Tag: Syria

Coping with the Legacy of Arab Socialism

Countries of the Arab Spring suffer from many economic, social, and political ills. At their center lies the unfortunate legacy of Arab Socialism, which established itself in the region during the 1950s and 1960s. One of its features, besides the ideology of Pan-Arabism and international ‘non-alignment,’ was an emphasis on government ownership and industrial planning. Far from generating prosperity and economic growth, these policies resulted in large, vastly inefficient government-operated sectors in several Arab economies. My new Cato Policy Analysis provides a sense of the magnitude of the problem and of its evolution over time:

In Egypt, for example, the share of government investment fell from around 85 percent in the late 1990s to below 40 percent in 2012. Over the same period of time, the share of government investment in Algeria doubled, from around 30 percent to above 60 percent. Throughout much of the same period, the average for lower-middle-income countries hovered under 30 percent.

Some Arab governments, most prominently Hosni Mubarak’s regime in Egypt, attempted to put in place large-scale privatization programs. However, these were perceived (and rightly so!) as attempts by the political elites and their cronies to simply seize publicly owned assets, without much regard for the future restructuring of the companies and their exposure to competition. My paper reviews the experience of privatization in other countries and tries to provide some practical lessons to policymakers in countries such as Egypt or Algeria.

First and foremost, privatization needs to be perceived as fair and transparent. Bidding should be competitive and open to a large spectrum of potential bidders, domestic and foreign. Second, private ownership of the financial sector is a requisite for successful privatization and restructuring of the rest of the economy–otherwise Arab countries risk creating a dangerous nexus of cronyism through which the state-owned banks and financial institutions would provide funding to newly privatized companies. Third, in order to avoid the danger of simply replacing government-run monopolies with privately-run ones, privatization should be far-reaching and accompanied by broad economic liberalization and opening up both to trade and investment.

Privatization is not very high on the agenda of Arab policymakers or foreign experts, and is typically eclipsed by the more immediate political concerns about the region. It is not, however, an issue that can be simply ignored.

It is a mistake to think that economic reforms can wait until Middle Eastern countries address their internal political and economic problems. There are not many examples of countries that have transitioned successfully to a representative constitutional government while maintaining economic rules that deny opportunity to large segments of the population. State ownership, accompanied by regulations that favor existing state-owned incumbents, are a critical part of the problem facing countries in the MENA region, most notably Egypt, Libya, Algeria, Syria, and Yemen

Don’t Overestimate ISIS Gains in Iraq

ISIS’s territorial gains in Syria and Iraq are impressive. However, the group has its work cut out for it.

First, ISIS may face internal tensions. The nature of the relationship between the group and Iraqi Baathists has been variously reported. While the two have an obvious operational incentive to collaborate, if the former Baathist elements retain their original ideological platform, it is likely incompatible with ISIS’s radical preferences. Should ISIS determine it is content with its territorial holdings, any partnership could face tensions in the absence of a common enemy in Maliki’s sectarian rule.

Second, the Kurds. ISIS appears to have largely avoided direct confrontation with Kurdish forces. But the Kurds appear far from assuming ISIS is an ally, or that the group does not have designs on territory the Kurds themselves claim. If and when ISIS and Kurdish ambitions clash, the peshmerga are likely to put up a fight.

Third, ISIS may be able to take territory, but it now faces the challenge of ruling it. The group has a track record over the last year of ruling in Syrian cities like Raqqa. In Syria, ISIS rebels provided public services, and tried to moderate their implementation of sharia law so as to avoid civilian resistance. But gradually the group reverted to its own ideological platform—an Islamic interpretation not in line with that of the Syrian civilians under their rule. In order to tamp down public dissent and quell resistance, the rebels have become notoriously brutal—showcasing their brutality publicly and electronically. In Iraq, at least some civilians have welcomed ISIS’s arrival and the Iraqi military’s departure. But preferring ISIS to Maliki isn’t necessarily saying a lot.

The US also sought to control areas ISIS now claims in Iraq, and America’s limited success was hard-won. ISIS’s acceptability as a ruler remains to be seen (the group has just published its first set of rules for those newly under its control). As time wears on, any distance between ISIS’s political and ideological platform and those of its new residents will become clearer. If, as in Syria, this gap proves to be wide, we may expect similarly brutal rule by ISIS in Iraq.

If so, the international community will need to weigh the suffering of those under ISIS control against the likely costs and success of intervening to improve the situation.

Unless they moderate their platform, there are few ways to encourage ISIS to adopt less coercive rule. Interdicting support from abroad can strain the group in a variety of ways, but access to oil wealth (and now, cash) will dampen the effects of any interdiction, and even a weakened ISIS is likely to abuse civilians.

But beyond the first blush of victory, governance is a difficult and costly undertaking. Reports note ISIS’s extensive and coercive reach into civilians’ lives in Syrian cities it has controlled since last year. But this apparatus eats up resources. Even if ISIS uses public brutality to quash resistance and retain control, it will have to task personnel to do this—personnel that cannot then be used to pursue additional territory, or protect themselves against government troops or other rival factions.

Unfortunately for those who live under it, brutality can be a sustainable means of retaining control—for rebels like ISIS, as well as for states. ISIS may manage to keep the territory it has captured, but it will have to work for it—as Ghengis Khan noted “Conquering the world on horseback is easy; it is dismounting and governing that is hard.”

More Terrorism Isn’t Necessarily More Danger

Diane Feinstein (D-Calif.) and Mike Rogers (R-Mich) made news Sunday when they both insisted on CNN that the terrorist threat to Americans has grown in the last couple of years. Feinstein’s evidence: “The statistics indicate that, the fatalities are way up.” Rogers agrees and argues that al Qaeda has been “metastasizing” into more groups that engage in smaller attacks.

It’s true that global terror attacks and fatalities increased in 2011 and 2012, according to the National Consortium for the Study of Terrorism and Responses to Terrorism. And, several new jihadist groups have emerged of late. But, as Marian Tupy showed here Monday, the fact remains that terrorism has for decades been becoming less deadly.

We should also be skeptical that the recent increase in terrorism means more danger for Americans. The cause of terrorism’s recent increase is civil wars and political unrest in Africa, the Middle-East and South Asia, where the vast majority of recent terrorist attacks have occurred.

Meanwhile, terrorists killed fifteen, seventeen, and ten private U.S. citizens (that is, non-military) in 2010, 2011, 2012, respectively. That means the danger to Americans either did not grow or that they mostly avoided it.

The real problem then is not al Qaeda, but the fractured political order in Iraq, Syria, Afghanistan, Yemen, Pakistan, Somalia, Nigeria and the like. Feinstein is conflating those problems to frighten us. As John Mueller notes:

When terrorism becomes really extensive, we generally no longer call it terrorism, but war. But people are mainly concerned about random terror, not sustained warfare.

Rogers’ claim that the al Qaeda threat is “metastasizing” into smaller, deadlier cells resembles old arguments that al Qaeda was a hierarchical organization that cleverly decentralized when the gig was up in Afghanistan. But as I explained at greater length here, even in its 1990s heyday, al Qaeda was a fragmented and unmanageable movement.

Its scattered remnant in Pakistan controls little locally and less abroad. Its “affiliates” are either bunches of guys with little capability or Islamist insurgents trading on the name’s cachet to organize their corner of a rebellion. Most of those insurgents target local enemies, not Americans. Those tragic struggles do not necessarily threaten U.S. security.

The fact that the jihadists that do target Americans are now focused on small-scale attacks is a consequence of their limited ability to pull off complex plots. And even the simpler sorts have mostly failed. Given the devastation our leaders tell us to expect from al Qaeda, what Rogers calls metastasis seems like good news.

Syrian Pound Soars, Iran’s Single Digit Inflation, and Other Troubled Currencies Project Updates

Syria: On September 27th, the United Nations Security Council unanimously adopted a resolution outlining the details of the turn over and dismantlement of Syria’s chemical weapons. Syria’s president, Bashar al-Assad, has stated that his government will abide by last week’s UN resolution calling for the country’s chemical weapons to be destroyed. 

It appears that this news was well received by the people of Syria. The black-market exchange rate for the Syrian pound (SYP) has dropped from 206 per U.S. dollar on September 25th to 168 on September 30th. That’s a whopping 22.6% appreciation in the pound against the dollar. Currently, the implied annual inflation rate in Syria sits at 133 percent, down from a rate of 185 percent on September 25th.

Iran: Since President Rouhani took office, Iranian expectations about the nation’s economy have turned positive. Over the past month we have seen a significant decrease in the volatility of the Iranian rial on the black market. This trend of stability has continued into this week, as President Rouhani’s trip to the UN has raised hopes of constructive cooperation with the West. In consequence, the rial has remained virtually unchanged on the black market, moving from 30,500 per U.S. dollar on September 25th to 30,200 on September 30th. The implied inflation rate in Iran as of September 30th stands at 8%, down from 23% on September 25th.

Venezuela: While the crises in the Middle East are easing, the troubles in Venezuela are far from over. The black market exchange rate for the Venezuelan bolivar has fallen from 44.03 per U.S. dollar on September 24th to 40.92 on September 30th. This represents an appreciation of 7.6% over the last week.  The implied annual inflation rate as of September 30th sits at 255%, down from a local high of 292% on September 17th. The ConocoPhillips dispute, a massive blackout, and worsening shortages caused by price controls have ravaged the Venezuelans’ confidence in the bolivar over the month of September.

Although the bolivar has rebounded modestly in recent weeks, this simply indicates that the economic outlook in Venezuela is only slightly less miserable than it was in mid-September. The economy is still on a slippery slope and economic expectations continue to be weighed down by the fragile political atmosphere, worsening shortages, and the ever-present specter of political violence. An inflation rate of 255% is nothing to celebrate.

Argentina: The black market exchange rate for the Argentine peso has held steady at around 9.5 per U.S. dollar since September 25th, with a 9.55 exchange rate on September 30th. That represents a 2.9% decrease in the value of the currency from the September 22nd rate of 9.27. The implied annual inflation rate as of September 30th sits at 54%, a decrease from the rate of 49% on September 22nd.

Egypt: The black market rate for the Egyptian pound has held steady at around 7.1 per U.S. dollar since September 25th, roughly the same level as the official exchange rate. This indicates that, for the time being, the military has brought some semblance of stability to the Egyptian economy. As of September 30th, the black market exchange rate was 7.12. The implied annual inflation rate as of September 30th sits at 19%.

For up-to-date information on these countries and their troubled currencies, see the Troubled Currencies Project.

Rouhani Delivers Lower Inflation, and other Troubled Currencies Project Updates

Iran: Prior to Hassan Rouhani’s election as Iran’s new president in June, the black-market Iranian rial to U.S dollar (IRR/USD) exchange rate stood at 36150, implying an annual inflation rate of 109 percent (June 15th 2013). Since Rouhani took office, Iranian expectations about the economy have turned positive, or at least less negative, and the black-market IRR/USD exchange rate has strengthened to 29200. In consequence, the implied annual inflation rate has fallen like a stone, and currently sits at 20 percent. That’s even lower than the most recent official annual inflation rate of 35.1 percent. (August 2013).

Rouhani has stated that one of his top priorities is to set the Iranian economy right. So far, it appears the new president has delivered the goods.

Venezuela: September got off to a rocky start in Venezuela. On September 4th, the World Bank’s International Center for the Settlement of Investments Disputes announced that Venezuela had illegally expropriated ConocoPhillips’s multi-billion dollar crude oil projects. This coincided with a massive blackout that left half the country without power. To top it off, price controls have led to worsening shortages, with the government announcing on September 13th that the shortage index had hit a whopping 20 percent for the month of August. All of this bad news is reflected in Venezuelan’s economic expectations, as measured by the black-market exchange rate for the Venezuelan bolivar (VEF).

From beginning of the month through September 17th the VEF/USD exchange rate depreciated by 16.3 percent, from 37.32 to 44.59. In consequence, the implied annual inflation rate rose from 230 percent to a high of 292 percent.

Things took a turn for the positive on September 18th, when Venezuela and China agreed to a $14 billion investment package, which includes joint venture to develop the Junin 10 bloc of the Orinoco Oil Belt, as well as investments in mining, transportation and agricultural projects in Venezuela. In consequence, the black-market VEF/USD exchange rate has fallen to 44.03, yielding an annual implied inflation rate of 261 percent.

Argentina: Despite some recent good economic news, Argentineans still appear to be skeptical about their economy’s future. On Friday, September 20, Argentina announced a strong 8.3 percent year-over-year growth rate for Q2. One would think this strong performance would have improved Argentinean’s expectations for the economy, as measured by changes in the peso’s black-market U.S. dollar exchange rate. But, the black-market exchange rate has held steady in the days since the announcement. The current black-market ARS/USD exchange rate sits 9.43, yielding an implied annual inflation rate of 50 percent. It appears that concerns of ongoing inflation troubles are still weighing heavy on the minds of Argentineans.

Egypt: Since the Egyptian military ousted Mohammed Morsi on July 3rd, the Egyptian pound’s (EGP) official and black-market U.S. dollar exchange rates have converged. Currently, the black-market rate sits at 7.10 EGP/USD – very close to the official exchange rate of 6.89 EGP/USD. These rates have been stable for the past month.

Prior to the military takeover, the black-market exchange rate sat at 7.6 EGP/USD. Since Morsi’s ouster, the pound has appreciated by 7 percent, to 7.10 EGP/USD. This yields a current implied annual inflation rate of 18 percent, down from 28 percent in the final days of the Morsi government.

Yes, it appears the Egyptian generals have delivered some semblance of stability on the economic front. Indeed, the black market for foreign exchange has all but disappeared.

Syria: As President Obama heads to the United Nations General Assembly to iron out the terms of a tentative Syrian chemical weapons deal, the black-market exchange rate for the Syrian pound (SYP) continues to hold steady at 206. Currently, the implied annual inflation rate in Syria sits at 189 percent. This is down from a high of 291 percent on the 28th of August, when Secretary of State John Kerry kicked off the United States’ abortive march to war.


For up-to-date information on these countries and their troubled currencies, see the Troubled Currencies Project.

 

Obsession with Syria Obscures Other Middle East Problems and Pertinent Lessons

The Obama administration and most of the U.S. foreign policy community have become so obsessed with Syria that other important developments around the world are receiving inadequate attention. In a piece over at the National Interest Online, I describe some of the key trends in South Asia and East Asia, two regions that are more important than the Middle East to long-term U.S. security and economic interests.

Crucial events include India’s growing financial woes, the simmering tensions between China and its neighbors over territorial disputes in the South China and East China Seas, and Japan’s increased willingness (in large part because of its problems with China) to boost its military spending and adopt a more confrontational stance toward Beijing. 

I also note that Syria is hardly the only source of worry in the Middle East itself. The renewed sectarian violence next door in Iraq is escalating at a frightening pace, Sunni-Shiite tensions in Bahrain are moving from a simmer to a boil, Libya is imploding, and Egypt is perched on the brink of civil war. The problems in Iraq and Libya hold pertinent lessons for those Americans who are eager to embark on a war against Syria. After all, those were Washington’s last two military crusades to oust odious dictators. And to be blunt, they have not turned out well.

Since the early spring, the level of bloodshed in Iraq has reached alarming proportions. And much of the violence reflects bitter sectarian divisions similar to those that make Syria such a fragile political entity. Iraq after the United States overthrew Saddam Hussein has not turned out to be the peaceful, democratic, multi-religious society that George W. Bush’s administration touted as the goal of U.S. policy. 

The situation in Libya is even worse. Overthrowing Muammar Qaddafi has led to an awful aftermath. The horrifying September 11, 2012 attack on the U.S. consulate in Benghazi that killed Ambassador Christopher Stevens and three other Americans was an early symptom of the chaos that has made Libya a thoroughly dysfunctional country. Today, a growing number of militias (many of which have rabidly Islamist orientations) have established small fiefdoms throughout the country, and the national government in Tripoli becomes increasingly impotent. Libya’s oil production has plunged, and with it the government’s principal source of revenue. 

Given the dismal outcomes of Washington’s last two military ventures in the Middle East and North Africa, one would think that proponents of a crusade in Syria would be sobered by the experience. But warhawks such as Senators John McCain and Lindsey Graham, Representative Peter King, and Weekly Standard editor William Kristol appear to have learned nothing from those debacles. More prudent figures in Congress and the broader foreign policy community need to overrule their wishes.

Who Is Making the Case For and Against Action in Syria?

Two different organizations are circulating information on Capitol Hill pertaining to the situation in Syria. The handouts are interesting, though for different reasons.

FreedomWorks, a grassroots organization credited with helping to get the Tea Party movement off the ground, issued a letter last Friday encouraging FreedomWorks’ supporters to contact their members of Congress and “urge them to vote NO on the upcoming Syrian war resolution.” 

In the letter, FreedomWorks president Matt Kibbe cites the anticipated costs of the operations, but also warns about the “unintended consequences” that could cost far more. While FreedomWorks has typically steered clear of foreign policy issues, the letter explains why they have chosen to get involved this time, by linking back to the organization’s core issues: federal spending, burdensome regulations, and crushing debt. Even if the war in Syria doesn’t end up costing nearly as much as the wars in Iraq and Afghanistan, time spent debating our involvement in yet another Middle Eastern civil war distracts attention from more urgent challenges here at home.  

I had a chance to speak with Kibbe yesterday. The debate in Washington surrounding intervention in Syria, Kibbe explained, reminded him a lot of the late summer in 2008, when a bipartisan coalition in Washington, led by Nancy Pelosi and John Boehner, made the case for bailing out the nation’s banks. The leaders called for immediate action to rescue the nation from the economic precipice, but the public wasn’t buying it. Pelosi and Boehner, along with President Bush and Treasury Secretary Paulson, eventually secured passage of TARP, but it generated even more opposition out in the hinterland to the disconnected class here in Washington.

Party leaders have even less power today, Kibbe said. “It is harder to buy votes” because the government is drowning in red ink, and the vote-buying to secure passage of ObamaCare generated a “backlash” that drove out unpopular incumbents. Fear of that same backlash is deterring a few holdovers from that Congress from trading favors in return for casting an unpopular vote for an unnecessary war.

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