Tag: sanctions

Iran’s Inflation Statistics: Lies, Lies and Mehr Lies

The Mehr News Agency is now reporting that Iran’s annual inflation rate has reached 31.5%. According to the Central Bank’s official line, Iran’s annual inflation rate has bumped up only 1.3 percentage points from February to March.

Never mind that this official inflation statistic is well below all serious estimates of Iran’s inflation. And yes, Iran’s official inflation statistics are also contradicted by the overwhelming body of anecdotal reports in the financial press.

Since September 2012, I have been estimating Iran’s inflation rate – which briefly reached hyperinflation levels in October 2012 – using a standard, widely-accepted methodology. By measuring changes in the rial’s black-market (read: free-market) U.S. dollar exchange rate, it is possible to calculate an implied inflation rate for Iran.

When we do so, a much different picture of Iran’s inflation emerges. Indeed, Iran’s annual inflation rate is actually 82.5% – a rate more than double the official rate of 31.5% (see the accompanying chart).

As I have documented, regimes in countries undergoing severe inflation have a long history of hiding the true extent of their inflationary woes. In many cases, the regimes resort to underreporting or simply fabricating statistics to hide their economic problems. And, in some cases, such as Zimbabwe and North Korea, the government simply stops reporting economic data altogether.

Iran has followed a familiar path, failing to report inflation data in a timely and replicable manner. Those data that are reported by Iran’s Central Bank tend to possess what I’ve described as an “Alice in Wonderland” quality and should be taken with a grain of salt.

The Tyranny of Confusion: A Response to Prof. Djavad Salehi-Isfahani on Iran

In October 2012, I first reported that Iran had experienced hyperinflation. My diagnosis of Iran’s inflation woes has since drawn the ire of Prof. Djavad Salehi-Isfahani, who has written a series of blogs and articles disputing my analysis. Prof. Salehi-Isfahani, an economist at Virginia Tech, has employed a confused (and confusing) mix of half-baked methodologies and selected data to yield unfounded, preposterous claims. Specifically, he claims that Iran never experienced a brief bout of hyperinflation and that Iran’s inflation rate is much lower than the estimates reported by virtually everyone except Iran’s Central Bank. To borrow Jeremy Bentham’s phrase, Prof. Salehi-Isfahani’s claims constitute a series of “vulgar errors.”

What has puzzled me for the past few months is why Prof. Salehi-Isfahani has been so hell-bent on denying Iran’s inflation problems. But finally, in his most recent article in Al Monitor, he showed his hand, revealing his underlying thesis – the same claim propagated by the Iranian regime – that the sanctions imposed by the West have not inflicted economic damage on Iran to the extent that has been reported.

In his most recent blog, Prof. Salehi-Isfahani finally abandons his own confused attempts to calculate Iran’s inflation rate. For his readers, this is a relief, as the variety of methods with which he attempted to calculate inflation in Iran amount to nonsense – and not even good nonsense.

Hagel’s Common Sense on Cuba

Foes of Chuck Hagel have found another reason to oppose his nomination for secretary of defense: he supported ending the 50-year old embargo on Cuba. Hagel also called the idea that the government in Havana constitutes a terrorist threat to the United States “goofy”, referring to Fidel Castro as a “toothless old dinosaur.” Supposedly, this proves he’s weak and won’t stand up to world dictators when vital U.S. interests are at stake. 

In reality, Hagel belongs to a growing group of conservatives who have come to realize the failure of U.S. policy towards Cuba. This group includes former senator Richard Lugar, who until recently was the highest ranking Republican on the Senate Foreign Relations Committee, and Senator Jeff Flake, a freshman Republican from Arizona. Even Paul Ryan (R-WI), the GOP’s former VP candidate, voted against the embargo the last time it came to a vote in the House in 2005. 

You don’t need to think hard to understand why the embargo and travel ban on Cuba have failed: the Castro brothers are still in power in Havana. Five decades of economic sanctions—the most stringent Washington has imposed on any country—have failed to bring about a democratic transformation of Cuba. Moreover, the embargo has served as a scapegoat to the regime.

Elizardo Sánchez Santa Cruz, a leading dissident in Cuba, has aptly summed up that strategy: “[Castro] wants to continue exaggerating the image of the external enemy which has been vital for the Cuban Government during decades, an external enemy which can be blamed for the failure of the totalitarian model implanted here.” Cuban dissident blogger Yoani Sánchez has called the embargo “the regime’s excuse for all its failures” and pointed out that its existence has undermined the work of dissidents on the island. 

Proponents of the embargo (who are now opposing Hagel’s nomination) inadvertently accept this reality. Our friend Frank Calzón, at the Center for a Free Cuba, mentions in the Washington Post several instances when Havana rebutted Washington’s outreach efforts: “Each solicitation has been met with aggressive action.” Why? Perhaps because the Castro regime fears that an end to the embargo and travel ban could weaken its grip on power? 

Ironically, those who argue that national security concerns are reasons to oppose changing U.S. policy towards Cuba ignore that the embargo has also become somewhat of a U.S. security liability itself. A 2007 report by the Government Accountability Office points out that enforcing the embargo and travel ban diverts limited resources from homeland security that could be used to keep terrorists and criminals out of the United States. The GAO report warned that arrival inspections from Cuba intended to enforce the embargo are “straining Customs and Border Patrol’s capacity to inspect other travelers according to its mission of keeping terrorists, criminals, and inadmissible aliens out of the country.”     

It would be naïve to think that ending the embargo will somehow transform Cuba into a democratic society. As long as the Castros are in change, that won’t happen. But it’s equally naïve to believe that there are great benefits and no significant downsides to the current policy. Chuck Hagel doesn’t have a Cuba problem. Just the opposite. He has shown common sense in ending one of Washington’s most anachronistic foreign policies.

Russia Responds by Punishing Orphans

When Congress passed legislation this month establishing permanent normal trade relations with Russia, it included travel and financial sanctions against Russians accused of gross human rights violations, particularly those involved in the suspicious death of anti-corruption whistleblower Sergei Magnitsky. At the time, I counseled against “poking Russian officials in the eye with sanctions.” The Russian legislature is currently contemplating its response to that poke, and it doesn’t look good.

Having made clear its intention to retaliate in some way for the Magnitsky bill, which it deemed a national insult and intrusion into domestic affairs, Russia has decided to target America’s own human rights abusers—adoptive parents of Russian orphans. Russian media have been fueling a controversy over abuse by American parents of adopted Russian children, and the Magnitsky bill gave the legislature in Moscow an opportunity to kill two birds with one stone. At first, Russian leaders called for a travel ban on specific people accused of abuse in an obvious parallel to the U.S. sanctions. The current proposal under consideration is to ban all adoptions by American citizens.

Russia has an impressive surplus of orphans and is one the most common countries of origin for international adoptions in the United States. Thousands of children will be denied access to loving families. Not all the blame lies with Congress and its attempt to be a global human rights cop, but the end surely condemns the means.

 

What Is Waltz Up To on Iranian Nukes?

Paul Pillar, writing at the National Interest, has already mentioned the provocative Kenneth Waltz essay on Iranian nuclear weapons that has inflamed the segments of the Beltway foreign-policy establishment who bothered to read it. But I wanted to expand on a couple of additional points Waltz raises.

It probably bears observing, first, that when Waltz writes that Iranian acquisition of a nuclear arsenal “would probably be the best possible result,” he is defining “best possible result” in the exact opposite way that the Beltway foreign-policy establishment does.

As Waltz wrote in his debate with Scott Sagan on nuclear optimism versus nuclear pessimism, “a big reason for America’s resistance to the spread of nuclear weapons is that if weak countries have some they will cramp our style.” Iran is a weak country who, with a nuclear arsenal, would cramp our style. Waltz opposes America’s style. As he put it in a 1998 interview, “I’ve been a fierce critic of American military policy and spending and strategy, at least since the 1970s.”

Read in this context, then, what Waltz sees as a feature of an Iranian weapon is what the American foreign policy establishment sees as a bug: the fact that an Iranian bomb will cramp our—and Israel’s—style. The foreign-policy establishment desperately wants to preserve the option of doing an Iraq—or Iran—war every so often if they feel like it. An Iran with nukes makes invading Iran a totally different ballgame.

What Waltz is after is “stability.” He has long argued that nuclear balances produce stability because the prospect of escalation to war between nuclear states is so harrowing that states seeking survival—which he argues all states tend to do—peer into the abyss and back away.

Deborah Boucoyannis wrote a fascinating article in 2007 arguing that Waltzian realists, by dint of their appreciation and support for balancing power—and antipathy for unbalanced power—are in fact classical liberals in the same sense that America’s founding fathers were classical liberals. They were obsessed with drawing up a constitution that would balance the branches of the American government against one another, not because the presidency, or the Congress, or the courts was itself inherently malign, but because unbalanced power is dangerous anywhere. One can even see this theme in the writing of early American leaders’ thinking on foreign relations. Thomas Jefferson wrote in 1815 of his desire that nations “which are overgrown may not advance beyond safe measures of power, [and] that a salutary balance may be ever maintained among nations.”

This is what Waltz sees in the Middle East today: unbalanced power. If what you value is stability, then pushing the region toward balance, where no one can start a war with anyone else without risking his own survival, looks good.

Two other points. First, in order to get Iranian nukes to act as a stabilizer, Waltz has to argue that the Iranian regime is not suicidal, and that the primary reason it might like a nuclear weapon is for survival. I agree with this argument, and it bears pointing out that people as far away from realism as the neoconservative writer Eli Lake seem to agree as well. Unfortunately, the din of nonsense emanating from Washington seems to have convinced the American people that Iran would nuke Israel. In the recent poll from Dartmouth’s Benjamin Valentino, 69 percent of those surveyed said that Iran would be “very likely” or “somewhat likely” to use nuclear weapons against Israel.

Finally, this has been a useful insight into how detached popular commentary in America is from scholarship on the subjects pundits discuss. It was precious, for example, to see Commentary’s Ira Stoll scrambling to figure out who Kenneth Waltz was. For those with interest, he ranked third in a survey of international relations scholars that asked for a ranking of scholars “who have had the greatest influence on the field of IR in the past 20 years.” It’s a good thing that our architects and bridge-builders have a closer relationship with the engineering field than our foreign-policy pundits do with international relations scholarship.

Cross-posted from the Skeptics at the National Interest.

Washington’s Dead Policies Toward Pyongyang and Tehran

In the next week, the Obama administration could face its toughest test yet in handling Iran and North Korea’s quest for nuclear capabilities. If Washington continues to pursue the same sterile policies toward these distasteful regimes, little progress will be made. Diplomacy is still a workable option in each case, but the administration must seek to establish diplomatic relations with Tehran and Pyongyang, even though such a wise goal will be politically controversial..

North Korea seems to be on the brink of conducting a long-range missile test thinly disguised as a satellite launch. And according to the Associated Press, South Korean intelligence officials claim the North is preparing for a third nuclear test. The P5+1 talks with Iran are now set to begin April 14 in Istanbul, but tensions remain high.

The developments on the Korean peninsula are particularly worrisome, if unsurprising. They confirm that Washington’s policy of threatening the North Korean regime with stark international isolation if it does not abandon its ballistic missile and nuclear weapons program is increasingly an exercise in futility.  Most experts believe that Pyongyang already has enough fissile material for four to six weapons and may have already built two or three such weapons.  And the North Korean missile development effort has gone forward, despite periodic setbacks.  The effort to isolate Pyongyang has fallen far short of Washington’s goal—with China especially continuing to give Kim Jong-un’s government the food and energy aid that it needs to stay afloat.

U.S. policy toward Iran has not fared much better.  Despite getting the international community to impose ever tighter economic sanctions, Tehran’s nuclear program also seems to have made steady progress.  Indeed, the sanctions system is notable for its leakage.  Frustrated political leaders and pundits in the United States and Israel mutter darkly about resorting to military action to halt Tehran’s march toward a nuclear capability.  But the risks of waging a counter-proliferation war against Iran are obvious, worrisome, and potentially catastrophic.

The 19th century British statesman Lord Salisbury once observed that “the commonest error in politics is clinging to the carcasses of dead policies.”  The sad state of U.S. efforts to prevent Pyongyang and Tehran from joining the ranks of nuclear-weapons states is Exhibit “A” in support of Salisbury’s observation.  U.S. policy makers have doggedly pursued their attempts to isolate the two “rogue” regimes for decades—with almost no evidence of success.  Washington now faces the prospect of utterly bankrupt policies on both fronts.  Indeed, the United States risks ending up with the worst possible combination—the emergence of two new nuclear powers with whom Washington has no formal relations and unrelentingly hostile informal relations.  That combination is both futile and dangerous.

Wise statesmen learn to abandon obsolete or unworkable policies.  President Richard Nixon did so with his opening to China in 1972, and President Bill Clinton did so with his normalization of diplomatic and economic relations with Vietnam in the late 1990s.  The results have been clearly positive in both cases, even though the regimes in Beijing and Hanoi are still highly authoritarian and engage in some repulsive actions.

The Obama administration needs to show the same judgment and courage by making a sustained effort at the highest level to establish something at least resembling a normal relationship with Pyongyang and Tehran.  It is well past time to bury the rotting carcasses of Washington’s ineffectual policies toward those two governments.

Cross-posted from The Skeptics at the National Interest.

Trying to Do Everything, Doing Nothing Well

One of the perennial laments about American strategy offered by people like me is that Washington seems incapable of setting out clear priorities in its foreign policy. Everything is urgently important. The business section of today’s New York Times highlights the unfortunate results of this orientation.

You may have heard by now that the United States and other allied countries are currently trying to strangle the Iranian economy to the point where the regime in Tehran feels enough pain—or, more accurately, fears for its survival enough—that it is forced to comply with the preconditions for negotiations and come to the table. This is deemed a Very Important Objective by the Washington foreign-policy elite.

But what you may have forgotten is that the United States is currently undertaking a “pivot” away from the Near East and toward the region where Washington believes the future of international politics lies: the Asia-Pacific. In pursuit of that objective, the United States is currently trying to pull together a coalition of junior partners to help diplomatically and militarily surround China so as to hem it in, should it have any ambition to take charge of the security environment in its region. This, too, is a Very Important Objective.

And before you get ahead of yourself, don’t forget about Poor Little Georgia, which got a chunk of its territory annexed after it lost a war to Russia in 2008. As President Bush pointed out, America’s vital interests and its deepest beliefs are now one. And surely our deepest beliefs don’t involve leaving a flawed-but-promising democratic nation to the tender mercies of a predatory and authoritarian Moscow regime, do they? So let’s agree that keeping Georgia safe is a vital interest.

The problem with this approach is that it’s very hard to pursue these difficult objectives at once. As the Times piece points out, the sanctions coalition against Iran conflicts with a number of these other objectives:

[N]ew threats to Iranian oil flow could have at least one beneficiary: Russia…

For Russian oil companies like Rosneft and Lukoil and the Russian-British joint venture TNK-BP, the international tensions that began over Iran’s nuclear development program last autumn have meant a windfall. Analysts estimate that Iran jitters have added $5 to $15 a barrel to the global price of oil, which means an extra $35 million to $105 million a day for the Russian industry. And the taxes the Russian government has received from those sales have been a political windfall for Prime Minister Vladimir V. Putin as he campaigns to return as Russia’s president. The extra money has helped further subsidize domestic energy consumption, tamping down inflation.

“It’s good for Putin,” Mr. Mercer said. “In the United States, when oil prices go up, the president’s ratings go down. In Russia, it’s the opposite.”

So our Iran policy helps Russia and Putin, and that’s bad. But wait:

[A]t least one exemption [to the Iran sanctions] under discussion is meant specifically to limit the strategic benefits for Russia, which has been an outspoken critic of American and European strictures against Iran.

The United States and European Union are negotiating an exemption that would continue to provide the former Soviet state of Georgia—a nation that is now a Western ally—an alternative to Russian natural gas. The workaround allows payments to an Iranian company, Naftiran Intertrade, that has a share of the Shah Deniz natural gas field in the Caspian Sea.

The field, managed by the Western petroleum giant BP, is a supplier to Georgia. It is also a potential source for the proposed Nabucco pipeline, which would be managed by a consortium based in Vienna and backed by some Western European governments to create European competition with Gazprom. But the pipeline, seen as a maneuver to weaken Russia’s hand in European energy politics, has been stalled in the planning phase for years.

So we’re carving out an escape hatch for Iranian natural gas to get to Georgia, because we have friends in Tbilisi. Oh, and what about that pivot to Asia? Any trouble on that front?

China, meanwhile, is expected to circumvent the Iranian sanctions with tacit American approval by settling its oil purchases with Iran through banks that have no dealings in the United States. India, for its part, has negotiated to barter wheat for oil, or pay Iran directly in rupees.

Hmm. Oh, and what about our war in Afghanistan, which has already cost hundreds of billions of dollars, with the meter currently running somewhere between $8 and $10 billion per month? What’s going on over there? Maybe the Post has something on that:

ISLAMABAD, Pakistan — At one end of the flower-festooned table sat the president of Iran, Mahmoud Ahmadinejad, perhaps the world’s most relentless America basher.

At the other end sat Hamid Karzai, Afghanistan’s leader, who owes his nation’s survival to the United States.

And in the middle was Pakistani President Asif Ali Zardari, whose country’s complex relationship with Washington swings from pole to pole.

If there existed any conflict among the chief executives of the three neighboring Islamic nations, they certainly weren’t showing it Friday at the close of a trilateral summit in Pakistan’s capital. At a news conference Zardari hosted in his splendid official residence, the theme was fraternal unity as the trio pledged to work for peace and prosperity in a region raging with war and terrorism.

It’s almost as if there are tradeoffs among our objectives.

Cross-posted from the Skeptics at the National Interest.