by UAE Energy Minister Mohammad al-Hamli, who told reporters that "it is very important to continue investing to maintain and increase capacity in order to be prepared for the next [price] cycle." He characterized the decline as just a "price cycle", having structural implications.
What India Should Do?
India’s case is that of a severely crude oil deficient country. While domestic production has reached a plateau, the fast growing economy is strongly pushing up demand. In the foreseeable future, India’s oil dependence on outside sources would grow to more than 90 per cent of total oil consumption and the bulk of the supplies would be procured from Middle Eastern countries. What is required at this juncture is a plan that can deal with medium term price volatility. First and foremost, India should grab the opportunity created by cheap oil markets. Oil prices are expected to plunge even below the present rate owing to dismal consumption and ballooning stocks around the world. India should ‘lock’ or ‘bind’ supplying countries on medium to long term basis. It should sign long term agreements or bind the supplying countries through ‘contracts’, rather than continue the traditional practice of ‘spot’ market purchases. India should hedge its oil security though oil futures at today’s negotiated rates which have declined to $37.68, the lowest since July 1, 2004, and minimize tomorrow’s price shocks. This is one of three dimensions of ensuring ‘energy security’ at a cheaper rate. This is of utmost importance because oil accounts for approximately more than 42 per cent of India’s total commercial energy mix. At present, India consumes approximately 3.1 million barrels of oil a day and this is expected to grow to a couple of million barrels more, making India the third largest consuming country in Asia and the fourth largest in the world. Expenditure-wise, year-on-year basis, a rise in the price of oil by a single dollar costs the economy approximately Rs.17.7 million. Besides, it would trigger oil-induced cascading effects, including inflation, unemployment, and social unrest. The rise in oil prices witnessed over the last few years has caused havoc to Indian finance. According to the latest data released by the Reserve Bank of India, the current account deficit widened to $12.54 billion during the second quarter of the current financial year, as against $4.29 billion in July-September 2007; net trade deficit has widened to $17.2 billion in the second quarter of fiscal 2008-09 on account of a 45 per cent increase in oil imports partly due to increase in prices. This is an opportune moment for India to initiate and test non-traditional tools to minimize future losses.
It is significant to note that oil exporting countries are also equally anxious to manage the volatility of oil markets and stabilize their oil incomes. Because of ‘Dutch Disease’, their economies have failed to develop other sectors and are more dependent upon the hydrocarbons industry. For them, oil importing countries are very important and they too prefer ‘contracts’ with large oil importers. According to the International Monetary Fund (IMF), calculated in an annualized basis, a decline of $1 in the price of crude would translate into a loss in revenues of $3.5 billion for Saudi Arabia, $300 million for Qatar, $1 billion for the United Arab Emirates (UAE) and $960 million for Kuwait. A cut in demand has drastically reduced prices leading oil refineries to build up huge stocks, both stable and mobile. According to the Wall Street Journal (December 18, 2008) oil supplies are now building at such a rate that over 40 million barrels are being held in idle supertankers around the world. The size of the inventory floating in supertankers is sufficient to meet France’s monthly oil requirements. Thus, it is obvious that the present situation is opportune for both oil producing and consuming countries to enter into ‘contracts’ to hedge their losses from unforeseen shocks and spikes.
Another significant tool that is widely used to ensure uninterrupted oil supply is an integrated energy investment plan. The Government of India should develop a long term integrated energy investment plan with major oil producing countries. Signing of integrated energy agreements would bring a number of benefits: (i) ensure stable and uninterrupted flow of oil during both peace and crises; (ii) oil exporting countries would invest money in India’s refinery sector, thus ploughing money back and generating employment. In fact, this would be just like energy ‘offsets’ coming to India from oil exporting countries; once they set up refineries in India they would develop an economic stake and thus be averse to stopping crude supplies even in a crisis situation. China and Saudi Arabia have signed such integrated energy investment agreements. Saudi Aramco and Chinese Sinopec are in talks to construct a second line facility in Shandong province. The first shipments of Saudi crude arrived at Qingdao in May-June 2008.
As a part of the acquisition plan of oil acreages abroad, India should also invest in the gas sector in these countries. For instance, Gulf countries, except Qatar, have opened up their Gas sector for foreign capital and technology with the objective of feeding gas domestically and exporting oil for revenues in order to finance their economic development. ONGC-Videsh Limited should invest in the gas sector of Gulf countries, which would also enable India to develop the scope for increasing mutual co-operation and reciprocity in diversified fields over the long term.
In a nutshell, the present oil market situation posits both a ‘risk’ as well as an ‘opportunity’ to both oil importing and exporting countries. The fundamentals of the oil market suggests the maximum possibility of rising oil prices in the future, a risk that needs to be warded off by oil exporting countries. The present slump in oil prices offers opportunities to importing countries to hedge against future shocks. This, they can obtain through meticulous use of the commodity market instruments as well as through energy specific policies such as oil futures, forward trading, contracts, integrated agreements, etc. This obviously provides a common basis for interaction between oil exporting and importing countries to strike a balance between their risks and opportunities on mutually agreed terms and conditions. Thus, it is high time India adopts a pro-active hydrocarbons policy and secures its economy against shocks and distress. It is worthwhile to have a few contracts in hand at a few dollar losses today than to be left at the mercy of ruthless oil markets in the future.
Dr. Zakir Hussain is Research Assistant at the Institute for Defence Studies and Analyses, New Delhi.
IDSA, January 09, 2009
The recent downslide in crude oil prices from a peak of US $147 a barrel to below $40 and speculated to fall further to $25 has evidently provided relief to oil importing countries, which have been triply inflicted by huge oil pool deficits, growing food prices and global economic downturn. But based on current oil market fundamentals and past experience, there is no reason not to believe that the current fall in oil prices is likely to be temporary. Sooner or later prices will rise and may even be higher than the recent peak because of two particular reasons. One, the fall in prices has been precipitated by expected cuts in demand as a result of the global economic downturn. In contrast, prices had fallen in the 1980s and 1990s because of an excess of supply over demand. Second, the steep fall in prices is unfavourable to current and planned investment in the oil industry. This would potentially constrict fresh supplies of oil and thus fail to meet the additional demand which is expected to be generated when the world economy in general and emerging economies like India and China in particular revive. The expected timeframe of economic recovery is around 12 to 18 months. These concerns and apprehensions were expressed by the Saudi Oil Minister Ali al-Naimi on December 19, 2008, during an address in London to oil producing and consuming countries. Al-Naimi stated that the steep fall in oil prices is causing havoc with investment plans in oil producing countries and is jeopardizing future oil supplies. He further stated that $75 “is the price that marginal producers need to maintain investments sufficient to provide adequate supplies for future oil consumption needs.”
What is the Fair Price to Boost Oil Production?
It is difficult to decide on an appropriate oil price that could induce or maintain a sustained inflow of investment capital in the oil industry. This is most likely because of the nature of oil, which qualifies as both an economic and strategic commodity, making price analysis truly complex and controversial. Nevertheless, there are two approaches to the ‘great oil price debate’ – structural and cyclical. Structuralists maintain that an abnormal spike in prices is the result of structural changes in the oil industry reflecting the huge investment gap in the past or expected in future, whereas the cyclical group believes in the ‘bubble’ analogy caused by certain mutually reinforcing adverse factors pushing prices upwards. The latter approach believes in physical shortages as a result of geo-politically influenced supply bottlenecks, excess demand and bull-run in the futures market. The current downturn in oil prices reflects the situation portrayed by the ‘bubble’ approach. The global recession has burst the bubble and pushed oil prices to one of the lowest levels. Prices have come down by 74 per cent in the last four months. This has depressed the fundamentals of the oil market and potentially circumvents the inflow of investible funds to the oil industry. This is not a good sign to ensure stable and adequate oil supply in the future. In fact, the global economic downturn is strongly expected to reverse in a couple of years. This scenario predicts possible structural limitations of the oil industry in meeting future demand.
In fact, before the current economic recession set in, some agencies like the International Energy Agency (IEA) had already assessed the future oil demand and estimated the possible volume of investments required, particularly under a business-as-usual scenario, to meet it. In a 2004 report, the IEA estimated that by 2030 the world would be consuming around 121 million barrels per day (mbpd) and, to achieve this, the global oil industry requires an investment of approximately $3 trillion. In a 2006 report, the agency revised the estimated investment volume upwards to $4.3 trillion to produce a little less quantum of oil, 116 mbpd, by 2030. This rise of 43 per cent in investment volume to produce 5 mbpd less oil for the same period has been attributed to the end of ‘cheap oil era’. This in turn is a function of the ageing of existing giant and super giant oil fields as well as the need to drill for oil in new and small sized wells, whose marginal cost would be much higher than that of existing giant and super giant fields.
Thus, under this scenario future oil prices would be in the range of $75 to $90 a barrel. This would perhaps be an appropriate price line to induce a sustained inflow of investment in the oil industry, at least for the foreseeable future. According to Goldman Sachs, 30 ongoing oil projects require $55 a barrel to break even. Due to the current comparatively lower prices, oil companies and those producing oilfield equipment are putting some projects on hold. As a representative of OPEC, Saudi Oil Minister al-Naimi has repeatedly asserted that $75 a barrel was a “fair and reasonable” price for crude oil. During his December 2008 speech in London mentioned earlier, he stated that “when oil is priced lower, such as it is now, there will be less investment and less future supply.” Lufkin Industries, a maker of oil and gas equipment has expressed the same apprehension. According to the median estimates of 33 analysts compiled by Bloomberg, “Oil may rebound next year to average $60 a barrel as the OPEC makes record production cuts to counter the deepest economic slump since World War II.” The IEA has projected that oil prices will rebound to more than $100 a barrel as soon as the world economy recovers, and will exceed $200 by 2030. This view was understandably shared by oil-producing countries, and was articulated by UAE Energy Minister Mohammad al-Hamli, who told reporters that "it is very important to continue investing to maintain and increase capacity in order to be prepared for the next [price] cycle." He characterized the decline as just a "price cycle", having structural implications.
What India Should Do?
India’s case is that of a severely crude oil deficient country. While domestic production has reached a plateau, the fast growing economy is strongly pushing up demand. In the foreseeable future, India’s oil dependence on outside sources would grow to more than 90 per cent of total oil consumption and the bulk of the supplies would be procured from Middle Eastern countries. What is required at this juncture is a plan that can deal with medium term price volatility. First and foremost, India should grab the opportunity created by cheap oil markets. Oil prices are expected to plunge even below the present rate owing to dismal consumption and ballooning stocks around the world. India should ‘lock’ or ‘bind’ supplying countries on medium to long term basis. It should sign long term agreements or bind the supplying countries through ‘contracts’, rather than continue the traditional practice of ‘spot’ market purchases. India should hedge its oil security though oil futures at today’s negotiated rates which have declined to $37.68, the lowest since July 1, 2004, and minimize tomorrow’s price shocks. This is one of three dimensions of ensuring ‘energy security’ at a cheaper rate. This is of utmost importance because oil accounts for approximately more than 42 per cent of India’s total commercial energy mix. At present, India consumes approximately 3.1 million barrels of oil a day and this is expected to grow to a couple of million barrels more, making India the third largest consuming country in Asia and the fourth largest in the world. Expenditure-wise, year-on-year basis, a rise in the price of oil by a single dollar costs the economy approximately Rs.17.7 million. Besides, it would trigger oil-induced cascading effects, including inflation, unemployment, and social unrest. The rise in oil prices witnessed over the last few years has caused havoc to Indian finance. According to the latest data released by the Reserve Bank of India, the current account deficit widened to $12.54 billion during the second quarter of the current financial year, as against $4.29 billion in July-September 2007; net trade deficit has widened to $17.2 billion in the second quarter of fiscal 2008-09 on account of a 45 per cent increase in oil imports partly due to increase in prices. This is an opportune moment for India to initiate and test non-traditional tools to minimize future losses.
It is significant to note that oil exporting countries are also equally anxious to manage the volatility of oil markets and stabilize their oil incomes. Because of ‘Dutch Disease’, their economies have failed to develop other sectors and are more dependent upon the hydrocarbons industry. For them, oil importing countries are very important and they too prefer ‘contracts’ with large oil importers. According to the International Monetary Fund (IMF), calculated in an annualized basis, a decline of $1 in the price of crude would translate into a loss in revenues of $3.5 billion for Saudi Arabia, $300 million for Qatar, $1 billion for the United Arab Emirates (UAE) and $960 million for Kuwait. A cut in demand has drastically reduced prices leading oil refineries to build up huge stocks, both stable and mobile. According to the Wall Street Journal (December 18, 2008) oil supplies are now building at such a rate that over 40 million barrels are being held in idle supertankers around the world. The size of the inventory floating in supertankers is sufficient to meet France’s monthly oil requirements. Thus, it is obvious that the present situation is opportune for both oil producing and consuming countries to enter into ‘contracts’ to hedge their losses from unforeseen shocks and spikes.
Another significant tool that is widely used to ensure uninterrupted oil supply is an integrated energy investment plan. The Government of India should develop a long term integrated energy investment plan with major oil producing countries. Signing of integrated energy agreements would bring a number of benefits: (i) ensure stable and uninterrupted flow of oil during both peace and crises; (ii) oil exporting countries would invest money in India’s refinery sector, thus ploughing money back and generating employment. In fact, this would be just like energy ‘offsets’ coming to India from oil exporting countries; once they set up refineries in India they would develop an economic stake and thus be averse to stopping crude supplies even in a crisis situation. China and Saudi Arabia have signed such integrated energy investment agreements. Saudi Aramco and Chinese Sinopec are in talks to construct a second line facility in Shandong province. The first shipments of Saudi crude arrived at Qingdao in May-June 2008.
As a part of the acquisition plan of oil acreages abroad, India should also invest in the gas sector in these countries. For instance, Gulf countries, except Qatar, have opened up their Gas sector for foreign capital and technology with the objective of feeding gas domestically and exporting oil for revenues in order to finance their economic development. ONGC-Videsh Limited should invest in the gas sector of Gulf countries, which would also enable India to develop the scope for increasing mutual co-operation and reciprocity in diversified fields over the long term.
In a nutshell, the present oil market situation posits both a ‘risk’ as well as an ‘opportunity’ to both oil importing and exporting countries. The fundamentals of the oil market suggests the maximum possibility of rising oil prices in the future, a risk that needs to be warded off by oil exporting countries. The present slump in oil prices offers opportunities to importing countries to hedge against future shocks. This, they can obtain through meticulous use of the commodity market instruments as well as through energy specific policies such as oil futures, forward trading, contracts, integrated agreements, etc. This obviously provides a common basis for interaction between oil exporting and importing countries to strike a balance between their risks and opportunities on mutually agreed terms and conditions. Thus, it is high time India adopts a pro-active hydrocarbons policy and secures its economy against shocks and distress. It is worthwhile to have a few contracts in hand at a few dollar losses today than to be left at the mercy of ruthless oil markets in the future.
Dr. Zakir Hussain is Research Assistant at the Institute for Defence Studies and Analyses, New Delhi.
Tabarrok on President-Elect Barack Obama at GMU
Obama at GMU, by Alex Tabarrok
Marginal Revolution, January 8, 2009 at 01:48 PM
President-Elect Obama just spoke at GMU. I was fortunate to have an invite. He had a number of good lines including as good a one-line explanation and justification for Keynesian economics as you will find:
Only government can break the cycle that is crippling our economy, where a lack of spending leads to lost jobs, which leads to even less spending, where an inability to lend and borrow stops growth and leads to even less credit.
He emphasized that jobs would be created in the private sector and saved in the public sector. Nicely put.
His goal is "not to create a slew of new government programs, but a foundation for long-term economic growth." Very good.
In terms of long-term investment, I was pleased to see him mention the smart grid in particular, an idea I pushed as recently as today.
Overall, my view is that the Obama fiscal stimulus plan is evolving in a sensible direction. As promised, he is a pragmatist who is listening to a wide variety of well-qualified, centrist economists.
A substantial fraction of the fiscal stimulus is tax cuts, a substantial fraction is preventing state and local funding from plummeting, a modest but reasonable fraction is on maintenance and improvements of old infrastructure (projects that are mostly already on the books), and a modest (but increasing over time) fraction is on longer term projects which are likely to pay off in future returns.
At present, I see very little in the way of Keynesian pyramid building. Nor do I see an attempt to grab the revolutionary moment by the horns and push the U.S. in a new direction. Thus, thankfully, No New Deal. There is plenty of uncertainty in the economy but it's not regime uncertainty.
Addendum: Do note that I am evaluating Obama relative to what we can expect given the situation and our current politics and also relative to say the New Deal.
Marginal Revolution, January 8, 2009 at 01:48 PM
President-Elect Obama just spoke at GMU. I was fortunate to have an invite. He had a number of good lines including as good a one-line explanation and justification for Keynesian economics as you will find:
Only government can break the cycle that is crippling our economy, where a lack of spending leads to lost jobs, which leads to even less spending, where an inability to lend and borrow stops growth and leads to even less credit.
He emphasized that jobs would be created in the private sector and saved in the public sector. Nicely put.
His goal is "not to create a slew of new government programs, but a foundation for long-term economic growth." Very good.
In terms of long-term investment, I was pleased to see him mention the smart grid in particular, an idea I pushed as recently as today.
Overall, my view is that the Obama fiscal stimulus plan is evolving in a sensible direction. As promised, he is a pragmatist who is listening to a wide variety of well-qualified, centrist economists.
A substantial fraction of the fiscal stimulus is tax cuts, a substantial fraction is preventing state and local funding from plummeting, a modest but reasonable fraction is on maintenance and improvements of old infrastructure (projects that are mostly already on the books), and a modest (but increasing over time) fraction is on longer term projects which are likely to pay off in future returns.
At present, I see very little in the way of Keynesian pyramid building. Nor do I see an attempt to grab the revolutionary moment by the horns and push the U.S. in a new direction. Thus, thankfully, No New Deal. There is plenty of uncertainty in the economy but it's not regime uncertainty.
Addendum: Do note that I am evaluating Obama relative to what we can expect given the situation and our current politics and also relative to say the New Deal.
Crime and Economy Don't Tell Whole Story
Crime and Economy Don't Tell Whole Story. By James Q. Wilson
AEI, Thursday, January 8, 2009
Last week, the Los Angeles Police Department reported that in 2008, for the sixth consecutive year, crime fell in the city. At a time when the economy was reeling and unemployment was rising, serious crime dropped about 2.5% over the previous year.
I wish we fully understood why.
During the last two decades, scholars have made great progress in explaining why some individuals are more likely than others to commit crimes, but very little in explaining why the crime rate in a city or nation rises or falls.
Everyone knows that there is more crime in economically depressed inner-city neighborhoods than in affluent suburbs. That fact leads naturally to the assumption that if a community becomes more prosperous, crime rates will go down, and if income levels decline, crime rates go up.
Economists who have checked this view have discovered that it is often true, but not always. They have found, for example, that the burglary rate goes up by 2 percentage points for every 1-percentage-point increase in the unemployment rate. That sounds like a big change until you realize that if the unemployment rate rises from 6% to 8% (which is about what it is in California now), the burglary rate will increase by 4%. Because burglaries aren't measured all that accurately (some are never reported, and police vary in how they report the statistics), it's not certain that we would even notice so small an increase.
A lot of other factors affect the crime rate as well. It often goes up when the population gets younger, and when drug abuse becomes more common. Murder rates are profoundly influenced, at least in big cities, by gang activity. We don't have good ways of understanding why gang activity changes, though we suspect that changes in behavior are influenced by what the police do, whether gang truces have worked and whether gangs are fighting over drug and other illegal transactions.
All these imponderables make it difficult to fully understand why crime rates rise and fall. In the 1960s, the national homicide rate rose by 43%, even though the country was in a period of great prosperity and low unemployment. The homicide rate fell in the 1980s, even as the economy was wobbling, with high interest rates and a steep rise in business bankruptcies. In the 1990s, the murder rate fell by 39% at a time when unemployment also was declining.
So can the economy help explain fluctuations in crime? Sometimes yes, sometimes no. It would be difficult to link rising crime during the prosperous 1960s to economics. On the other hand, a declining economy provides a plausible theory to explain increases in crime during the 1990s. Matters become even more complicated if one goes back to the Depression of the 1930s. We had no FBI data on crime rates at that time, but several studies of individual cities suggest that crime rates fell even though one-quarter of all Americans were unemployed. Why? One reasonable hypothesis is that the Depression pulled families together, and this cohesion inhibited crime.
If you are not yet fully confused by the historical puzzles in the crime-economy link, add this one to your list. It is possible that rising crime rates are a cause rather than an outgrowth of unemployment. Some young men choose to drop out of school or the workforce to sell drugs, rob stores or mug people. They abandon legitimate jobs (and so drive up the unemployment rate) to take on illegal jobs (and so drive up the crime rate).
The role of the police in reducing crime is often overlooked by those preoccupied with the jobs-crime link. The sharp decline in crime in New York--and now in Los Angeles--has a lot to do with how those police departments changed.
Over the last several decades, New York has experienced the country's largest decline in crime since we began keeping records. The reasons are not fully understood but include a 33% increase in the size of the New York Police Department, an excellent computerized system for tracking crime (Compstat), a management style that made precinct commanders fully accountable for managing crime in their districts and an aggressive policy of searching people on the streets for guns.
Chief William J. Bratton has brought some of those tactics to Los Angeles without, alas, a one-third increase in the number of officers. What he has accomplished without a big increase in the size of his force has been remarkable.
To try to sort out the combined and complex relations between crime and the economy, the age of the population, imprisonment, police work, neighborhood culture and gang activity, the National Academy of Sciences Committee on Law and Justice (which I chair) has begun an effort to explain something that no one has yet explained: Why do crime rates change?
If you have any good ideas, let me know.
James Q. Wilson is the chairman of AEI's Council of Academic Advisers.
AEI, Thursday, January 8, 2009
Last week, the Los Angeles Police Department reported that in 2008, for the sixth consecutive year, crime fell in the city. At a time when the economy was reeling and unemployment was rising, serious crime dropped about 2.5% over the previous year.
I wish we fully understood why.
During the last two decades, scholars have made great progress in explaining why some individuals are more likely than others to commit crimes, but very little in explaining why the crime rate in a city or nation rises or falls.
Everyone knows that there is more crime in economically depressed inner-city neighborhoods than in affluent suburbs. That fact leads naturally to the assumption that if a community becomes more prosperous, crime rates will go down, and if income levels decline, crime rates go up.
Economists who have checked this view have discovered that it is often true, but not always. They have found, for example, that the burglary rate goes up by 2 percentage points for every 1-percentage-point increase in the unemployment rate. That sounds like a big change until you realize that if the unemployment rate rises from 6% to 8% (which is about what it is in California now), the burglary rate will increase by 4%. Because burglaries aren't measured all that accurately (some are never reported, and police vary in how they report the statistics), it's not certain that we would even notice so small an increase.
A lot of other factors affect the crime rate as well. It often goes up when the population gets younger, and when drug abuse becomes more common. Murder rates are profoundly influenced, at least in big cities, by gang activity. We don't have good ways of understanding why gang activity changes, though we suspect that changes in behavior are influenced by what the police do, whether gang truces have worked and whether gangs are fighting over drug and other illegal transactions.
All these imponderables make it difficult to fully understand why crime rates rise and fall. In the 1960s, the national homicide rate rose by 43%, even though the country was in a period of great prosperity and low unemployment. The homicide rate fell in the 1980s, even as the economy was wobbling, with high interest rates and a steep rise in business bankruptcies. In the 1990s, the murder rate fell by 39% at a time when unemployment also was declining.
So can the economy help explain fluctuations in crime? Sometimes yes, sometimes no. It would be difficult to link rising crime during the prosperous 1960s to economics. On the other hand, a declining economy provides a plausible theory to explain increases in crime during the 1990s. Matters become even more complicated if one goes back to the Depression of the 1930s. We had no FBI data on crime rates at that time, but several studies of individual cities suggest that crime rates fell even though one-quarter of all Americans were unemployed. Why? One reasonable hypothesis is that the Depression pulled families together, and this cohesion inhibited crime.
If you are not yet fully confused by the historical puzzles in the crime-economy link, add this one to your list. It is possible that rising crime rates are a cause rather than an outgrowth of unemployment. Some young men choose to drop out of school or the workforce to sell drugs, rob stores or mug people. They abandon legitimate jobs (and so drive up the unemployment rate) to take on illegal jobs (and so drive up the crime rate).
The role of the police in reducing crime is often overlooked by those preoccupied with the jobs-crime link. The sharp decline in crime in New York--and now in Los Angeles--has a lot to do with how those police departments changed.
Over the last several decades, New York has experienced the country's largest decline in crime since we began keeping records. The reasons are not fully understood but include a 33% increase in the size of the New York Police Department, an excellent computerized system for tracking crime (Compstat), a management style that made precinct commanders fully accountable for managing crime in their districts and an aggressive policy of searching people on the streets for guns.
Chief William J. Bratton has brought some of those tactics to Los Angeles without, alas, a one-third increase in the number of officers. What he has accomplished without a big increase in the size of his force has been remarkable.
To try to sort out the combined and complex relations between crime and the economy, the age of the population, imprisonment, police work, neighborhood culture and gang activity, the National Academy of Sciences Committee on Law and Justice (which I chair) has begun an effort to explain something that no one has yet explained: Why do crime rates change?
If you have any good ideas, let me know.
James Q. Wilson is the chairman of AEI's Council of Academic Advisers.
Thursday, January 8, 2009
USAID Muslim Outreach Event
Muslim Outreach Event. Remarks by Henrietta Fore Director of U.S. Foreign Assistance and Administrator, USAID
USAID Headquarters, Washington, DC, January 7, 2009
I am delighted to be a part of this important event that coincides with a new lunar and solar year along with the recent culmination of the annual Hajj. And I send my warmest wishes to all those who associate themselves with the annual pilgrimage.
Millions of Muslims have gathered from around the world to commemorate the stories of Abraham, Ishmael, Haggar and the building of a civilization based on the values of equality, egalitarianism, and equity. Today also marks the observance of Ashura - the remembrance of Imam Hussain's martyrdom.
And as we all look to this New Year, we are reminded of renewed commitments, responsibilities, and growth. It is in this spirit that we have gathered today - a diverse group - to learn, share, and build upon what works best.
During my own travels in Asia, Europe, Africa, and the Middle East, I have been struck by the tremendous power that is unleashed through successful partnerships between governments and the private sector.
In a world with ever increasing demands on resources, and with new and ongoing humanitarian crises, it is vital that USAID and other government donors reach out to and work with important actors in the international business and philanthropic communities.
For example in Afghanistan, USAID has created six public-private partnerships leveraging more than $7 million from private partners. One of these partnerships is with Cisco - the Cisco Networking Academies Program is training nearly 1,000 young Afghans (including more than 350 women) to install and maintain modern computer networks. This initiative will not only result in a trained IT workforce, but it will also provide Afghans with greater access to the Internet and on-line learning.
Further, active higher education partnerships are linking universities, publishing houses, on-line training providers and computer firms together to strengthen Afghan university digital libraries and on-line learning programs.
And numerous partnerships have been established to strengthen the productive capacity of Afghan firms, and improve their access to markets varying from marble quarrying to carpet production to agriculture.
In Indonesia, USAID works closely with the private sector to provide job training and foster youth employment. Following the devastating 2004 tsunami, Chevron and USAID joined forces to help Indonesia's government rebuild the hard-hit region of Aceh. It was clear that there were two complementary needs: infrastructural reconstruction and job creation. We met those needs by training an able workforce in the skills needed to reconstruct and rehabilitate their homeland.
One young resident in Aceh, Junaidi, had construction skills limited to pouring concrete, brick-laying, and other basic building tasks. Thanks to the joint USAID-Chevron training program, Junaidi has learned welding, masonry, electrical installation, and carpentry.
To ensure that these newly trained workers can put their new skills to good use, USAID works with Indonesia's Chambers of Commerce, road construction contractors, international organizations and others to hire trainees to full-time jobs.
Junaidi is now making door frames for new houses in Aceh, and with more and more houses being built, his hope is to eventually start his own construction company.
And in the Middle East, we have established 17 public-private partnerships, with 27 additional partnerships in the pipeline. USAID's work in leveraging private sector funds in this region dramatically expands the impact and sustainability of its programs. I see Ziad Asali sitting next to me today, so I know you have heard of our West Bank Public Private Partnerships.
And, we can do more. For example, over three decades ago, the Development Assistance Committee of the Organization for Economic Cooperation and Development (DAC in OECD) used to meet and work with the Kuwait Fund and the Arab Fund. We must reinstitute this former partnership and again collaborate with the sovereign wealth funds in the Gulf and elsewhere.
Only by working with partners such as yourselves, are we able to make a real difference and continue to promote economic prosperity and good governance around the world.
Today's gathering was the start of an important conversation in the development community. We have heard what works, and we know what the challenges are as seen by those in the field.
As you have heard today through our distinguished panelists, we must engage in a more proactive and informed manner with community leaders, members, and all stakeholders. Meaningful development is a result of creating partnerships, building upon the capacity of existing community based organizations, and giving voice to groups such as the youth who otherwise feel uninvolved or marginalized.
We have also recognized the need for more expertise in how our missions develop, design, and implement programs conducive to a cultural context. Our efforts at USAID are demonstrating that culture does matter in programming, and that relevant development does not come in a cookie cutter form.
And, there is no doubt that partnering with the private sector, as well as non-governmental organizations, has helped to channel ideas, efforts, resources and cultural approaches. Leveraging outside resources to complement official aid has increased our impact.
For example, for decades, USAID has partnered with private faith-based groups and religious leaders, particularly in urban areas, to achieve shared development goals. The knowledge and organization of these groups expands the reach of our programs. In Egypt, a USAID grant supports increased participation of marginalized groups in civil society, working through religious leaders, as well as other local decision makers.
But challenges do still exist. We know that globally, one billion youth will be entering the labor market in the next five years and only an estimated 300 million jobs will be available for them. Nearly 70% of youth live in less developed countries where they face even greater obstacles for gaining education and employment.
We also know that the Middle East and some Asian countries continue to perform far below the norm when it comes to closing the gender gap.
Access to water is another critical issue in the Middle East and Asia - and one that must be understood and addressed in the context of the beliefs and traditions of the societies that are affected. Current estimates suggest that meeting the developing world's water sector needs will require an increase in annual investments of approximately $100 billion.
And the list goes on and on…
But I will end with one challenge for all of you here today as individuals and as institutions: What can we do next? And how do we do it? Together, we must use the lens of innovation, of creativity, and of true engagement to see that development cannot take place without understanding its environment, its context. So make a partnership with a person or around an idea you heard today.
We must create opportunities through virtual networking and dialogue. USAID has already taken steps to improve our communications with you. We are revolutionizing the way we share what we know. At Global Development Commons dot-net you can now search all USAID-funded project websites and all USG development information. That is over a thousand websites with over 1 million documents, and growing.
For example, in Jordan, we are building on an existing Arabic health website, sehetna.com, to bring the site to a broader audience and develop private sector partnerships to ensure sustainability of the project.
Before I end, I would like to thank our distinguished guests Undersecretary James Glassman, Special Envoy Sada Cumber, and Mr. Iqbal Noor Ali of the Aga Khan Foundation USA. I would like to again acknowledge the Aga Khan Foundation USA's 25th anniversary of its partnership with USAID on behalf of the Aga Khan Development Network; and offer my own congratulations to His Highness the Aga Khan on completing his 50th year as the 49th hereditary Imam of the Ismaili Muslims.
USAID will continue to play a leadership role, and will work with all of you, as partners, in the effort to ensure economic prosperity where it is needed most.
Thank you.
USAID Headquarters, Washington, DC, January 7, 2009
I am delighted to be a part of this important event that coincides with a new lunar and solar year along with the recent culmination of the annual Hajj. And I send my warmest wishes to all those who associate themselves with the annual pilgrimage.
Millions of Muslims have gathered from around the world to commemorate the stories of Abraham, Ishmael, Haggar and the building of a civilization based on the values of equality, egalitarianism, and equity. Today also marks the observance of Ashura - the remembrance of Imam Hussain's martyrdom.
And as we all look to this New Year, we are reminded of renewed commitments, responsibilities, and growth. It is in this spirit that we have gathered today - a diverse group - to learn, share, and build upon what works best.
During my own travels in Asia, Europe, Africa, and the Middle East, I have been struck by the tremendous power that is unleashed through successful partnerships between governments and the private sector.
In a world with ever increasing demands on resources, and with new and ongoing humanitarian crises, it is vital that USAID and other government donors reach out to and work with important actors in the international business and philanthropic communities.
For example in Afghanistan, USAID has created six public-private partnerships leveraging more than $7 million from private partners. One of these partnerships is with Cisco - the Cisco Networking Academies Program is training nearly 1,000 young Afghans (including more than 350 women) to install and maintain modern computer networks. This initiative will not only result in a trained IT workforce, but it will also provide Afghans with greater access to the Internet and on-line learning.
Further, active higher education partnerships are linking universities, publishing houses, on-line training providers and computer firms together to strengthen Afghan university digital libraries and on-line learning programs.
And numerous partnerships have been established to strengthen the productive capacity of Afghan firms, and improve their access to markets varying from marble quarrying to carpet production to agriculture.
In Indonesia, USAID works closely with the private sector to provide job training and foster youth employment. Following the devastating 2004 tsunami, Chevron and USAID joined forces to help Indonesia's government rebuild the hard-hit region of Aceh. It was clear that there were two complementary needs: infrastructural reconstruction and job creation. We met those needs by training an able workforce in the skills needed to reconstruct and rehabilitate their homeland.
One young resident in Aceh, Junaidi, had construction skills limited to pouring concrete, brick-laying, and other basic building tasks. Thanks to the joint USAID-Chevron training program, Junaidi has learned welding, masonry, electrical installation, and carpentry.
To ensure that these newly trained workers can put their new skills to good use, USAID works with Indonesia's Chambers of Commerce, road construction contractors, international organizations and others to hire trainees to full-time jobs.
Junaidi is now making door frames for new houses in Aceh, and with more and more houses being built, his hope is to eventually start his own construction company.
And in the Middle East, we have established 17 public-private partnerships, with 27 additional partnerships in the pipeline. USAID's work in leveraging private sector funds in this region dramatically expands the impact and sustainability of its programs. I see Ziad Asali sitting next to me today, so I know you have heard of our West Bank Public Private Partnerships.
And, we can do more. For example, over three decades ago, the Development Assistance Committee of the Organization for Economic Cooperation and Development (DAC in OECD) used to meet and work with the Kuwait Fund and the Arab Fund. We must reinstitute this former partnership and again collaborate with the sovereign wealth funds in the Gulf and elsewhere.
Only by working with partners such as yourselves, are we able to make a real difference and continue to promote economic prosperity and good governance around the world.
Today's gathering was the start of an important conversation in the development community. We have heard what works, and we know what the challenges are as seen by those in the field.
As you have heard today through our distinguished panelists, we must engage in a more proactive and informed manner with community leaders, members, and all stakeholders. Meaningful development is a result of creating partnerships, building upon the capacity of existing community based organizations, and giving voice to groups such as the youth who otherwise feel uninvolved or marginalized.
We have also recognized the need for more expertise in how our missions develop, design, and implement programs conducive to a cultural context. Our efforts at USAID are demonstrating that culture does matter in programming, and that relevant development does not come in a cookie cutter form.
And, there is no doubt that partnering with the private sector, as well as non-governmental organizations, has helped to channel ideas, efforts, resources and cultural approaches. Leveraging outside resources to complement official aid has increased our impact.
For example, for decades, USAID has partnered with private faith-based groups and religious leaders, particularly in urban areas, to achieve shared development goals. The knowledge and organization of these groups expands the reach of our programs. In Egypt, a USAID grant supports increased participation of marginalized groups in civil society, working through religious leaders, as well as other local decision makers.
But challenges do still exist. We know that globally, one billion youth will be entering the labor market in the next five years and only an estimated 300 million jobs will be available for them. Nearly 70% of youth live in less developed countries where they face even greater obstacles for gaining education and employment.
We also know that the Middle East and some Asian countries continue to perform far below the norm when it comes to closing the gender gap.
Access to water is another critical issue in the Middle East and Asia - and one that must be understood and addressed in the context of the beliefs and traditions of the societies that are affected. Current estimates suggest that meeting the developing world's water sector needs will require an increase in annual investments of approximately $100 billion.
And the list goes on and on…
But I will end with one challenge for all of you here today as individuals and as institutions: What can we do next? And how do we do it? Together, we must use the lens of innovation, of creativity, and of true engagement to see that development cannot take place without understanding its environment, its context. So make a partnership with a person or around an idea you heard today.
We must create opportunities through virtual networking and dialogue. USAID has already taken steps to improve our communications with you. We are revolutionizing the way we share what we know. At Global Development Commons dot-net you can now search all USAID-funded project websites and all USG development information. That is over a thousand websites with over 1 million documents, and growing.
For example, in Jordan, we are building on an existing Arabic health website, sehetna.com, to bring the site to a broader audience and develop private sector partnerships to ensure sustainability of the project.
Before I end, I would like to thank our distinguished guests Undersecretary James Glassman, Special Envoy Sada Cumber, and Mr. Iqbal Noor Ali of the Aga Khan Foundation USA. I would like to again acknowledge the Aga Khan Foundation USA's 25th anniversary of its partnership with USAID on behalf of the Aga Khan Development Network; and offer my own congratulations to His Highness the Aga Khan on completing his 50th year as the 49th hereditary Imam of the Ismaili Muslims.
USAID will continue to play a leadership role, and will work with all of you, as partners, in the effort to ensure economic prosperity where it is needed most.
Thank you.
Interim Assistant Secretary for Financial Stability Neel Kashkari Remarks at Brookings Institution
Interim Assistant Secretary for Financial Stability Neel Kashkari Remarks at Brookings Institution
Jan 08, 2009
Washington – Good afternoon. Thank you, Martin, for that kind introduction. I would also like to thank the Brookings Institution for hosting us today. I will provide a comprehensive update on the Treasury Department's progress in implementing the Troubled Asset Relief Program (TARP), and then spend some time taking questions from the audience and having a discussion.
We are in an unprecedented period and market events are moving rapidly and unpredictably. We at Treasury have responded quickly to adapt to events on the ground. Throughout the crisis, we have always acted with the following critical objectives in mind: one, to stabilize financial markets and reduce systemic risk; two, to support the housing market by avoiding preventable foreclosures and supporting mortgage finance; and three, to protect taxpayers. The authorities and flexibility granted to us by Congress have been essential to developing the programs necessary to meet these objectives.
A program as large and complex as the TARP would normally take many months or years to establish. But, we did not have the luxury of first building the operation, then designing our programs and then executing them. Given the severity of the financial crisis, we had to build the Office of Financial Stability, design our programs, and execute them - all at the same time. We have made remarkable progress since the President signed the law only 97 days ago.
Today, I will brief you about five areas. First, I will give an update on execution of the programs Treasury has implemented under the TARP. Second, I will review the progress we've made in building the Office of Financial Stability. Third, I will provide an update on our efforts to meet the highest standards for compliance and oversight. Fourth, I will review the thorough reporting requirements we continue to meet. Finally, I will update you on some of the measurements we look at to judge if our programs are working.
Update on TARP Programs
I will begin with the Capital Purchase Program (CPP). On October 14, Secretary Paulson announced that we would allocate $250 billion of the financial rescue package for a voluntary capital purchase program for healthy, viable banks of all sizes. The CPP was designed to first stabilize the financial system by increasing the capital in our banks, and then to restore confidence so credit could flow to our consumers and businesses.
People often ask: why are we investing in healthy banks? Shouldn't the TARP be used for failing banks? Healthy banks are in the best position to support their communities by extending credit. A dollar invested in a healthy bank is far more likely to be used to promote lending to creditworthy borrowers than a dollar invested in a failing bank, which would more likely use it to stay afloat.
It has been 86 days since Secretary Paulson announced the Capital Purchase Program. We started from scratch, recruited and built a world class team, designed the program details, hired necessary outside vendors, and implemented a complex, but efficient processing model. In that time, we have invested $178 billion in 214 institutions in 41 states across the country, as well as Puerto Rico.
There is a huge demand for the program: the number of applications under-review at the regulators is in the thousands, representing every state in the country, and hundreds more have already been pre-approved by Treasury. We are pleased with the large number of banks that have applied. The regulators are working diligently to get through their review and forward recommended applications to us as quickly as they can. We expect their review to continue over the next few months.
We continue to process applications quickly but carefully to ensure our program guidelines and goals are met. Our investment committee meets virtually every day to review applications as soon as they are sent to us by the regulators and we close transactions often within days of approval. In fact, we find that institutions need more time to complete their legal requirements than Treasury needs to execute the investments.
Our work will not let up until the last application has been reviewed and processed. Completing investments in more than 200 institutions across the nation in less than 90 days is a feat that I believe is unmatched in the public or private sectors. This progress is remarkable not only in its speed and quality, but also in its scope. We have reviewed applications from every state in the nation and touched almost every banking market with applications from small and large banks alike, including Community Development Financial Institutions. The largest investment under the CPP has been $25 billion and the smallest less than $2 million, with applications for upcoming investments of a few hundred thousand dollars.
Automotive Industry Financing Program
Next, I will discuss Treasury's actions under TARP to support the auto sector. While the TARP was designed to stabilize the financial sector, the legislation provided sufficiently broad authority to act to stabilize the domestic automotive industry. Absent congressional action, no other authority existed within the federal government to stave off a disorderly bankruptcy of one or more auto companies. Treasury was forced to act to prevent a significant disruption of the automotive industry that would pose a systemic risk to financial markets and negatively affect the real economy.
Last week, Treasury began funding transactions under this program. We funded our full commitment of a $4 billion loan to Chrysler, and we funded the first $4 billion of a $13.4 billion commitment to GM - the last $4 billion of which depends on future congressional action. The terms of these loans require the companies to move quickly to develop plans demonstrating long-term viability, and they also include significant taxpayer protection provisions.
Because the finance companies serve as the lifeblood of the automakers, we knew that our program would need to address the short-term needs of the auto finance companies as well. Last week, we funded a $5 billion investment in GMAC. We also committed to an additional $1 billion loan to GM to be used to participate in a rights offering at GMAC as part of its recapitalization in becoming a bank holding company.
These financings were designed to use our limited remaining resources to address the participating companies' short-term needs while providing them enough time to begin the hard work with all stakeholders that will be necessary to achieve viability.
Term Asset-Backed Securities Lending Facility
Support of the consumer finance sector is a high priority for Treasury because of its fundamental role in fueling economic growth. Like other forms of credit, affordable consumer credit depends on ready access to a liquid and affordable secondary market – in this case, the asset-backed credit market.
The Federal Reserve is setting-up a $200 billion program to support consumer finance securitization markets, specifically credit cards, auto loans, student loans and small business loans. Under the TARP, Treasury will provide $20 billion in this facility, which will enable a broad range of institutions to step up their lending and enable borrowers to have access to lower-cost consumer finance and small business loans. The facility may be expanded over time and eligible asset classes may be expanded later to include other assets, such as commercial mortgage-backed securities, non-agency residential mortgage-backed securities or other asset classes. Treasury and the Federal Reserve continue to make progress in establishing this facility, which we expect to become operational in February.
Asset Guarantee Program
We established the Asset Guarantee Program under section 102 of the EESA. This program provides guarantees for assets held by systemically significant financial institutions that face a risk of losing market confidence due in large part to a portfolio of distressed or illiquid assets. Treasury is exploring use of this program to address the $5 billion guarantee provisions of our recent agreement with Citigroup.
Targeted Investment Program
As part of our recent $20 billion investment in Citigroup, Treasury also established the Targeted Investment Program, the objective of which is to foster financial market stability. In an environment of high volatility and severe financial market strains, the loss of confidence in a major financial institution could result in significant market disruptions that threaten the financial strength of similar institutions. This investment in Citigroup includes important restrictions on executive compensation and corporate expenses as well as provisions to protect the taxpayers.
Building the Office of Financial Stability
Let me now turn to our work to establish the Office of Financial Stability. I mentioned that a program as large and complex as the TARP would normally take many months or years to establish. Given the severity of the financial crisis, we had to build the Office of Financial Stability, design our programs, and execute them - all at the same time.
Recruiting excellent people was the first and most important part of successfully establishing the office. We started by tapping the very best, seasoned, financial veterans from across the government and private sector to help launch the program. We were successful in quickly recruiting outstanding interim leaders for key positions in the office. In each case, the interim official was charged with: one, setting up the office; two, hiring permanent staff; three, operationalizing our programs; and, four, identifying their permanent successor. That process has worked extremely well.
Today we have almost 90 dedicated TARP staff, including full-time employees we have hired since the law was signed and experienced detailees we have recruited from across the government. In many cases, those detailees are choosing to become permanent members of the TARP team. This does not include the numerous main Treasury employees who are spending most of their time on TARP. We also have a robust pipeline of outstanding new people joining the team each week.
We have worked very hard to ensure the transition to the next Administration is smooth. The only political position within in the TARP is the Assistant Secretary position. Almost all of the remaining positions are being filled by people who are planning to remain with the program after the transition. The next Administration will inherit an Office of Financial Stability that is fully-staffed and executing extremely well. We have worked very hard to make sure there would be continuity so the program does not slow down. As I previously mentioned, we have many applications to process for the CPP over the next several months. We have made sure the team is in place to see that work through. We have also worked closely with the GSA to acquire dedicated space for the entire team. We moved in this past Monday and we expect the Special Inspector General will move to the same space in the next few weeks.
For a sense of the execution challenges this team has already successfully faced, consider that last week alone, our team closed $48 billion of transactions. We signed and funded over $15 billion in our Capital Purchase Program, a $20 billion investment in Citigroup, and a total of $13 billion to GMAC, GM and Chrysler.
Compliance and Oversight
I will now turn to oversight. Congressional committees of jurisdiction are the traditional bodies of oversight and Treasury has participated in five Congressional hearings on the TARP since the EESA was passed. In addition, the Congress established four additional avenues of oversight: one, the Financial Stability Oversight Board; two, the Special Inspector General; three, the Government Accountability Office; and four, the Congressional Oversight Panel. I will briefly review Treasury's interaction with each body.
First, we moved immediately to establish the Financial Stability Oversight Board, which is chaired by Federal Reserve Chairman Bernanke. The law requires the Board to meet once a month, but it has met multiple times since the law was signed, with numerous staff calls between meetings. We have also posted the bylaws and minutes of the Board meetings on Treasury's website.
Second, the law also requires appointment of a Senate-confirmed Special Inspector General to oversee the program. We welcome the Senate's confirmation of Neil Barofsky as the Special Inspector General. I meet weekly with the Inspector General and our staffs meet regularly.
Third, the law calls for the Government Accountability Office to establish a physical presence at Treasury to monitor the program. Treasury provided workspace for our auditors within days of the President signing the law. I have participated in multiple briefings with the GAO and our respective staffs are meeting almost daily for program updates and to review contracts.
Finally, the law called for the establishment of a Congressional Oversight Panel to review the TARP. That Oversight Panel was recently formed and we had our first meeting on Friday, November 21 and our second meeting on Thursday, December 18. The Congressional Oversight Panel posed a number of questions to Treasury and we provided a detail response which we published on our website on December 31.
Reporting and Transparency
Next, I will discuss reporting requirements and transparency. Reporting results to Congress and the American people is a critical responsibility of the TARP. People need to see what we are doing, understand why we are doing it, and know the effects of our actions. The law defined numerous reporting requirements for the TARP, which I will briefly review here. Treasury has met all of our reporting requirements on time, and will continue to do so. All of our reports are posted on the Treasury website.
Measuring Results
Finally, I will address the important issue of measuring the results of our programs. People often ask: how do we know our programs are working? The most important evidence that our strategy is working is that we have stemmed a series of financial institution failures. The financial system is fundamentally more stable than it was when Congress passed the legislation. While it is difficult to isolate one program's effects given policymakers' numerous actions, one indicator that points to reduced risk of default among financial institutions is the average credit default swap spread for the eight largest U.S. banks, which has declined by about 275 basis points since before Congress passed the EESA. Another key indicator of perceived risk is the spread between LIBOR and OIS: 1-month and 3-month LIBOR-OIS spreads have declined about 202 and 147 basis points, respectively, since the law was signed and about 312 and 242 basis points, respectively, from their peak levels before the CPP was announced.
People also ask: when will we see banks making new loans? It is important to note that almost $75 of the $250 billion CPP has yet to be received by the banks. Treasury is executing at a rapid speed, but it will take some time to review and fund all the remaining applications. This capital needs to get into the system before it can have the desired effect. In addition, we are still at a point of low confidence – both due to the financial crisis and the economic downturn. As long as confidence remains low, banks will remain cautious about extending credit, and consumers and businesses will remain cautious about taking on new loans. As confidence returns, Treasury expects to see more credit extended.
People have then asked: how will you track lending activity? Treasury has been working with the banking regulators to design a program to measure the lending activities of banks that have received TARP capital. We plan to use quarterly call report data to study changes in the balance sheets and intermediation activities of institutions we have invested in and compare their activities to a comparable set of institutions that have not received TARP capital investments. Because call report data is infrequent, we also plan to augment that analysis with a selection of data we plan to collect monthly from the largest banks we have invested in for a more frequent snapshot.
The increased lending that is vital to our economy will not materialize as fast as any of us would like, but it will happen much faster as a result of deploying resources from the TARP to stabilize the system and increase capital in our banks.
Conclusions
While we have made significant progress, we recognize challenges lie ahead. As Secretary Paulson has said, there is no single action the federal government can take to end the financial market turmoil and the economic downturn, but the authorities Congress provided last fall dramatically expanded the tools available to address the needs of our system. We are confident that we are pursuing the right strategy to stabilize the financial system and support the flow of credit to our economy. We have worked around the clock to build the Office of Financial Stability, design our programs, and execute them and will hand the next Administration a program that is staffed and fully operational. Thank you and I would be happy to take your questions.
Jan 08, 2009
Washington – Good afternoon. Thank you, Martin, for that kind introduction. I would also like to thank the Brookings Institution for hosting us today. I will provide a comprehensive update on the Treasury Department's progress in implementing the Troubled Asset Relief Program (TARP), and then spend some time taking questions from the audience and having a discussion.
We are in an unprecedented period and market events are moving rapidly and unpredictably. We at Treasury have responded quickly to adapt to events on the ground. Throughout the crisis, we have always acted with the following critical objectives in mind: one, to stabilize financial markets and reduce systemic risk; two, to support the housing market by avoiding preventable foreclosures and supporting mortgage finance; and three, to protect taxpayers. The authorities and flexibility granted to us by Congress have been essential to developing the programs necessary to meet these objectives.
A program as large and complex as the TARP would normally take many months or years to establish. But, we did not have the luxury of first building the operation, then designing our programs and then executing them. Given the severity of the financial crisis, we had to build the Office of Financial Stability, design our programs, and execute them - all at the same time. We have made remarkable progress since the President signed the law only 97 days ago.
Today, I will brief you about five areas. First, I will give an update on execution of the programs Treasury has implemented under the TARP. Second, I will review the progress we've made in building the Office of Financial Stability. Third, I will provide an update on our efforts to meet the highest standards for compliance and oversight. Fourth, I will review the thorough reporting requirements we continue to meet. Finally, I will update you on some of the measurements we look at to judge if our programs are working.
Update on TARP Programs
I will begin with the Capital Purchase Program (CPP). On October 14, Secretary Paulson announced that we would allocate $250 billion of the financial rescue package for a voluntary capital purchase program for healthy, viable banks of all sizes. The CPP was designed to first stabilize the financial system by increasing the capital in our banks, and then to restore confidence so credit could flow to our consumers and businesses.
People often ask: why are we investing in healthy banks? Shouldn't the TARP be used for failing banks? Healthy banks are in the best position to support their communities by extending credit. A dollar invested in a healthy bank is far more likely to be used to promote lending to creditworthy borrowers than a dollar invested in a failing bank, which would more likely use it to stay afloat.
It has been 86 days since Secretary Paulson announced the Capital Purchase Program. We started from scratch, recruited and built a world class team, designed the program details, hired necessary outside vendors, and implemented a complex, but efficient processing model. In that time, we have invested $178 billion in 214 institutions in 41 states across the country, as well as Puerto Rico.
There is a huge demand for the program: the number of applications under-review at the regulators is in the thousands, representing every state in the country, and hundreds more have already been pre-approved by Treasury. We are pleased with the large number of banks that have applied. The regulators are working diligently to get through their review and forward recommended applications to us as quickly as they can. We expect their review to continue over the next few months.
We continue to process applications quickly but carefully to ensure our program guidelines and goals are met. Our investment committee meets virtually every day to review applications as soon as they are sent to us by the regulators and we close transactions often within days of approval. In fact, we find that institutions need more time to complete their legal requirements than Treasury needs to execute the investments.
Our work will not let up until the last application has been reviewed and processed. Completing investments in more than 200 institutions across the nation in less than 90 days is a feat that I believe is unmatched in the public or private sectors. This progress is remarkable not only in its speed and quality, but also in its scope. We have reviewed applications from every state in the nation and touched almost every banking market with applications from small and large banks alike, including Community Development Financial Institutions. The largest investment under the CPP has been $25 billion and the smallest less than $2 million, with applications for upcoming investments of a few hundred thousand dollars.
Automotive Industry Financing Program
Next, I will discuss Treasury's actions under TARP to support the auto sector. While the TARP was designed to stabilize the financial sector, the legislation provided sufficiently broad authority to act to stabilize the domestic automotive industry. Absent congressional action, no other authority existed within the federal government to stave off a disorderly bankruptcy of one or more auto companies. Treasury was forced to act to prevent a significant disruption of the automotive industry that would pose a systemic risk to financial markets and negatively affect the real economy.
Last week, Treasury began funding transactions under this program. We funded our full commitment of a $4 billion loan to Chrysler, and we funded the first $4 billion of a $13.4 billion commitment to GM - the last $4 billion of which depends on future congressional action. The terms of these loans require the companies to move quickly to develop plans demonstrating long-term viability, and they also include significant taxpayer protection provisions.
Because the finance companies serve as the lifeblood of the automakers, we knew that our program would need to address the short-term needs of the auto finance companies as well. Last week, we funded a $5 billion investment in GMAC. We also committed to an additional $1 billion loan to GM to be used to participate in a rights offering at GMAC as part of its recapitalization in becoming a bank holding company.
These financings were designed to use our limited remaining resources to address the participating companies' short-term needs while providing them enough time to begin the hard work with all stakeholders that will be necessary to achieve viability.
Term Asset-Backed Securities Lending Facility
Support of the consumer finance sector is a high priority for Treasury because of its fundamental role in fueling economic growth. Like other forms of credit, affordable consumer credit depends on ready access to a liquid and affordable secondary market – in this case, the asset-backed credit market.
The Federal Reserve is setting-up a $200 billion program to support consumer finance securitization markets, specifically credit cards, auto loans, student loans and small business loans. Under the TARP, Treasury will provide $20 billion in this facility, which will enable a broad range of institutions to step up their lending and enable borrowers to have access to lower-cost consumer finance and small business loans. The facility may be expanded over time and eligible asset classes may be expanded later to include other assets, such as commercial mortgage-backed securities, non-agency residential mortgage-backed securities or other asset classes. Treasury and the Federal Reserve continue to make progress in establishing this facility, which we expect to become operational in February.
Asset Guarantee Program
We established the Asset Guarantee Program under section 102 of the EESA. This program provides guarantees for assets held by systemically significant financial institutions that face a risk of losing market confidence due in large part to a portfolio of distressed or illiquid assets. Treasury is exploring use of this program to address the $5 billion guarantee provisions of our recent agreement with Citigroup.
Targeted Investment Program
As part of our recent $20 billion investment in Citigroup, Treasury also established the Targeted Investment Program, the objective of which is to foster financial market stability. In an environment of high volatility and severe financial market strains, the loss of confidence in a major financial institution could result in significant market disruptions that threaten the financial strength of similar institutions. This investment in Citigroup includes important restrictions on executive compensation and corporate expenses as well as provisions to protect the taxpayers.
Building the Office of Financial Stability
Let me now turn to our work to establish the Office of Financial Stability. I mentioned that a program as large and complex as the TARP would normally take many months or years to establish. Given the severity of the financial crisis, we had to build the Office of Financial Stability, design our programs, and execute them - all at the same time.
Recruiting excellent people was the first and most important part of successfully establishing the office. We started by tapping the very best, seasoned, financial veterans from across the government and private sector to help launch the program. We were successful in quickly recruiting outstanding interim leaders for key positions in the office. In each case, the interim official was charged with: one, setting up the office; two, hiring permanent staff; three, operationalizing our programs; and, four, identifying their permanent successor. That process has worked extremely well.
Today we have almost 90 dedicated TARP staff, including full-time employees we have hired since the law was signed and experienced detailees we have recruited from across the government. In many cases, those detailees are choosing to become permanent members of the TARP team. This does not include the numerous main Treasury employees who are spending most of their time on TARP. We also have a robust pipeline of outstanding new people joining the team each week.
We have worked very hard to ensure the transition to the next Administration is smooth. The only political position within in the TARP is the Assistant Secretary position. Almost all of the remaining positions are being filled by people who are planning to remain with the program after the transition. The next Administration will inherit an Office of Financial Stability that is fully-staffed and executing extremely well. We have worked very hard to make sure there would be continuity so the program does not slow down. As I previously mentioned, we have many applications to process for the CPP over the next several months. We have made sure the team is in place to see that work through. We have also worked closely with the GSA to acquire dedicated space for the entire team. We moved in this past Monday and we expect the Special Inspector General will move to the same space in the next few weeks.
For a sense of the execution challenges this team has already successfully faced, consider that last week alone, our team closed $48 billion of transactions. We signed and funded over $15 billion in our Capital Purchase Program, a $20 billion investment in Citigroup, and a total of $13 billion to GMAC, GM and Chrysler.
Compliance and Oversight
I will now turn to oversight. Congressional committees of jurisdiction are the traditional bodies of oversight and Treasury has participated in five Congressional hearings on the TARP since the EESA was passed. In addition, the Congress established four additional avenues of oversight: one, the Financial Stability Oversight Board; two, the Special Inspector General; three, the Government Accountability Office; and four, the Congressional Oversight Panel. I will briefly review Treasury's interaction with each body.
First, we moved immediately to establish the Financial Stability Oversight Board, which is chaired by Federal Reserve Chairman Bernanke. The law requires the Board to meet once a month, but it has met multiple times since the law was signed, with numerous staff calls between meetings. We have also posted the bylaws and minutes of the Board meetings on Treasury's website.
Second, the law also requires appointment of a Senate-confirmed Special Inspector General to oversee the program. We welcome the Senate's confirmation of Neil Barofsky as the Special Inspector General. I meet weekly with the Inspector General and our staffs meet regularly.
Third, the law calls for the Government Accountability Office to establish a physical presence at Treasury to monitor the program. Treasury provided workspace for our auditors within days of the President signing the law. I have participated in multiple briefings with the GAO and our respective staffs are meeting almost daily for program updates and to review contracts.
Finally, the law called for the establishment of a Congressional Oversight Panel to review the TARP. That Oversight Panel was recently formed and we had our first meeting on Friday, November 21 and our second meeting on Thursday, December 18. The Congressional Oversight Panel posed a number of questions to Treasury and we provided a detail response which we published on our website on December 31.
Reporting and Transparency
Next, I will discuss reporting requirements and transparency. Reporting results to Congress and the American people is a critical responsibility of the TARP. People need to see what we are doing, understand why we are doing it, and know the effects of our actions. The law defined numerous reporting requirements for the TARP, which I will briefly review here. Treasury has met all of our reporting requirements on time, and will continue to do so. All of our reports are posted on the Treasury website.
- First, the law requires Treasury to publish a Transaction Report within two business days of completing each TARP transaction. We have published eleven transaction reports so far.
- Second, the law requires Treasury to publish a Tranche Report to Congress within seven days of each $50 billion commitment that is made. To date, Treasury has published four Tranche Reports, including one this week.
- Finally, the law requires Treasury to provide a detailed report on the overall program within 60 days of the first exercise of the TARP purchase authority and then monthly thereafter. We have published two such reports so far, the most recent this week.
Measuring Results
Finally, I will address the important issue of measuring the results of our programs. People often ask: how do we know our programs are working? The most important evidence that our strategy is working is that we have stemmed a series of financial institution failures. The financial system is fundamentally more stable than it was when Congress passed the legislation. While it is difficult to isolate one program's effects given policymakers' numerous actions, one indicator that points to reduced risk of default among financial institutions is the average credit default swap spread for the eight largest U.S. banks, which has declined by about 275 basis points since before Congress passed the EESA. Another key indicator of perceived risk is the spread between LIBOR and OIS: 1-month and 3-month LIBOR-OIS spreads have declined about 202 and 147 basis points, respectively, since the law was signed and about 312 and 242 basis points, respectively, from their peak levels before the CPP was announced.
People also ask: when will we see banks making new loans? It is important to note that almost $75 of the $250 billion CPP has yet to be received by the banks. Treasury is executing at a rapid speed, but it will take some time to review and fund all the remaining applications. This capital needs to get into the system before it can have the desired effect. In addition, we are still at a point of low confidence – both due to the financial crisis and the economic downturn. As long as confidence remains low, banks will remain cautious about extending credit, and consumers and businesses will remain cautious about taking on new loans. As confidence returns, Treasury expects to see more credit extended.
People have then asked: how will you track lending activity? Treasury has been working with the banking regulators to design a program to measure the lending activities of banks that have received TARP capital. We plan to use quarterly call report data to study changes in the balance sheets and intermediation activities of institutions we have invested in and compare their activities to a comparable set of institutions that have not received TARP capital investments. Because call report data is infrequent, we also plan to augment that analysis with a selection of data we plan to collect monthly from the largest banks we have invested in for a more frequent snapshot.
The increased lending that is vital to our economy will not materialize as fast as any of us would like, but it will happen much faster as a result of deploying resources from the TARP to stabilize the system and increase capital in our banks.
Conclusions
While we have made significant progress, we recognize challenges lie ahead. As Secretary Paulson has said, there is no single action the federal government can take to end the financial market turmoil and the economic downturn, but the authorities Congress provided last fall dramatically expanded the tools available to address the needs of our system. We are confident that we are pursuing the right strategy to stabilize the financial system and support the flow of credit to our economy. We have worked around the clock to build the Office of Financial Stability, design our programs, and execute them and will hand the next Administration a program that is staffed and fully operational. Thank you and I would be happy to take your questions.
US: New Ethiopian Law Restricts NGO Activities
New Ethiopian Law Restricts NGO Activities
Press Statement
US State Dept, Robert Wood, Deputy Spokesman
Washington, DC, January 8, 2009
The United States is concerned that the Charities and Societies Proclamation (CSO law) passed this week by the Ethiopian Parliament appears to restrict civil society activities and international partners’ ability to support Ethiopia’s own development efforts.
We recognize the importance of effective oversight of civil society organizations to ensure accountability, efficiency, transparency, and a clear set of operating procedures for NGOs. However, we are concerned this law may restrict U.S. government assistance to Ethiopia, particularly on promoting democracy and good governance, civic and human rights, conflict resolution, and advocacy for society’s most vulnerable groups -- areas the Ethiopian government has defined as critical for development.
2009/023
Press Statement
US State Dept, Robert Wood, Deputy Spokesman
Washington, DC, January 8, 2009
The United States is concerned that the Charities and Societies Proclamation (CSO law) passed this week by the Ethiopian Parliament appears to restrict civil society activities and international partners’ ability to support Ethiopia’s own development efforts.
We recognize the importance of effective oversight of civil society organizations to ensure accountability, efficiency, transparency, and a clear set of operating procedures for NGOs. However, we are concerned this law may restrict U.S. government assistance to Ethiopia, particularly on promoting democracy and good governance, civic and human rights, conflict resolution, and advocacy for society’s most vulnerable groups -- areas the Ethiopian government has defined as critical for development.
2009/023
In Cato: William G Harding fighting economic depression
Not-So-Great Depression, by Jim Powell
Cato, Jan 08, 2009
Excerpts
Which U.S. president ranks as America's greatest depression fighter?
Not the fabled Franklin Delano Roosevelt, since unemployment averaged 17 percent through the New Deal period (1933–1940). What banished high unemployment was the conscription of 12 million men into the armed forces during World War II. FDR actually prolonged high unemployment: he tripled taxes; he signed laws that made it more expensive for employers to hire people, made discounting illegal, and authorized the destruction of food; and he launched costly infrastructure projects like the Tennessee Valley Authority that became a drag on states receiving TVA-subsidized electricity.
America's greatest depression fighter was Warren Gamaliel Harding. An Ohio senator when he was elected president in 1920, he followed the much praised Woodrow Wilson— who had brought America into World War I, built up huge federal bureaucracies, imprisoned dissenters, and incurred $25 billion of debt.
Harding inherited Wilson's mess— in particular, a post–World War I depression that was almost as severe, from peak to trough, as the Great Contraction from 1929 to 1933 that FDR would later inherit. The estimated gross national product plunged 24 percent from $91.5 billion in 1920 to $69.6 billion in 1921. The number of unemployed people jumped from 2.1 million to 4.9 million.
Harding had a much better understanding of how an economy works than FDR. As historian Robert K. Murray wrote in The Harding Era, the man who would become our 29th president "always decried high taxes, government waste, and excessive governmental interference in the private sector of the economy. In February 1920, shortly after announcing his candidacy, he advocated a cut in government expenditures and stated that government ought to 'strike the shackles from industry. . . . We need vastly more freedom than we do regulation.' "
One of Harding's campaign slogans was "less government in business," and it served him well. Harding embraced the advice of Treasury Secretary Andrew Mellon and called for tax cuts in his first message to Congress on April 12, 1921. The highest taxes, on corporate revenues and "excess" profits, were to be cut. Personal income taxes were to be left as is, with a top rate of 8 percent of incomes above $4,000. Harding recognized the crucial importance of encouraging the investment that is essential for growth and jobs, something that FDR never did.
Powerful senators, however, favored giving bonuses to veterans, as 38 states had done. But such spending increases would have put upward pressure on taxes. On July 12, 1921, Harding went to the Senate and urged tax and spending cuts. He noted that a half-billion dollars in compensation and insurance claims were already being paid to 813,442 veterans, and 107,824 veterans were enrolled in government-sponsored vocational training programs.
In 1922, the House passed a veterans' bonus bill 333-70, without saying how the bonuses would be funded. The senate passed it 35-17. Despite intense lobbying from the American Legion, Harding vetoed the bill on September 19— just six weeks before congressional elections, when presidents generally throw goodies at voters. Harding said it was unfair to add to the burdens of 110 million taxpayers.
Harding's Secretary of Commerce Herbert Hoover wanted government intervention in the economy— which as president he was to pursue when he faced the Great Depression a decade later— but Harding would have none of it. He insisted that relief measures were a local responsibility.
Federal spending was cut from $6.3 billion in 1920 to $5 billion in 1921 and $3.2 billion in 1922. Federal taxes fell from $6.6 billion in 1920 to $5.5 billion in 1921 and $4 billion in 1922. Harding's policies started a trend. The low point for federal taxes was reached in 1924; for federal spending, in1925. The federal government paid off debt, which had been $24.2 billion in 1920, and it continued to decline until 1930.
Conspicuously absent was the business-bashing that became a hallmark of FDR's speeches. Absent, too, were New Deal-type big government programs to make it more expensive for employers to hire people, to force prices above market levels, or to promote cartels and monopolies.
With Harding's tax and spending cuts and relatively non-interventionist economic policy, GNP rebounded to $74.1 billion in 1922. The number of unemployed fell to 2.8 million— a reported 6.7 percent of the labor force— in 1922. So, just a year and a half after Harding became president, the Roaring Twenties were underway. The unemployment rate continued to decline, reaching an extraordinary low of 1.8 percent in 1926. Since then, the unemployment rate has been lower only once in wartime (1944), and never in peacetime.
The Roaring Twenties were a time of unprecedented prosperity. GNP expanded year after year without inflation. Productivity improved, and real wages increased. The stock market tripled. There was a dramatic expansion of the middle class. The Great Migration occurred during the 1920s, with some 7 million African-Americans moving north for better schools and job opportunities. Women had the vote. Millions of Americans began to buy cars, originally a luxury of the rich. People bought radios that enabled ordinary people to hear the finest entertainers in their own homes. Movies became popular. Frozen food made possible a more varied diet year-round. Doctors developed new medicines to fight deadly diseases like diphtheria and tuberculosis.
While Harding can hardly be considered a champion of laissez-faire economics (he supported tariffs, after all), the pro-growth policies he implemented are directly responsible for the astonishingly rapid growth in prosperity— and widely shared prosperity— America enjoyed throughout the Roaring 20s.
Unfortunately, Harding's stunning success as a depression fighter was overshadowed by the Teapot Dome scandal that engulfed his administration after his death in August 1923. This resulted from "progressive" era conservation policies in which the government owned land known to have petroleum reserves— at Teapot Dome, Wyoming, and Elk Hills, California. Since the beginnings of recorded history, government involvement in the economy has led to corruption, and Secretary of the Interior Albert Fall accepted bribes for leases enabling private companies to extract the oil. There wouldn't have been a scandal if the reserves had been privatized, as more than 250 million acres of government land had been privatized during the previous century.
[...]
Cato, Jan 08, 2009
Excerpts
Which U.S. president ranks as America's greatest depression fighter?
Not the fabled Franklin Delano Roosevelt, since unemployment averaged 17 percent through the New Deal period (1933–1940). What banished high unemployment was the conscription of 12 million men into the armed forces during World War II. FDR actually prolonged high unemployment: he tripled taxes; he signed laws that made it more expensive for employers to hire people, made discounting illegal, and authorized the destruction of food; and he launched costly infrastructure projects like the Tennessee Valley Authority that became a drag on states receiving TVA-subsidized electricity.
America's greatest depression fighter was Warren Gamaliel Harding. An Ohio senator when he was elected president in 1920, he followed the much praised Woodrow Wilson— who had brought America into World War I, built up huge federal bureaucracies, imprisoned dissenters, and incurred $25 billion of debt.
Harding inherited Wilson's mess— in particular, a post–World War I depression that was almost as severe, from peak to trough, as the Great Contraction from 1929 to 1933 that FDR would later inherit. The estimated gross national product plunged 24 percent from $91.5 billion in 1920 to $69.6 billion in 1921. The number of unemployed people jumped from 2.1 million to 4.9 million.
Harding had a much better understanding of how an economy works than FDR. As historian Robert K. Murray wrote in The Harding Era, the man who would become our 29th president "always decried high taxes, government waste, and excessive governmental interference in the private sector of the economy. In February 1920, shortly after announcing his candidacy, he advocated a cut in government expenditures and stated that government ought to 'strike the shackles from industry. . . . We need vastly more freedom than we do regulation.' "
One of Harding's campaign slogans was "less government in business," and it served him well. Harding embraced the advice of Treasury Secretary Andrew Mellon and called for tax cuts in his first message to Congress on April 12, 1921. The highest taxes, on corporate revenues and "excess" profits, were to be cut. Personal income taxes were to be left as is, with a top rate of 8 percent of incomes above $4,000. Harding recognized the crucial importance of encouraging the investment that is essential for growth and jobs, something that FDR never did.
Powerful senators, however, favored giving bonuses to veterans, as 38 states had done. But such spending increases would have put upward pressure on taxes. On July 12, 1921, Harding went to the Senate and urged tax and spending cuts. He noted that a half-billion dollars in compensation and insurance claims were already being paid to 813,442 veterans, and 107,824 veterans were enrolled in government-sponsored vocational training programs.
In 1922, the House passed a veterans' bonus bill 333-70, without saying how the bonuses would be funded. The senate passed it 35-17. Despite intense lobbying from the American Legion, Harding vetoed the bill on September 19— just six weeks before congressional elections, when presidents generally throw goodies at voters. Harding said it was unfair to add to the burdens of 110 million taxpayers.
Harding's Secretary of Commerce Herbert Hoover wanted government intervention in the economy— which as president he was to pursue when he faced the Great Depression a decade later— but Harding would have none of it. He insisted that relief measures were a local responsibility.
Federal spending was cut from $6.3 billion in 1920 to $5 billion in 1921 and $3.2 billion in 1922. Federal taxes fell from $6.6 billion in 1920 to $5.5 billion in 1921 and $4 billion in 1922. Harding's policies started a trend. The low point for federal taxes was reached in 1924; for federal spending, in1925. The federal government paid off debt, which had been $24.2 billion in 1920, and it continued to decline until 1930.
Conspicuously absent was the business-bashing that became a hallmark of FDR's speeches. Absent, too, were New Deal-type big government programs to make it more expensive for employers to hire people, to force prices above market levels, or to promote cartels and monopolies.
With Harding's tax and spending cuts and relatively non-interventionist economic policy, GNP rebounded to $74.1 billion in 1922. The number of unemployed fell to 2.8 million— a reported 6.7 percent of the labor force— in 1922. So, just a year and a half after Harding became president, the Roaring Twenties were underway. The unemployment rate continued to decline, reaching an extraordinary low of 1.8 percent in 1926. Since then, the unemployment rate has been lower only once in wartime (1944), and never in peacetime.
The Roaring Twenties were a time of unprecedented prosperity. GNP expanded year after year without inflation. Productivity improved, and real wages increased. The stock market tripled. There was a dramatic expansion of the middle class. The Great Migration occurred during the 1920s, with some 7 million African-Americans moving north for better schools and job opportunities. Women had the vote. Millions of Americans began to buy cars, originally a luxury of the rich. People bought radios that enabled ordinary people to hear the finest entertainers in their own homes. Movies became popular. Frozen food made possible a more varied diet year-round. Doctors developed new medicines to fight deadly diseases like diphtheria and tuberculosis.
While Harding can hardly be considered a champion of laissez-faire economics (he supported tariffs, after all), the pro-growth policies he implemented are directly responsible for the astonishingly rapid growth in prosperity— and widely shared prosperity— America enjoyed throughout the Roaring 20s.
Unfortunately, Harding's stunning success as a depression fighter was overshadowed by the Teapot Dome scandal that engulfed his administration after his death in August 1923. This resulted from "progressive" era conservation policies in which the government owned land known to have petroleum reserves— at Teapot Dome, Wyoming, and Elk Hills, California. Since the beginnings of recorded history, government involvement in the economy has led to corruption, and Secretary of the Interior Albert Fall accepted bribes for leases enabling private companies to extract the oil. There wouldn't have been a scandal if the reserves had been privatized, as more than 250 million acres of government land had been privatized during the previous century.
[...]
Subscribe to:
Posts (Atom)
Posts
