majalla 1545

A Home-Made Solution?

Unfinished Business

Bubble Troubles?

Richard Weitz

Dr Anne Marie Slaughter, Director of Policy Planning at the US State Department

Stephen Glain

Next

To Normal By Steven Heydemann

Issue 1545, 15 February 2010

Editorial

Cover

Established in 1987 by Prince Ahmad Bin Salman Bin Abdel Aziz

Established by Hisham and Mohamad Ali Hafez

Editor-in-Chief

ADEL Al TORAIFI

Managing Director TARIK ALGAIN

Published by

Dear Readers, to The Majalla Digital, this week our issue W elcome brings to you an analysis of the state of affairs in

Lebanon. Steven Heyedmann’s article Next to Normal looks at how political conflicts have become routinized, channelled within existing institutions, and less likely to drive the country into violence. In addition to this article, The Majalla’s Washington Correspondent Stephen Glain analyses the possibility of a Chinese bubble after a massive stimulus package concocted by the government and the easing of credit conditions during the crisis.

We invite you to read these articles and much more on our website at Majalla.com/en. As always, we welcome and value our readers’ feedback and we invite you to take the opportunity to leave your comments or contact us if you are interested in writing for our publication.

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Sincerely, Adel Al Toraifi Editor-in-Chief

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Issues 1545

05

Contents 08 Geopolitics A Home-Made Solution?

11 In Brief Around The World Quotes Of The Week Magazine Round Up Letters

18 Features Next to Normal

25 Debate Lebanon – On the Right Track?

28 Ideas The Odd Couple

THE MAJALLA EDITORIAL TEAM London Bureau Chief Manuel Almeida Cairo Bureau Chief Ahmed Ayoub Editors Paula Mejia Stephen Glain Wessam Sherif Daniel Capparelli Editorial Secretary Jan Singfield Webmaster Mohamed Saleh 15 February, 2010

06

28

33 People Profile The Dark Horse

Interview

Unfinished Business

Issue 1545, 15 February 2010

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39 Economics International Economics Bubble Troubles?

International Investor Learning from Khalifa Markets

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47 Reviews Books

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54 The Political Essay Bad Governance Revisited

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07

Geopolitics

A Home-Made Solution?

London Conference Pushes Afghanization

The 28 January London conference on Afghanistan emphasized the transition to local responsibility in promoting the country’s security and development. Afghan leaders are eager to assume these responsibilities, but their foreign allies are even more eager to devolve them. The problem is that Afghan capacity remains insufficiently developed to manage national challenges without extensive international support.

T

he 28 January 2010 London International Conference on Afghanistan was the most recent meeting of international leaders seeking to restore peace and prosperity to that country.

This session differed from previous ones, however, in its stress on the need for the Afghan government to assume a more prominent role in pursuing these objectives.

“Today’s Conference,” the London communiqué hopefully affirmed, “represents a decisive step towards greater Afghan leadership to secure, stabilize, and develop Afghanistan.”

The reason for this emphasis on a “transition of responsibility” from foreign to Afghan institutions is obvious. The British hosts, along with other NATO governments, are striving to manage domestic public pressures to curtail their military and other commitments in Afghanistan without prematurely abandoning their allies in Kabul or their other international partners.

This tension between internal and external imperatives has manifested itself most visibly in how NATO countries have been simultaneously declaring troop increases and military force departures. For example, when President Barack Obama announced a 30,000 American troop increase in Afghanistan last month, he also affirmed that US forces could begin withdrawing by the summer of 2011. At the conference, US Secretary of State Hillary Clinton observed that, “July of 2011 will mark a point of transition for American troops as we take stock of where we have come with our security efforts.” The Secretary added that, by then, “we will move forward to transition out our forces as they are replaced by trained and qualified Afghan forces.”

NATO governments have sought to bridge this gap by accelerating and expanding the planned growth of the Afghan government’s own security forces. The London Conference raised the goals for the Afghan National Army from 102,400 personnel today to 171,600 by October 2011. The corresponding increase for the Afghan National Police is from the current 92,600 to 134,000 officers

by October 2011. Pentagon planners are considering expanding the combined Afghan security forces to 400,000 by 2013 15 February, 2010

narcotics trafficking, as well as reintegrating Taliban members into peaceful Afghan society.

Richard Weitz

if the security situation remains unstable.

The London communiqué also proposed that Afghan forces might assume the lead role in securing their country, with the first provinces potentially coming under their responsibility by the end of this year. In his State of the Union message last month, President Obama reassured members of Congress that, “We are increasing our troops and training Afghan security forces so they can begin to take the lead in July 2011 and our troops can begin to come home.”

The problem is that these timetables do not align well with Afghan realities. Afghan President Hamid Karzai reassured the conference attendees that “the aspirations and demands of the people of Afghanistan today can be summarized in four simple words: Afghan leadership, Afghan ownership.” Yet, by his own admission, Afghan institutions remain incapable of taking the lead in many areas due to their limited resources and other deficiencies. Most notably, whereas NATO leaders publicly describe their military commitments as lasting for only another year or two, Karzai insists that his government will need 10-15 years of sustained Western funding, training, and military assistance before the Afghan military and police forces will be capable of countering the Taliban insurgents without direct NATO combat support.

Uncertainty also prevails about when the Afghan government and its foreign backers will accomplish what NATO Secretary General Anders Fogh Rasmussen termed before the conference the “political road map” for achieving peace and security in Afghanistan. Its key components include improving good governance and the rule of the law, promoting economic development and job creation, combating corruption and

Kai Eide, the retiring UN Special Representative to Afghanistan, has complained that the international community is preventing implementation of this political road map by pursuing an excessively militarized approach toward Afghanistan.

“Very unfortunately,” he told The Times (London), “the political strategy has become an appendix to the military strategy. The strategy has to be demilitarised – a political strategy with a military component.”

Eide argued that one reason the Taliban insurgency had been spreading throughout Afghanistan was that military priorities had determined international development efforts, resulting in aid flowing to the violent southern provinces, breeding resentment elsewhere, rather than being more evenly distributed across the country.

The conference participants sought to address this issue by agreeing that the share of foreign development aid administered by the Afghan government could rise from the current 20% to as much as 50% by 2012, providing that Afghan institutions made further progress, with international support, in improving their financial practices and capabilities. Accomplishing these civilian goals is essential for winning the insurgency since the government’s agenda, if realized, offers the Afghan people a considerably more attractive platform than the Taliban’s retrograde vision.

The London communiqué restated plans to convene an international conference in Kabul this spring. It will assess progress and develop specific benchmarks and implementation plans for the Afghanization goals announced in London, including those for a “phased transition to Afghan security lead province by province…as rapidly as possible.” By then it should become clearer whether the Afghan government and its foreign backers will succeed in turning the London aspirations into concrete results.

Senior Fellow and Director, Center for Political-Military Analysis at the Hudson Institute-Washington DC.

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Issues 1545

09

In Brief Around The World

Quotes Of The Week

Magazine Round Up

Letters

The international community embarks on sanctions against Iran Washington has announced tightening US sanctions against Iran, targeting in particular institutions linked to the Iranian Revolutionary Guards. In a statement, the Treasury Department has said that it has taken additional measures as part of enforcing the US sanctions against the Iranian Revolutionary Guards.

The sanctions are aimed at one person and four companies linked to the Revolutionary Guards.

The US move has been met with Issues 1545

Russia’s blessing. Russian Deputy Foreign Minister, Sergei Ryabkov, has announced that the issue of sanctions against Iran has become more realistic, after Tehran's move to lift the level of uranium enrichment. Italy also supports imposing sanctions. "It is time for joint sanctions against Iran," said Franco Frattini, Italy's Foreign Minister.

The director of Iran's Atomic Energy Agency, Ali Akbar Salehi, has

explained that the swap regarding enriched uranium, under the draft agreement put forward by the Vienna-based International Atomic Energy Agency, is still possible.

Salehi noted that Iran's decision to raise the degree of enrichment was in response to the West’s refusal to deliver nuclear fuel for the production of radioisotopes to treat more than 850,000 Iranians suffering from cancer.

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In Brief - Around The World

Around The World

3

10

1 Saudi Arabia The participation of Saudi women in International Computer Driving License (ICDL) training programs across the Kingdom rose to 35 percent in 2009, and is expected to rise to around 50 percent during the next few years.

3 USA The United States and the European Union have condemned human rights abuses in Iran in the wake of the Islamic Republic’s announcement that it would expand its nuclear enrichment effort. In a joint statement, the White House and the EU said they were worried about the potential for an additional government crackdown as Iran approaches Feb. 11, the anniversary of the founding of the Islamic Republic.

2 Yemen

4 Uganda

Shi'ite rebels, despite agreeing to a ceasefire, resumed heavy fighting in northern Yemen.

Yemeni sources reported attacks by the Iranian-backed Believing Youth in the northern province of Saada and near the border with Saudi Arabia.

The sources said at least 23 Yemeni soldiers were killed in ambushes by Shi'ite rebels.

Ugandan Christian minister Martin Ssempa has issued a strong rebuttal to US President Obama’s criticism of his country for considering passage of a law to discourage and punish certain homosexual practices.

“Sodomy is neither the change we want nor can believe in,” says Sempa, who runs the Family Policy and Human Rights Center in Uganda.

15 February, 2010

5 Libya The son of Libyan leader Moammar Qaddafi can now add a somewhat unusual title to his resume–Hollywood investor. Saadi Qaddafi financed his first film "The Experiment," a remake of a German thriller starring Oscar-winners Adrien Brody and Forest Whitaker 12

In Brief - Around The World

8 Pakistan 6 9

5

8

1

7

2

4

Pakistan is in a dilemma over the Indian offer of talks, which is confined to discuss terrorism, and is in the process of formulating a response. Pakistan's Foreign Minister, Shah Mahmood Qureshi, will chair an inter-ministerial meeting at the Foreign Office to assess the Indian offer of talks, after which a clearer picture of Pakistan’s response is expected to emerge.

9 North Korea North Korea's supreme leader, Kim Jong-il, has reiterated his country's goal of a nuclear-free peninsula in talks with a visiting Chinese envoy.

Kim held talks with Wang Jiaru, head of the Chinese Communist Party's international department, in Pyongyang, a meeting that analysts said may indicate moves towards resuming six-nation negotiations on the North's nuclear ambitions.

6 Poland

7 Sudan

Poland is and will remain ready to cooperate with every democratically-elected president of Ukraine, Presidential Minister Mariusz Handzlik has said.

"Grounds of our strategic partnership do not depend on who is currently in power, but are based on a strong foundation of common principles, interests and vision of the future of our countries and nations," he added.

The outgoing United Nations envoy in Sudan has lauded recent developments in the country’s electoral process, and urged the parties to the north-south peace agreement to press ahead during what will be a crucial year for the nation.

Although challenges still existed, Ashraf Qazi said he is confident that the national elections scheduled for April.

Issues 1545

10 France "France has agreed to sell one Mistral warship to Russia," a Defence Ministry official said. Being a NATO member-state, France's willingness to sell Russia advanced technology that could be used in a confrontation with against NATO allies has caused concern among other members.

Many of Russia's neighbors have also expressed worries.

13

In Brief - Quotes Of The Week

Magazine Round Up

Quotes Of The Week

"If the international community will stand together and bring pressure to bear on the Iranian government, I believe there is still time for pressure and sanctions to work"

Robert Gates, US Secretary of Defense

"Tehran will not enrich uranium to a higher level if the West provides us with fuel for our research reactors"

1

Ali Akbar Salehi, the Head of Iran's Atomic Energy Agency

"The government of Prime Minister Benjamin Netanyahu is playing with fire for turning down a request to postpone voting in favour of tax breaks for Golan residents for several weeks until tensions with Syria calm down," A spokesman for Tzipi Livni, Head of the Kadima Party "Do not test the resolve of Syria.

You, Israelis, know that war at this time will reach your cities. If such a war breaks out ... it will indeed be an all-out war, whether it begins in south Lebanon or Syria" Walid Moallem, Syrian Foreign Minister

15 February, 2010

Magazine Round Up 1 Newsweek The Hidden cost of Layoffs

The tide of pink slips is slowing as the economy begins its long-awaited rebound. Yet the lack of jobs in America remains the most visible reminder that despite what economic indicators may suggest, for many ordinary people, the Recession has not gone away. “The Hidden Cost of Layoffs� suggests that there is a growing awareness that layoffs have a significant negative cost to the health of the business and the morale of employees. Yet companies worldwide continue the practice, in good and bad times. Pfeffer argues this model of behavior is a reaction to corporate pressures from peers and should be addressed if global economic recovery is to be achieved.

14

3 The Economist How broken is Britain?

2

The featured article of this week’s Economist discusses the recent tussles in Sino-American relations in the face of China’s recent protest at the US’s decision to sell arms to Taiwan.

Tensions between the US and China will have broad repercussions as China aggressively strives to re-assert itself on the world stage. The article discusses how important this bilateral relationship is to the global economy and argues that both Washington and Bejing must put aside their rivalry if the global economy is to recover from its current slump.

2 Time

4

4 The New Statesman What if Cameron wins?

The Survivor

This week Time profiles the US Sectarary of Defense, Robert Gates, a key player in the Middle East peace process. The most important player in Obama’s bipartisan war cabinet, Gates has outlasted seven President’s and has, in his own words, observed ‘many of the greatest events of the century’. The loyal solider of Washington has become the face of the war in Afghanistan.

Elizabeth Rubin interviews the man himself and those closest to him to get a clear picture of what drives Secretary of Defense Robert Gates.

3

Historian Dominic Sandbrook expands his regular counterfactual ‘What If.’ Column, as he explores how Britain would look in 2015 if the Conservative Party wins this summer’s general election, as is widely expected. This highly partisan cover story asks the reader to ‘contemplate the wreckage of David Cameron’s Britain’ after 10 years of Conservative Government and calls upon the wisdom of abandoning the Labour party in favour of a ‘untried PR man.’ The New statesman’s cover story is an unusual and thought provoking approach to a very likely future scenario.

Cover Of The Week

Cover of the Week The New Yorker The Trial

This week’s featured article in The New Yorker addresses an issue that has divided America: What is the appropriate way to deal with suspected terrorists? The controversy over this issue began when it was decided that the self-declared organizer of the September 11 attacks would be tried in a civilian court in New York instead of through a military court in Guantanamo. The issue, reports The New Yorker, was largely ignored by the media, until Jan 19th when Republican Scott Brown took a senate seat. Brown’s political consultant explained that the race result had been a response to the Justice Department’s decision to extend customary legal protections to suspected terrorists.

Issues 1545

15

In Brief - Letters

Letters

LAST ISSUE Al-Qaeda’s Traveling Ideology

The Vanguard of Liberalization

A Gentlemen’s Disagreement

Fawaz A. Gerges

Professor Jagdish Bhagwati

Guy de Jonquières

Keynes TradeBy Mark Razeen Sally

Issues 1544, 8 February 2010

The Vanguard of Liberalization

Keynes Trade Mark

The ideas and opinions of Professor Jagdish Pajuaty on trade liberalization have strongly impressed me, especially since I did not know much about this brilliant man. But by reading the profile, I realized that he really is the leader of the struggle for free trade.

I believe that multilateral efforts to resolve the financial problems of the world are the best way out of crisis. I think that there is a need to balance political and economic dilemmas especially that economic crises are not new but date back to the beginning of contemporary economics. The crisis we are going through is caused by the monopolistic ideologies of powerful states that infringe upon the economic sovereignty of others.

Talha al-Zubaidi

Samih Alabdon

15 February, 2010

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In Brief - Magazine Round Up

15

Features

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15 February, 2010

18 18

Next

To Normal By Steven Heydemann

Issues 1545

19

Features

Next to Normal

Lebanon and the Routinization of Political Conflict

Steven Heydemann

After Prime Minister Hariri was finally able to cobble together a fragile coalition government, there is now some promise of a future closer to normal than anything the country has experienced since before the civil war. “Next to normal” in Lebanon means something modest—political conflicts have become routinized, channelled within existing institutions, and less likely to drive the country into violence. While in the political sphere this view might be overtly optimistic, a broader look provides evidence of an emerging confidence regarding Lebanon’s future.

Lebanese MPs meet with the new government at the start of debates ahead of a vote of confidence at the parliament in Beirut © getty images

‘Next to Normal,’ a dark I nmusical currently running

on Broadway, a family is torn apart by the strain of coping with the mental breakdown of a family member. Near the final curtain, the mother tells her teenage daughter that she’ll do everything she can to make life normal for her family. The daughter, bruised by years of life in a dysfunctional home, responds that normal may be too much to hope for. She’d settle for “next to normal,” a life where expectations are kept in check and small improvements are valued in their own right.

15 February, 2010

Lebanon is not yet “next to normal.”

Recent rumblings about conflict with Israel, the postponement of municipal elections, and continued wrangling over political appointments, are telling indicators that Lebanon is still far from normal. Underlying everything else, there is Hezbollah’s insistence on preserving its weapons and its autonomy despite the costs this imposes on Lebanese society more broadly.

Nonetheless, in the months since Mr. Hariri cobbled together a

fragile coalition government, there are indications that Lebanon is entering a promising political phase, bringing into clearer view the possibility of a future closer to normal than anything it has experienced since before the civil war.

What does “next to normal” mean for Lebanon? Certainly, it is not a condition in which the dysfunctions that drove Lebanon into civil war have been decisively resolved. It is not a condition in which national interests supercede personal ambition in the management of Lebanon’s 20

Features regional relationships. Nor is it a condition in which Lebanon has somehow managed to insulate itself from the dysfunctions of its neighbors.

In Lebanon, rather, next to normal means something far more modest. It means that political conflicts have become routinized, channeled within existing institutions, and less likely to drive the country into violence. It means that political actors can afford to set aside basic issues of survival to pursue broader agendas, including both the routine stuff of political life and more consequential issues such as constitutional reform.

It means, in other words, the emergence of a political arena in which Lebanon’s future can be debated, argued about, even fought over without jeopardizing the country’s stability. It means that “the precarious republic,” might, at long last, begin to find its footing.

Is this overly optimistic?

Focusing only on the political arena that might seem to be the case. But looking more broadly, there is ample evidence of an emerging if still fragile confidence in Lebanon’s future.

Beirut’s real estate market continues to defy gravity, with prices increasing more than 20 percent in 2009 after a similar increase in 2008. The banking sector is thriving.

Overall economic growth rates were 8.5% in 2008, the highest in 15 years, and should come in at an impressive 6% in 2009—both years in which the world’s major economies were gripped by recession. Outside confidence in Lebanon’s stability is also high.

Tourism hit record numbers in 2009, with 1.9 million visitors entering the country.

This is the highest number since 1974, the year before Lebanon’s collapse into civil Issues 1545

war 36 years ago. And while largely symbolic, Lebanon’s appointment as a non-voting member of the UN Security Council gives it an additional element of visibility. It also constitutes another opportunity for Lebanon’s government to silence skeptics by acting coherently, and independently, in the international arena.

There is ample evidence of an emerging if still fragile confidence in Lebanon’s future. Beirut’s real estate market continues to defy gravity, with prices increasing more than 20 percent in 2009 after a similar increase in 2008 But we should not overlook promising political trends that seem to be gathering steam.

Even within the domestic and regional political arenas there are signs that winds are shifting in ways that permit measured optimism about what lies ahead for Lebanon, at least in the near term. The first such indicator is the atmosphere surrounding the carefully negotiated visit of Saad Hariri to Damascus in December 2009. Widely seen as affirming Syria’s longstanding influence over Lebanon, and as a marker of Syrian-Saudi rapprochement

that has boxed in Prime Minister Hariri, it is difficult to escape the impression that the visit lacked the significance of earlier times.

It was a box to be checked off, perhaps, but everyone, Syrians included, seemed to be merely going through the motions.

Indeed, it is also hard to avoid the impression that the Syrian regime’s investment in radical rejectionism has not paid off, despite its claims to the contrary.

Damascus seems anxious to rebalance its regional posture away from an Iran gripped by domestic dissent, and back toward the region’s moderate Arab block. It handled the Hariri visit with these aims in mind, declining to exploit his appearance as an affirmation of Syrian superiority. And at a moment when Syria is clearly benefiting from shifts in U.S. and Saudi policy, and from its recent rapprochement with Turkey, would Damascus risk recent gains by supporting, even tacitly, the more adventuresome trends within Hezbollah?

Probably not, and to the extent that Syria is able to constrain Hezbollah, it increases the likelihood of Lebanon’s domestic stability.

Having checked the Syria box, Hariri then began a round of international visits, traveling to Turkey, the UAE, and France, with a visit to Washington scheduled for later this month.

A second visit to Damascus is also possible. At every stop, Hariri made a public point of conducting business as usual, signing agreements and generally affirming both Lebanon’s status as an almost normal state and his own status as the head of an almost normal government.

Most important, however, as an indicator of Lebanon’s progress toward a “next to normal” political life is the 21

Features uproar that accompanied Nabih Berri’s call in late January for constitutional reform. To the surprise of even his coalition allies, Berri breathed new life into the long neglected Boutros Commission report, calling for the implementation of many of its recommendations including a lowering of the voting age to 18 and an electoral quota for women. Most incendiary of all, however, was Berri’s willingness to contemplate a modest shift in the bedrock principle of Lebanese politics, replacing sectarian quotas with proportional representation for a modest share of seats in Lebanon’s parliament.

Despite the near certainty that it would fail, Berri’s initiative was nonetheless important for a number of reasons. It returned to the forefront of Lebanese politics, however briefly, issues of constitutional reform that many politicians had hoped would quietly disappear after the June 2009 elections. It gave encouragement to civic activists who were increasingly resigned to the perpetuation of a corrosive status quo. It placed on the defensive those politicians, including Saad Hariri, who have the most to lose from an end to sectarian quotas.

And for a moment at least, it renewed Berri’s reputation as a progressive and independent political leader.

Perhaps most important of all, however, is what Berri’s overture signaled about the state of Lebanese politics more broadly.

Except for a brief period in the immediate aftermath of the Syrian withdrawal, meaningful constitutional reforms have been a luxury in which no serious Lebanese politician was willing to indulge—except as a means to preserve sectarian prerogatives.

15 February, 2010

Saudi Crown Prince Sultan bin Abdul Aziz al-Saud (C) sits between Bahrain's King Hamad bin Issa al-Khalifa (L) and Lebanese Prime Minister Saad Hariri (R)© getty during a ceremony in Riyadh images © getty images

Lebanese Prime Minister Saad Hariri (R) and his Turkish counterpart Recep Tayyip Erdogan

© getty images

When communal survival is at stake, other considerations are pushed aside. With his January announcement, Berri was, in effect, signaling that Lebanon is ready for a different, more normal, political life, even while highlighting the barriers that must still be removed before a transition to normalcy can begin.

Berri is far too experienced a politician to imagine that his proposal would be warmly embraced by his opponents, or even by his allies in Hezbollah.

It is hard to imagine that he was unaware of the odds against his success. To understand his initiative, therefore, both in its

timing and its content, requires that we see it as a pointed and none too subtle prompt from Berri—a politician with less of a stake in the status quo than many others—that Lebanon’s transition to normalcy requires more than bi-lateral trade agreements with Turkey, and more than tourists flocking to the bars of Gemayze. It requires that Lebanon’s politicians temper their sectarian concerns and embrace a broader conception of politics, one that includes the possibility for debate about the steps that will have to be taken to construct a political arena that is not only more representative and democratic, but in which 22

Features

France's President Nicolas Sarkozy (L) welcomes Lebanese Prime Minister Saad Hariri before a meeting at the Elysee palace

© getty images

Lebanese army soldiers patrol the main square of the northern Lebanese town of Amcheet, the hometown of army chief Michel Sleiman © getty images

communal survival no longer trumps any other consideration.

The intensity of the opposition to Berri’s initiative, not least from Saad Hariri, underscores just how far Lebanon has to go to reach “next to normal”.

Yet in positioning himself as an opponent of constitutional reform, Hariri is missing a significant opportunity.

In a political arena dominated by intractable issues, and overseeing a fragmented and unruly coalition, to embrace an agenda of domestic reform would increase Hariri’s room for manoeuvre, shift attention away from issues on which no progress Issues 1545

seems possible, and permit Hariri to redefine the political agenda on his own terms, and in the process to redefine himself as more than just another Lebanese warlord.

Unfortunately, Hariri is unlikely to seize the moment. Indeed, it is possible that the moment has already passed. But its echoes, together with broader economic and political trends discussed above, continue to suggest that Lebanon is likely to experience slow, incremental progress toward normalcy in the coming year, even if it is some time before issues of constitutional reform receive the attention they deserve.

It must also be said that such progress is only possible if the regional context remains supportive of Lebanon’s domestic stability. Here too there are reasons for cautious optimism, including SyrianSaudi détente and the low probability of a renewal of conflict with Israel, recent sabre rattling on all sides notwithstanding.

Yet the potential for disruption is always present. An attack on Iran, a provocative act by Israel or by Hezbollah, the reversal of the current rapprochement between Syria and Saudi Arabia, or even a yet unforeseen domestic crisis that throws the current government off balance— any of these could undermine Lebanon’s slow transition to normalcy.

For all of these reasons, it is far too early to imagine that a “virtuous cycle” has taken hold in Lebanon, which stability becomes self-reinforcing, the incentives against disruptive acts increase, and the space for domestic debate expands to include issues that now appear too threatening to consider.

Despite this, the start of 2010 offers some basis for hope that if Lebanon is not yet normal, next to normal is becoming a real possibility. It is important to keep expectations in check, and to anticipate backsliding and reversals. In the meantime, however, it is not too soon to appreciate the small improvements Lebanon has experienced in recent months and value them in their own right.

Steven Heydemann - Vice President of US Institute of Peace and Research Associate Professor, Georgetown University.

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15 February, 2010

Debate Lebanon – On the Right Track?

Developments in Lebanon since Saad Hariri took up office Lebanon's history of conflict has put into question how much change the Lebanese should expect from their leaders. Hariri is no different, and the numerous obstacles he faced in forming a cabinet speak to this point. Yet, despite these difficulties, Hariri has already faced challenges and shown his capabilities as a leader. Our debate this week asks what he has done, and how he has managed to secure improvements for Lebanon despite having been in office for a short period of time.

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25

Debate

Equation SS

Hariri seeks to overcome challenges, convinced that he will not stay in power for ever George Alam Lebanese Prime Minister Saad Hariri faces many challenges. Yet his accomplishments so far and his ability to prioritize the issues his government is responsible for, speak well of his ability to meet the public’s expectations.

L

ebanese Prime Minister Saad Hariri successfully managed to bring together leaders of the Forces of March 14 at the Hotel Bristol. The final communiqué of the meeting called for better relations with Syria and stressed to Hezbollah that a strong state is the one most capable of ensuring security and protection for all—that only legitimate security forces should be armed. Supporters of the party that hold the majority of seats of parliament were told: "We remain committed to our pledges. The Cedar Revolution, its slogans and its principles will remain. However, developments should be tackled in a way that meets national interests".

Walid Jumblatt, leader of the Progressive Socialist Party, did not attend the Bristol meeting. He decided to stay out of the gathering.

Hariri understands Jumblatt’s position as he knows the reasons and motives of the latter. The two are united in their purpose of seeking to forget about differences with Damascus, and to cooperate to put an end to enmity that has escalated since the assassination of Rafik al-Hariri on 14 February 2005.

Saudi Arabia has paved the way for building a relationship with Prime Minister Hariri, as King Abdullah bin Abdulaziz visited the Syrian capital a few months ago. This has led to the so-called "equation S.S”, on which the Lebanese Parliament Speaker Nabih Berri, has built his hopes on—he has repeat15 February, 2010

edly confirmed that a Saudi-Syrian understanding helps the Lebanese solve their complex problems.

Berri's belief has proved true: Lebanon held smooth parliamentary elections on 7 June 2009, thanks to joint Syrian-Saudi support. Saad Hariri was also able to form a new cabinet with SaudiSyrian support, and he formed a national unity cabinet with the assistance of both Riyadh and Damascus. By receiving such support from two powerful Arab counties, the Lebanese Prime Minister is most able to address many of the outstanding internal issues— and to tackle external pressure.

Saudi Arabia has paved the way for building a relationship with Prime Minister Hariri Saad Hariri’s decisions have relied on significant material assets, involving billions of dollars, but more importantly, he has depended on a humanitarian network, involving a group of key figures at home and abroad who respect him and are ready to facilitate his tasks in governance. The young Hariri has inherited from his father an ambitious project for the ad-

vancement of Lebanon, attempting to turn it into a Switzerland of the East. He also has inherited a number of complex challenges in the realm of security, the economy and social development.

Priorities are numerous: Fighting terrorism, uncovering espionage networks and establishing security and stability are at the top, according to his cabinet’s statement.

Other priorities include achieving reconciliation among the Lebanese to consolidate national unity and to fully implement the Taif Agreement, so as to abolish sectarianism in politics, fight bribery and corruption, and modernize governance. Also included in his agenda is the appointment of senior officials of the state, addressing problems of electricity, energy and transport; implementing the "Paris-3 Resolutions, and addressing the public debt.

When he visited Cairo recently, Prime Minister Hariri emerged from a meeting with Egyptian President Hosni Mubarak to announce cheerfully: "We do not want to threaten anyone. We also strongly object to being threatened by anyone". He assumed power with a bright smile, strong personality and strong desire to overcome hard challenges. What matters most is that he actually does so.

Columnist for the Newspaper "Al-Safir".

Lebanese 26

Debate

Safety Belt

Hariri looks for an external support that will allow him to concentrate on rebuilding the state Tony Francis

The experience gained in the period between the results of the June 2009 elections and the formation of the Hariri Cabinet in October has been significant. The political achievements Hariri has secured have allowed him to focus on securing international support in the case of a regional conflict that might harm the wellbeing of the Lebanese people.

S

aad Hariri's assuming power as the prime minister of Lebanon marks the beginning of a new stage in Lebanon. Hariri, who formed his cabinet with difficulty, five months after the parliamentary elections, was patient in his effort to achieve this goal. However, he acknowledges that his new policies were affected by past religious and sectarian divisions on the national, regional and international level.

Though the alliance led by Hariri won a parliamentary majority in the elections (71seats out of 128 seats), it failed to overcome divisions. The armed minority hindered the formation of Hariri's cabinet for nearly five months. They managed to impose their conditions regarding the formation of the cabinet, obtaining “a third-plusone� of its portfolios, enabling themselves to later control critical decisions.

Hariri dealt these issues with calm. He did not panic when Walid Jumblatt, the Druze leader, declared his withdrawal from the majority on August 2, 2009.

Hariri knew the reasons that motivated Jumblatt to take this position. The withdrawal, however, gave the minority an additional reason to stick to their demands.

It was clear that the goal of the minority was to perpetuate the legitimacy of Hezbollah’s possession of weapons.

To achieve this end, side battles were fought to increase quotas of Hezbollah's allies in the cabinet. General Michel Aoun fought a battle to fix his image as the representative of Christians in Lebanon, though receiving severe blows in the elections, with his brother-in-law and political heir losing the election.

Parliament Speaker, Nabih Berri, the leader of "Amal" movement, fought a Issues 1545

battle to keep positions he controls in the Cabinet (particularly the portfolio of foreign minister). He launched a political campaign on many fronts under the slogan of "abolishing sectarianism in politics." Many regarded this as way of having his demands of improving his status in governance met.

Finally, the cabinet was formed and it affirmed the right of Lebanon as whole to fight any Israeli aggression. This last point was of great importance to Hezbollah. No one in Lebanon rejects the right of the Lebanese people to resist Israeli occupation, aggression, and threats. However, the problem for many Lebanese was what Lebanon experienced in May 2008, when weapons were used to resolve internal disputes. In addition, resistance is not an exclusive right a specific party.

Instead, it involves all Lebanese who have learned that protecting their country requires ending foreign intervention and consolidating internal unity.

The majority led by Hariri believe that they have successfully resisted attempts to perpetuate the political vacuum in Lebanon The experience gained in the period between announcing results of the June, 2009 elections and the formation of the Hariri Cabinet in October was significant. The "March 14" alliance parliamentary majority and its leader consider achievements in Lebanon important

and fundamental. Such achievements have proved responsive to the demands of the Lebanese people, and met major Lebanese interests.

After the liberation of south Lebanon from Israeli occupation in 2000, the public wanted the withdrawal of the Syrian army from the country, consequently halting Syrian interference in Lebanese affairs. This was achieved in April 2005, and was followed with last year's establishment of diplomatic relations with the country.

The second important achievement was the decision taken by the Lebanese leaders to end armed Palestinian deployment outside their recognized camps, and regulating weapons inside the camps themselves. Negations regarding this matter have progressed significantly with the Lebanese government forming a committee for dialogue with the Palestinians.

The majority led by Hariri believe that they have successfully resisted attempts to perpetuate the political vacuum in Lebanon. The Lebanese people are capitalising today on these achievements to engage in actual self-governance. It is true that running Lebanese internal affairs is not easy. However, this does not worry Hariri. What worries Hariri and the majority of the Lebanese is the regional and international scene which could escalate into a war, and which could make Lebanon a battlefield for an Iranian-Israeli conflict. Consequently, Hariri has engaged with other countries including Saudi Arabia, Syria, Turkey, France and Egypt among others. The safety belt, which he is trying secure for Lebanon, is very important for the problems the country could face.

Lebanese writer and political analyst.

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Ideas

Š getty images

15 February, 2010

28

The Odd Couple by Yaniv Voller

Issues 1545

29

Ideas

The Odd Couple

Turkey and the Kurdistan Regional Government Yaniv Voller

Decades of avowed Turkish hostility toward any expression of Kurdish autonomy in the region have given way to increasing collaboration, culminating in a de facto Turkish recognition of Kurdish sovereignty in northern Iraq. This has challenged the Turkish taboo regarding Kurdish nationalism, but also many of the prevailing conceptions about regional geopolitics.

Supporters of the Nationalist Movement Party protest in Ankara

almost a decade now, the F orrelationship between Turkey

and the Kurdistan Regional Government in Iraq has intrigued regional commentators—quite an achievement in a region accustomed to cynical partnerships and unexpected romances between old foes. Decades of avowed Turkish hostility toward any expression of Kurdish autonomy in the region have given way to increasing collaboration, culminating in a de facto Turkish recognition of Kurdish sovereignty 15 February, 2010

in northern Iraq. This has challenged the Turkish taboo regarding Kurdish nationalism, but also many of the prevailing conceptions about regional geopolitics.

The story dates to the early days of the Republic of Turkey. Following its establishment, its Kemalist founders came to perceive the fledgling expressions of Kurdish nationalism as a threat to their vision of the Republic. Subsequently Kurdish nationalism was met with

© getty images

harsh suppression by Ankara. This culminated in a process of imposed Turkification, which denied the existence of the Kurdish nation, prohibiting the use of the Kurdish language in schools, universities and media. Even the use of the term “Kurd” itself, was replaced by the term ‘mountain Turks’.

The campaign to uproot Kurdish nationalism continues to this day.

However, in light of emergence of various Kurdish movements, such as 30

Ideas the Kurdistan Workers Party (PKK), known for fanning the flames of Kurdish nationalism, the campaign has proved rather unsuccessful. Since then Ankara has been occupied with a bloody war in eastern Anatolia, which has claimed tens of thousands of lives on both sides, and posed a constant threat to Turkey’s internal stability.

Ankara’s antipathy toward any manifestation of Kurdish nationalism has not been confined to its own territory. During its prolonged struggle against Kurdish nationalism it became painfully aware of how easily ideas, arms, and people flow interchangeably between the ‘mountain Turks’ of Iran, Iraq and Turkey through the long, sometimes unprotected, borders between the three states. This antagonism grew even stronger as PKK guerrillas began to take refuge among their brethren in Iraq during the conflict and began using their territory to launch attacks against Turkish targets.

Nevertheless, the Kurds in Iraq have always compelled Turkey to embrace a more creative policy than their Iranian or Syrian counterparts.

Troubled by the periodical radicalisation of Baghdad and its occasional flirtation with the Soviet Union during the Cold War, Turkey did not hesitate to use the Kurdish card to counteract Baghdad. Thus, on occasions, Turkey preferred to turn a blind eye toward Kurdish actions in northern Iraq, as long as it could cover the eyes of its own Kurdish citizens. Notwithstanding, whenever it sensed that Iraq’s unity was under threat from Kurdish actions, it backed from its policies and at times even intervened militarily. However, any sign of formal recognition remained out of the question.

This all changed in the aftermath of the 1991 Gulf War. Following Iraq’s suppression of a yet another Kurdish uprising, and the subsequent flow of hundreds of thousands of Kurdish refugees into Turkey, a Kurdish safe haven was established in northern Iraq, which soon emerged as a de facto state led by the KRG. Enduring instability and perpetual conflict between the various Kurdish parties within the KRG, instilled Ankara with hopes for the KRG’s Issues 1545

natural death, but those faded with the 2003 invasion of Iraq. Amid the ensuing chaos, and the threat of civil war, the KRG came to be seen as an island of stability, free of sectarian bloodshed, and even enjoying an economic boom. Turkey now faced two options: sticking to its policy of non-recognition, or accepting reality and making the best of it.

Grudgingly, it chose to face reality.

Since then cooperation between Turkey and the KRG has advanced on various fronts. Turkish firms and contractors have been involved in profitable oil exploration, media, and construction projects. Turkish firms, for example, constructed the Erbil International Airport. Last October, Turkey opened a consulate in Erbil, the KRG’s capital, much to the dismay of Baghdad, which views this limited recognition as another step toward the realisation of Kurdish aspiration to secede from Iraq. The Kurdish parties had long before installed their representatives in Ankara, which functions as de facto diplomats.

Relations have, however, been strained at times, particularly over the PKK. Turkey has repeatedly called on the KRG to rid its territory of PKK bases, and has mounted military incursions in the last few years, reminiscent of its major military onslaughts during the 1990s.

The KRG has criticised but condoned these armed bids in exchange for Turkish recognition, thus exposing itself increasingly to Kurdish criticism. However, this issue has not stopped the relationship from flowering.

What could explain Turkeys’s change of heart? Some point to its economic interests in the region, which amount to billions of dollars. Those who have notably benefited from this cooperation include Turkish oil giants such as Genel Enerji and Petoil.

Others argue that Ankara, governed by the moderate Islamist Justice and Development Party, view the Sunni Kurds as a potential bulwark against a Shiite take-over of Iraq, under Iranian auspices. Both arguments provide only a partial explanation of these recent developments. The latter is more easily refuted.

First, the secularist leadership of

the KRG has always refrained from affiliating itself with pan-Islamist trends and has never presented itself as a Sunni leadership—in fact, the Kurds have suffered immensely from extremist terrorism because of the perception of Kurds as collaborators with the West. Second, Ankara has proven to be rather placid regarding the bogeyman of the Shiite Crescent, at least in comparison to other governments in the region.

The full explanation can be found in Turkey itself. Gradually more integrated in the Middle Eastern arena, Turkey is, now more than ever, aware of the negative impact of chronic instability on its border, particularly with regard to its aspirations of European Union candidacy. Hence, a stable, proWestern Kurdish government is a far better alternative to the prevalent instability of Iraq’s other areas, or the images of hundreds of thousands of Kurdish refugees massing on the Turkish border, as happened in 1991.

Furthermore, the rapprochement with the KRG has had no impact on Turkish-Kurdish relations within Turkey. Ankara still suppresses any sign of Kurdish nationalism—only recently the Turkish Constitutional Court outlawed the Democratic Society Party for advocating Kurdish separatism and its alleged links with the PKK. If any positive change has taken place in recent years regarding the civil rights of the Kurds in Turkey it should be credited to European pressure or to the effort of Turkish parties, such as the AKP for instance, to win Kurdish votes. In fact, the KRG’s silence on the subject can only serve Turkish propaganda.

This rapprochement says less about Turkey, than it does about the KRG. Striving for international legitimacy, even the limited recognition obtained from Turkey is a major achievement for the KRG, both domestically and internationally. Nonetheless, with the rapidly changing geopolitical map of the Middle East in the new decade, such small victories are only temporary—and the Kurds probably know it better than anyone else.

London based researcher specialising in Iraqi Kurdistan 31

15 February, 2010

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People

The Dark Horse Muqtada Al-Sadr Š getty images

Issues 1545

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People - Profile

The Dark Horse Muqtada Al-Sadr Muqtada al-Sadr has emerged as an important voice in the politics of Iraq since the US-led invasion in 2003. Despite obvious obstacles to his success—ranging from his age, his underdeveloped religious education, and his questionable intelligence—al-Sadr has become as a forced to be reckoned with in the politics of post-invasion Iraq. Whether his grip on power is waxing or waning remains to be seen.

© getty images

O

f the many wild cards that emerged from the US’s invasion of Iraq, perhaps none was more underestimated than that of Muqtada al-Sadr. The antiAmerican cleric and head of the Mahdi army has risen as one of the most important Shiite leaders in the country’s modern history. Since appearing under the limelight, alSadr has developed a reputation for being young, impetuous, violent and even simple-minded. Yet, alSadr has also been recognized as powerful in his ability to muster support for his brand of Shia opposition.

In a country where Shiite religious leaders are usually more respected the older they are, al-Sadr’s 15 February, 2010

influence as a young cleric was largely inexplicable (at least to those who are unaware of the importance family ties plays in Iraqi politics).

However, his cunning abilities and understanding of the drivers of politics in Iraq have allowed him to gather substantial support from a specific sector of the Iraqi population: poor, urban, and for the most part young Shias are the main supporters of his movement.

Al-Sadr’s mixture of Iraqi nationalism and Shia radicalism, more specifically, have contributed in making him an important leader for Iraq’s Shia Muslims, despite his age.

In fact, Muqtada al-Sadr has made a name for himself by branding

his politics as the main opposition to US and coalition forces, thus playing on the anti-American nationalist sentiment that arose not only in Iraq but throughout much of the Middle East as a result of the US-led invasion. Moreover, al-Sadr has opposed, with significant gusto, rival Shia forces within the country.

Yet the wunderkind of Iraqi politics also surpassed another important obstacle in the way of his influence; his comparatively low religious rank. Recognizing the importance of cultivating his religious gravitas, in late 2007 Muqtada announced his plans to attend seminary in the Iranian city of Qom. This led to his disappearance from public life for over one 34

People - Profile year and has raised important questions about Iran’s influence over his political intentions.

All in all, Muqtada’s personality is mysterious, and his political stance is not much different. At times he has called for a national rebellion against foreign troops and at others he has sent his army to confront the Iraqi police. He has been known to compromise and to fight, leading observers to believe that his political priority is to advance his position on the Iraqi stage by any means necessary— rendering Machiavellian in his unpredictability.

However, in his sermons and public interviews al-Sadr has been easier to pigeonhole. He consistently maintains the anti-American and Shia nationalist rhetoric that bolsters his movement. Since his ascendance in Iraqi politics, his demands have ranged from the withdrawal of American-led coalition forces and UN troops, to the establishment of a new Iraqi government with no links to the Baath party. He also called for a Shia government much like that of Iran—while always maintaining its independence from Iran.

Although Muqtada al-Sadr’s ability to garner support from poor Shia’s in Iraq is due to his ability to create a discourse that includes both nationalist and Shia ideology as its fundamental pillars, it is unlikely that he would have risen to power had his background been different.

His family lineage is widely accredited with having played an important role in initiating support for his movement.

Al-Sadr is the son of the late Grand Ayatollah Mohammad Mohammad Sadeq al-Sadr, and the son-in-law of Grand Ayatollah Mohammad Baqir As-Sadr. Muqtada’s father was among the most powerful Shiite clerics in Iraq in the late 1990s. In addition, one of his father’s distant cousins, Ayatollah Issues 1545

Mohammed Baqur al Sadr, was also leading Shiite activist. The Council on Foreign Relations explained that ‘Both men are credited with shaping contemporary Shiite thought and opposition to Baghdad based regimes’ and Muqtada undoubtedly built upon this family legacy.

which proved successful in the December 2005 elections which won his movement 32 of the 275 seats in parliament. Vali Nasr argued that this event turned Sadr into a ‘Kingmaker’ and ‘played an important role in elevating al-Maliki to the post of Prime Minister.’

Both Muqtada’s father and fatherin-law were killed under orders of Saddam Hussein, and Muqtada has integrated their deaths in a narrative of martyrdom that fits particularly well with Shia

Despite the fact that Muqtada’s movement has expanded from a street force and now represents one of the two most important Shia blocs in the country, his hold on power is questionable. For one, the movement’s revenue system is weak and inconsistent, ‘with cash believed to be coming in from criminal enterprises including petroleum smuggling, theft and cash-for-services including armed protection of merchants and business’ reported Greg Bruno.

Mahdi fighters have allegedly opposed his support of the political system. Further, his base of support appears to be weakening because of the rogue actions of the Mahdi army, and the detrimental impact they have had on the civilian population.

Muqtada has been able to build on the social network of his family so as to engage with street politics in a what has been described as a Hezbollah-like approach history. Irish journalist Patrick Cockburn reiterated this point in his biography of al-Sadr when he stated that ‘Muqtada and his followers are intensely religious and see themselves as following in the tradition of martyrdom in opposition to tyranny established when Hussein and Abbas were killed by the Umayyads on the plains of Kerbala 1,400 years ago.’

While this narrative of martyrdom has had an important effect in making Muqtada al-Sadr appealing to a large number of Shiites in the country, his inheritance of a network of schools and charities built by his family have also won him a number of supporters.

Muqtada has been able to build on the social network of his family so as to engage with street politics in a what has been described as a Hezbollah-like approach—a tactic

Perhaps more telling of al-Sadr’s awkward position in Iraqi politics has been his sudden disappearance from public life - although Time reported his short-lived reappearance in Ankara a few months ago where he discussed the state of Iraq with Turkish leaders. His followers have been as quiet as he has with regards to the certainty of his plans in the upcoming months. While his studies in Qom could give him the increased religious authority that his movement needs for a second wind, his questionable intellectual rigor, and his preoccupation with Iraqi politics might lead him to cut his religious education short. In either case it is unlikely that the world, US officials in particular, will again underestimate his potential to destabilize Iraq. For he still maintains two important sectors of support: his army and a sizeable bloc of loyalists in parliament.

35

People - Interview

Unfinished Business

Dr Anne Marie Slaughter, Director of Policy Planning at the United States State Department Dr Anne Marie Slaughter, the current Director of Policy Planning at the US State Department, talked to The Majalla about the Obama’s Administration unfinished business in the Middle East, the growing U.S. tensions with China, and the challenges to statecraft in an election year.

© getty images

T

Dr. Anne-Marie Slaughter runs what is widely regarded as Washington’s most influential think tank. As the Director of Policy Planning at the United States Department of State, she is the most recent in a long line of American diplomats and foreign policy intellectuals who have advised U.S. Secretaries of State dating back to 1947, when the office was established. Before entering public service, Dr. Slaughter was the Dean of the Woodrow Wilson School of Public and International Affairs at the University of Princeton and a professor of international law at the Harvard Law School. She is the author of several books on global affairs, including The Idea that Is America: Keeping Faith with Our Values in a Dangerous World.

At the twilight of President Barack Obama’s eventful first year in office, Dr. Slaughter talked to The Majalla about the administration’s unfinished business in the Middle East, growing U.S. tensions with China, and the challenges to statecraft in a year of mid-term elections.

The Majalla: The Middle East is a challenge 15 February, 2010

for peacemakers even in the best of times.

What is the most the Obama administration can expect to achieve in 2010 given the difficulties it faces at home?

I think we can certainly hope for the beginning of serious negotiations between Israel and the Palestinians and possibly other parties who would be essential to a broader settlement between those two sides. And when I say serious I mean negotiations aimed at a final resolution of issues rather than just getting the process going again.

Q: What would compel Israel to return to the negotiating table? It has a stable economy, its security wall has greatly reduced the number of terrorist attacks on its citizens, and the Palestinian condition is as remote to the average Israeli as it has ever been. Where will the pressure come from?

I think one of the lessons of the administration’s first year is that engagement with individual countries within the Middle East process has to be about clarifying incentives and consequences

so that it isn’t about putting direct pressure on a participant or to force it to take a position, so much as it is to make very clear how difficult issues are interconnected. We believe that when those perspectives are properly presented and understood there are strong interests on all sides to reach a final settlement.

Q: Does that also apply to the Palestinians?

They had good reason to hope Washington would apply enough pressure on Israel to ensure a freeze on West Bank settlements and it didn’t happen. To what extent did Israel’s refusal to freeze settlement expansion damage U.S. credibility in the region?

The previous administration engaged these issues sporadically, off and on. The U.S. was sometimes not there at all, or it was sometimes there, though it was not clear how long it were going to be around. This new administration was clearly committed to engagement, though even the president himself has said our expectations were higher than they should have been about how easy this was going to be. I think we found ourselves in a position where everyone was

36

People - Interview waiting to see what we could extract or impose when in the end it is about mediating or directly engaging in ways that make clear what the choices are and what our own interests are. But it’s not going to be about us setting terms.

made it very clear to Hamas that it must accept the Quartet’s principals. We want Saudi Arabia engaged, which is a good thing. But there are very clear red lines in terms of our ability to engage Hamas.

Q: So you think the U.S. is still regarded as an honest broker in the Middle East?

Q: A cultural anthropologist might say that in the Middle East, a de facto position can evolve into a de jure one if patiently cultivated.

I think we are, though in the sense that I don’t think there is anyone else who is better placed then us to play that role.

Q: There has been discussion in some quarters about how the Europeans should fill any vacuum in the region created by the Americans.

We have always encouraged a sharing of responsibility. It is impossible to imagine a long-term stable peace between Israel and Palestine that did not allow for a large European economic role. Similarly, it is unlikely, given the EU’s growing political strength and the historic ties it has to different countries in the region to imagine the Europeans are going to play an economic role and not have a political one. So I don’t see a larger EU role as somehow threatening, or as a wedge that would ease out the U.S. If that were to happen, you’d be asking the same questions about EU credibility vis-àvis Israel.

Q: Let’s talk about America’s Arab allies and what it would take to bring them back to the table, beginning with Saudi Arabia.

I think it’s important to recognize is that any new administration has to build its own relationships, particularly in the Middle East.

It takes time to build up these links and to get a sense of each party’s overall strategies and priorities. Obviously we engage with Saudi Arabia in many different contexts, whether it is with Afghanistan or Pakistan or Iran, or with Israel, so there are a lot of dimensions to that relationship. I think we’ve been very supportive of the Arab Peace Initiative [of 2002] and that’s important but there is more to do there. President Obama’s watchword is that all countries have to take responsibility and nobody can wait until the end of the process to deliver. In other words, it has to be collective process where all parties with an interest in the process are giving bit by bit in a broader, confidence-building set of negotiations. So we’ve been in support of the Arab Peace Initiative but there are things that obviously we hope Saudi Arabia will do in response to what Israel will do rather than wait for a final settlement.

Q: The Saudis’ might say it was not just the Arab Peace Initiative they fought for.

There was the Riyadh Agreement in 2007, when King Abdullah waged his credibility brokering a deal between Hamas and Fatah, in which Hamas effectively recognized Israel by giving Fatah the mandate to negotiate for peace. Both Israel and Washington ignored this, so why should they go to bat for you now?

I would say that in this world and on these issues, “effectively” is not good enough. We’ve

In the first place, there are plenty of people on all sides who get the culture and we have very experienced negotiators like Senator George Mitchell in the region. I think it does matter that even though this process has been going on for decade, when a new administration, a new team, comes in, it takes a while to develop personal relations in addition to longer-term diplomatic relations. What might be possible at the end of an administration in terms of accepting different moves and actions may be harder at the beginning of the administration.

Q: What about Egypt? Are you satisfied with the role Cairo is playing?

Egypt has been very actively engaged on the Gaza side and with Hamas and Fatah. I think the Egyptian perception of the need for urgent action has increased, particularly regarding their efforts to broker a solution. The Egyptians are working hard. They have not been successful in their efforts to broker an agreement, both between Hamas and Fatah but also with the Israelis on prisoner exchanges. They’ve worked hard and persistently so.

Q: Let’s depart from the Middle East to focus on America’s relations with China, which is no longer a parochial concern but a global one. Sino-U.S. ties have been taking a beating lately, due to the row between Google and Beijing over Web censorship, U.S. arms sales to Taiwan, and President Obama’s scheduled meeting with the Dalai Lama. How bad can this get?

The issues of the Dalai Lama and arms sales are always very difficult. We’ve made clear that even though we see China as an important partner in a lot of areas and a very important emerging power with whom we want to cooperate, that doesn’t mean we are always going to agree on everything and it doesn’t mean we’ll always tailor our policies to maintain harmony with China all the time. These are issues that come up regularly, with every administration. So it’s a rocky set of issues but at the same time my office was [in Beijing] all last week making arrangement for the next Strategic Economic Dialogue [between the U.S. and China.]

Even close allies have their disagreements. Just think of our relations with Europe, where we’re constantly having crises. When close allies have problems, that’s what make the news. China is a country with which we have partnerships but we also diverge from each other at times.

Q: The press is playing this up as if there has been a qualitative change in the relationship, as if China is somehow shifting the rules as it emerges into a global power. Do you think

that’s overdone?

I do. I think that the global financial crisis has effected the perception and self-perception of many nations and China has come out of the crisis strongly, although I don’t think the end of that story is yet written. The U.S. obviously has a lot of work to do and that has given many individual Chinese a different perspective on their own rise. But again, over the longer term the Chinese government is well aware of how far it still has to go in development because it needs continued growth to bring another hundred million or so people out of poverty.

And as the president made clear in his State of the Union address, the United States is well aware of what we have to do. So I don’t think the fundamentals have changed.

Q: And China’s threat to sanction major U.S. firms that sell arms to Taiwan?

For the Chinese to start sanctioning companies on whom their export markets ultimately depend is probably not very wise over the long term.

Q: A devil’s advocate might say it is not wise to antagonize your banker, which is the role China plays to an indebted U.S. government.

I think the global economy is very interconnected and it is hard to see these relationships in oneway terms.

Q:Whatareyourpersonalobjectivesfor2010?

To fulfill the secretary’s desire to see us build up our capability in a whole range of areas, but above all to strengthen development capacity and to connect it to what we do on the diplomatic side so that development and diplomacy are equal pillars of the civilian side of our foreign policy.

Q: It’s an election year in America. To what extent do the demands of domestic politics compromise your ability to achieve your goals abroad?

The administration has made it clear that it does not want a peace process for the sake of process. It wants negotiations towards peace.

At the same time, it understands that even if you get those negotiations going and they are completely serious, they are not going to deliver a comprehensive settlement overnight.

We’re talking months and maybe years. I don’t actually think there is any thought they’re going to deliver a peace settlement before the mid-term elections [in November].

The flip side is I don’t think this is an election that will be determined by foreign policy issues.

There are so many domestic priorities, the economy being priority no. 1, but also jobs and health care, and financial regulation, that will crowd out attention to foreign affairs. The State of the Union was a good guide. The president did not mention foreign policy for almost an hour, and in my lifetime that’s a first.

Interview conducted by Stephen Glain

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15 February, 2010

Economics Arab Economics

International Investor

Markets

Bubble Troubles?

By

Stephen Glain Issues 1545

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Economics - International Economics

Bubble Troubles?

Stephen Glain Unlike its Western counterparts, the Chinese economy proved resilient during the global financial crisis. This performance is widely attributed to a massive stimulus package concocted by the government and the easing of credit conditions during the crisis. As expectations about over capacity in the medium and long-run slowly kick-in, however, the optimism seems to be fading away.

A vendor waits for customers at the Panjiayuan Antiques Market, Beijing

© getty images

of China’s economic H eralds demise are once again asserting

themselves, though as in the Robert Frost poem there is disagreement over whether the end will come by the fire of inflation or the ice of overcapacity.

There is a third possible outcome, certainly the least dramatic and for the last thirty years the safest bet, in which the Chinese economy continues to grow at a robust pace.

That appears to be the verdict of the International Monetary Fund, whose senior economist, Jörg Decressin, in late January told the Wall Street Journal that there was “no serious risk” facing the Chinese economy. There is even a silver lining to China’s uncertain outlook: to ward off inflation, Beijing may 15 February, 2010

allow its currency to appreciate against the dollar, a move its major trading partners would welcome.

Handicapping the direction of China’s economy is no longer a parlor sport for policy wonks in select financial capitals. As David Pilling, the Financial Times’ Asia expert, wrote in a recent column: “There is much to suggest China’s economy cannot go on like this.

But one’s gut tells you it can, not least because the Communist party needs it to.” He may have also noted the world’s stake in a stable China; the country is now a global economic power and investors and policymakers from the U.S. to the Persian Gulf have a crucial investment in its success.

The debate over China’s fate is a

backhanded confirmation that its near-$600 billion stimulus package, unveiled in late 2008, achieved its primary goal of shepherding the country through the financial crisis that rocked the world sixteen months ago. After slowing to a lethargic—for China, at least— growth rate of 8.7 percent last year, down from 9.6 percent in 2008, the Chinese economy is expected to expand by 10 percent this year, according to the IMF. Such growth, however, was purchased at the price of a stimulus package equal to 14 percent of China’s gross domestic product. In tandem with massive public works, the government encouraged banks to embark on a lending binge to private enterprise estimated at $1.3 trillion last year, a liquidity fix that swelled money 40

Economics - International Economics supply by nearly 30 percent.

Within a year, a building boom would, it was feared, result in perilous levels of overcapacity. In November, a prominent property developer warned that developers were piling up skyscrapers in China’s urban centers despite honeycombs of unsold apartments and commercial offices. Similar concerns were raised about redundant factory space and infrastructure projects. Beijing’s cabinet, the State Council, criticized “blind expansion” in key industries like steel and cement production, and issued a new plan to limit factory expansion.

The deflationary impact of overcapacity in China would reverberate worldwide. Closed production lines meant lower price for exportable goods, which would strain relations with trading partners. (A Sino-American trade war tops many a forecaster’s list of bad things that might happen in 2010.) Faced with lower revenues, manufacturers would have no choice but to cut payrolls, raising the prospect of social unrest. To appease a restive population, Beijing might dip into its reserves to finance jobs programs. That would mean higher interest rates in America, China’s number-one sovereign borrower, which could send the already fragile U.S. economy into a tailspin.

That is one nightmare scenario that at least for now seems to have been replaced by the specter of rising prices. Fears of destabilizing asset inflation have already prompted some analysts to head for the exits.

Jim Chanos, the wealthy hedge fund manager who forecast the collapse of Enron in the 1990s, has for several months made it clear he is betting against China.

Nicholas Smith, a strategist at MF Global FXA Securities, has written that inordinately high levels of fixed-asset investment coupled with low domestic consumption are a recipe for disaster. Stratfor, a global intelligence and risk analysis service recently predicted that China will over the next ten years suffer “a meltdown…a defining crisis.”

Issues 1545

Consumer and commodity prices began rising late last year—by nearly 2 percent in December on a year-on-year basis, which was more than enough to jolt senior policy makers into action. In November, Fan Gang, the head of the National Institute of Economic Research, an advisor to China’s central bank, said at a business conference in Hong Kong that overheated demand was fueling a cluster of “very dangerous” asset bubbles. A day earlier, Liu Mingkang, Beijing’s top bank regulator, warned low U.S. interest rates and a weak U.S. dollar posed “new, real and insurmountable risks.”

Last month, Chinese officials matched their rhetoric with action.

On January 8, the People’s Bank of China, Beijing’s central bank, raised the yield on short-term and one-year government bills to lure investment away from fixed assets.

A few days later, it announced an increase in the reserve thresholds for state-owned banks as word leaked out that the government was imposing a freeze on new bank lending.

It is unclear how deep an impact such edicts have on provincial authorities, who enjoy far more autonomy from Beijing than they did a generation ago. The government’s primitive policy tools have been effective in the past, however, and there is no reason to believe they won’t work this time. “The combination of changes in reserve requirements,” according to a recent bulletin from PFC Energy, a Washingtonbased consultancy that closely tracks the Chinese economy, “plus explicit guidance and the threat of forceful action if lending is not cut back is likely to have an effect and ultimately lead to the desired result of slowed lending.” PFC also forecasts Chinese economic growth will ease slightly from last year, to 8.5 percent for 2010 and 2011.

There is another reason why rising asset prices in China should not represent an existential threat: the country’s low indebtedness.

Though China’s banking system

has modernized considerably over the last thirty years, it remains very much a cash economy. Most real estate transactions are conducted in bundles of yuan, the Chinese currency, which minimizes the risk of a foreclosure-led financial crisis.

According to a recent study by Wells Fargo Securities, household debt in China is equivalent to only 20 percent of GDP, compared to the near-100 percent in the U.S. Not only that, China’s loan-todeposit ratio, a common measure of indebtedness, has actually declined according to Wells Fargo, to 0.67 percent from a historic high of 0.94 percent in 1997. In contrast, the same ratio in the U.S. hovered at well above the 1.0 level at the peak of its credit bubble. And while Chinese share prices have skyrocketed since the stimulus package took effect, China’s major stock indices remain 30-50 percent below their historical peaks of late 2007.

Finally, there is China’s trump card: the option of yuan revaluation.

After Beijing allowed the currency to strengthen against the dollar by 20 percent in mid-2005 only to restore its dollar peg in mid-2008 to protect its exporters, there is talk of resumed appreciation. A stronger yuan would not only be the most effective way to combat inflation; it would fuel domestic consumption—without which there can be no righting of global trade imbalances—and it might pre-empt a looming row between Beijing and a global trading community fed up with Chinese currency manipulation.

China has defied its doomsayers for so long and with such regularity it is tempting to presume it invulnerable. No economy can sustain an upward trajectory indefinitely, however, particularly as planners relinquish control for the unruliness of the free market. With each new challenge, the consequences of failure become greater. Perhaps the most compelling reason to be positive about China’s economic future is that no one understands this better than Beijing.

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Economics - International Investor

Learning from Khalifa The post-record lessons

While undergoing one of the worse crises in its history, Dubai inaugurated in January the tallest building in the world.

Much can be learned about the process of building the tower in order to fix Dubai’s troubled real estate sector.

T

that the UAE is united, and that there is no doubt regarding the relationship between Dubai and Abu Dhabi—all are trying to overcome the crisis. The speech of the Ruler of Dubai has made it clear to those who attended the inauguration ceremony that the UAE is united and can not be regarded as fragmented whatever the challenges are.

he world's tallest tower was inaugurated in Dubai, the UAE, on January 4. This article, however, has nothing to do with the elevation of the tower, which is 828 meters (2717 feet), consisting of 160 floors. Nor has it anything to do with the fact that the tower comprises the highest swimming pool and the highest mosque in the world, nor many other records related with the skyscraper.

The world watched the tower's legendary inauguration ceremony, attended by tens of thousands of people from Dubai, the UAE, the Gulf region and hundreds of tourists. It was a really special day for everyone.

All this was normal and not surprising because it was commensurate with the magnitude of the challenge represented in the decision to build the tower 5 years earlier. Those who know the personality of Sheikh Mohammed bin Rashid Al Maktoum, Ruler of Dubai, are fully aware that the question on his mind is: What is to happen after this achievement?

The first lesson learned from the tower is the vast experience gained by local companies that contributed to the implementation of such a huge project. They had the opportunity of benefiting from new techniques used for the first time in the world. Some of these companies have bided to build a tower in Jeddah, Saudi Arabia, which is expected to be the tallest in the world with a height of 1000 meters.

Such experience has been transferred to hundreds of individuals from the region and into dozens of technical and engineering disciplines as well.

The second lesson is that creating a firstclass tourist landmark has contributed to the promotion of tourism in Dubai, and the UAE in general. All tourists who visit Dubai wish to visit the tower, and to climb to its 124th floor balcony. They are charged 200 Dirhams ($54.5) each.

The third lesson is the one of promoting the concept of a city of high rises and 15 February, 2010

Dr Wadah Al-Taha

diversified activities; a city inhabited by 1.9 million people, and comprising commercial offices and residential apartments; hotels, restaurants and entertainment venues; and services.

A city that has the ability to run and sustain the associated services such as water, electricity and air conditioning as well as safety procedures, including the servicing of the 57elevators of the tower.

The fourth lesson is that the event contributed to improve the general mood prevailing in the market. Opening the tower gave a great positive psychological boost and greater confidence in the UAE and, in particularly, the Dubai econom.

A recent study conducted on 24000 consumers in the Middle East found an improvement in consumer confidence regarding the UAE from 29.6% to 86.1%, compared to the previous survey conducted in the second half of 2009.

This is the biggest jump in consumer confidence in the region. At the world level, the UAE was ranked third, after Vietnam and Qatar, in terms of consumer confidence.

It is well known that measuring confidence level involves important economic standards, including performance of the economy, employment, income and quality of life.

Last, but not least, the most important lesson learned is the one behind the decision of changing the name of the tower from Burj Dubai to Burg Khalifa.

Such a change is a very clear message

It is important to note also that excessive optimism has no thing to do with deep understanding of the reality of the real estate sector in Dubai. The inauguration of Burg Khalifa does not necessarily mean improvement in the real estate sector. Constraining factors on such sector remain strong and need a longer time to be addressed than some expect.

This is due to the slow pace of corrective measures and to major developers being slow to find effective solutions to restore money invested in the cancelled projects and to find funding sources. Realistically and objectively assessing the real estate market in Dubai is fundamental to overcoming of the crisis in the sector.

Focusing on finding creative and practical solutions must be part of the priorities of economic bodies responsible for real estate and construction sector. These sectors, accounting for 23.3% of the gross domestic product, are important pillars of Dubai's economy. Workers in such sector account for 41.1% of the labour focer, according to 2006 statistics. Such figures have greatly grown in the years 2001-2007. The average compound annual growth rate reached 12% during 2001-2006—one of the highest rates in this sector in the world. The construction sector accounted for 34.6% of the total fixed capital.

Reforms needed in the real estate and construction sector should take place during 2010. Otherwise, it will be difficult to re-attract investors who might go to markets which are still attractive and have a good legal structure.

Senior Economist and Financial Analyst 42

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Issues 1545

Economics - Behind the Graph

The Come-back of Big-Government The Post World War II years were, in many ways, the golden years of Keynesianism. Following the prevalent wisdom of the day governments tried to adjust their monetary and fiscal policies according to Keynes’ theories, and for a while, this system appeared to work.

From the 50s-70s most Western countries enjoyed low stable unemployment, and moderate inflation. But the years of prosper-

ity would come to an end with the oil shocks of the early 70s.

It was under these conditions that Reagan and Thatcher questioned government involvement in the economy. Their proposed solution was liberalization in the form of small government, and free markets. This process reduced many of the rigidities of the planned market economy that prevailed in the post war period. The current global finan-

cial crisis has once again opened the door to government involvement in the economy. Defendants of this vision argue that government should not sit back with their arms folded while the economy collapse. General Motors, now, is a state-owned enterprise. Government has returned pigging-backing on the mistaken notion that interventionism regained part of its lost legitimacy.

Industrial Production

The subprime crisis broke in the United States in the fall of 2007. The credit crunch, as the first stages of the crisis became known, all but completely paralyzed credit markets. With the crippling of financial markets, the crisis soon spread to the real economy, notably by diminishing the availability of credit to producers and thus slowing down production. As the financial situation of real economy companies deteriorated, layoffs, and therefore, unemployment rose. This further undermined demand and sales. In 2008, under more or less coordinated action, G20 countries unveiled massive stimulus packages, which considerably helped stimulate production. By the 2nd quarter of 2009, production rates were back to their average growth rates.

Source: IMF, World Economic Outlook, January Update 2010.

World Fiscal Balances (100 words)

In 2000, developed countries had, in average, balanced budgets while developing and emerging economies presented a deficit of about 2.5%. One of the consequences of the 2000 bursting of the tech bubble are felt is the slow down of the economy in developed countries. As recession kicks in, fiscal revenues plunge. Around 2002, efficient macroeconomic polices in the emerging world couple with the positive economic externalities in world demand for commodities by the rise of China accelerate growth in the developing world and raise fiscal revenues. From mid 2004 through mid 2008—when economic stimuli plans were implemented—developing countries experience a period of positive fiscal balances. In developed countries, fiscal balances deteriorated from mid 2006, when the first signs of economic slowdown were felt.

Source: IMF, World Economic Outlook database

Real Commodity Prices (100 words)

Source: IMF, World Economic Outlook database and own calculations.

15 February, 2010

The sharp fall in commodity prices during the 1980s coincides with what has come to be known as ‘the lost decade’ for developing countries. Following roughly a decade of slowly falling prices, the sharp rise in oil prices in 1998 is considered to be partially a result of the rise of China in the world economy. The subsequent general commodity price plunge in 2008 parallels the fall in industrial production (as detailed in Graph 1). Prices then rise slowly as the world economy gradually recovers. Prices are forecast to continue a slow rise as many economies suffer the consequences of the big deficits created to counter the economic recession. The slow recovery from the crisis engenders a slow rise in demand for inputs, and therefore a slow rise of world commodity prices.

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Economics - Index Markets Page Output Latest United States United Kingdom France Germany Euro Area Japan UAE Barhain Oman Qatar Kuwait Saudi Arabia Egypt Brazil Russia India China Hong Kong Singapore

-2.6 Q3 -5.1 Q3 -2.3 Q3 -4.8 Q3 -4.1 Q3 -5.1 Q3 +7.4 2008 +6.1 2008 +7.9 2008 +16.4 2008 +2.5 2008 +4.8 2008 +4.3 Q3 -1.2 Q3 -8.9 Q3 +7.9 Q3 +10.7 Q4 -2.4 Q3 +3.4 Q4

qtr +2.2 -1.2 +1.0 +2.9 +1.5 +1.3 na na na na na na na +5.1 na na na +1.6 -6.8

2009 -2.5 -4.7 -2.2 -4.7 -3.9 -5.3 -0.2 +3.0 +4.0 +11.5 +4.7 -1.0 +4.7 -0.3 -8.0 +6.5 +8.3 -3.2 -2.1

2010 +2.8 +1.5 +1.6 +1.9 +1.4 +1.5 +2.4 +3.7 +3.8 +18.5 +4.4 +3.2 +5.4 +4.4 +3.0 +7.1 +9.3 +4.6 +4.8

Financial Markets

% Change Index Feb 11 Since feb 3 Since Dec 31 New York (Dow) 3419.87 -1.4 -4.1 New York (Nasdaq) 2177.41 -0.6 -4.0 London (FTSE 100) 5161.48 -1.7 -4.6 Paris (CAC40) 3616.75 -4.7 -8.1 Frankfurt (DAX) 5503.93 -3.0 -7.6 Singapore (STI) 2753.63 -0.4 -5.0 Hong Kong (Hang Seng) 20290.69 -2.1 -7.2 Barhain (BSE) 1513.72 1.1 3.8 Dubai (DFM) 1676.2 1.0 -7.1 Oman (ASE) 6591.83 1.4 3.5 Qatar (DSM) 6931.5 2.8 -0.4 Kuwait (KSE) 7032.4 0.0 0.4 Riyadh 6225.48 -0.9 1.7 Cairo (Case 30) 1593.31 1.3 13.8 Japan (Nikkei) 1192.37 -1.3 1.3 Mumbai (BSE) 8619.12 -2.1 -6.1

Bahrain Stock Exchange 1,550.000

1,500.000

1,450.000

1,400.000

United States United Kingdom France Germany Euro Area Japan UAE Barhain Oman Qatar Kuwait Saudi Arabia Egypt Brazil Russia India China Hong Kong Singapore

Industrail Production Latest

-2.0 Dec -6.0 Oct -3.8 Nov -8.0 Nov -7.9 Nov -4.2 Nov na na na na na na +6.7 Q3 +5.1 Nov +1.5 Nov +11.7 +18.5 Dec -8.6 Q3 -8.2 Nov

Prices Latest +2.7 Dec +2.9 Dec +0.9 Dec +0.9 Dec +0.9 Dec -1.9 Nov +0.7 Nov +1.6 Dec +0.8 Nov -9.9 Dec na +4.0 Nov +13.3 Dec +4.3 Dec +8.8 Dec +13.3 Nov +1.9 Dec 1.3 Dec -0.2 Nov

Year Ago

-518.4 Nov -126.0 Nov -56.1 Nov +187.7 Nov +25.3 Nov +34.4 Nov +63.2 2008 +6.3 2008 +14.8 2008 37.0 2008 +62.5 2008 +212.0 2008 -25.4 Q3 +24.6 Dec +104.1 Nov -74.5 Nov +196.1 Dec -26.1 Nov +24.1 Dec

-465.3 Q3 -28.2 Q3 -56.7 Nov +158.0 Nov -109.6 Oct +133.4 nov +22.3 Dec +70.6 Dec +5.4 Dec +28.6 Dec +70.5 Dec +134.0 2008 -4.9 Q3 -24.3 Dec +47.5 Q4 _31.5 Q3 +364.4 Q2 +26.2 Q3 +20.9 Q3

-3.0 -1.9 -2.0 +4.2 -0.7 +2.7 +8.5 +44.6 +9.1 +27.9 +44.7 +28.5 -1.7 -1.0 +3.8 -0.7 +6.3 13.7 +12.7

0.61 0.71 0.71 0.71 91.2 3.67 0.37 0.38 3.64 0.29 3.75 5.44 1.79 29.7 45.9 6.83 7.77 1.40

0.73 0.78 0.78 0.78 87.6 3.67 0.37 0.38 3.64 0.29 3.75 5.55 2.36 32.8 49.1 8.84 7.76 1.51

6,700.000

7,100.000

6,600.000

7,000.000

6,500.000

6,750.000

6,900.000

6,400.000

6,600.000

6,800.000

6,300.000

6,700.000

6,200.000

-10.0 -14.2 -8.4 -3.2 -6.9 -7.4 na +3.3 0 +8.8 +7.8 +0.7 -6.9 -3.2 _7.2 -8.0 -3.8 -2.4 -1.1

0.14 0.66 0.72 0.72 0.67 0.32 2.2 6.82 7.21 7.12 5.66 0.77 9.98 8.65 8.75 3.80 1.88 0.13 0.50

3.66 4.10 3.47 6.17 3.23 1.33 na na na na na na 1.76 6.16 7.40 7.71 3.79 2.63 2.44

7,200.000 7,050.000 6,900.000

6,450.000 6,300.000 6,150.000

Dubai Financial Market

6,500.000

1,900.000

6,400.000

1,800.000

6,300.000

1,700.000

6,200.000

1,600.000

6,100.000

1,500.000

6,000.000

1,400.000

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-0.3 10.0 Dec 7.8 Nov 10.0 Nov 8.1 Dec 10.0 Nov 5.2 Nov na na na 0.3 Dec na na 9.3 Q3 7.4 Nov 8.1 Nov 10.7 2009 10.2 2009 4.9 Dec 3.4 Q3

Qatar Exchange

7,200.000

Tadawul

+2.1 +0.1 +0.3 +0.3 -1.3 +2.5 +3.0 3.3 0 +4.7 +4.3 +11.8 +4.9 +11.7 +10.5 -0.8 +0.5 +0.3

Trade Budget Interest Rate Balance Balance as a Current Account Balance Currency Units, per$ lastest 12 % of GDP 10 years Govt months Latest 12 months % of GDP 2009 latest Year ago 3 month latest Bonds latest 2008 $bn

!"#$%&'()$"*+,)#'!%*-)&'

Kuwait Stock Exchange

2009

0.1 +3.1 +1.0 +1.1 +1.6 +1.0 +7.2 +5.1 +12.7 13.2 6.8 +9.5 +18.3 +5.9 +13.3 +10.6 +1.2 +2.1 +5.5

Unemployment rate latest

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15 February, 2010

THE MAJALLA

31

Reviews Books

Issues 1545

Readings

Reports

47

Reviews - Books

Children of the Revolution After Khomeini Iran Under His Successors Said Amir Arjomand Oxford University Press 2009 In his latest book Professor Arjomand argues that Iran’s revolution has impacted the politics and foreign policy of the country more than one might think.

Taking a sociological perspective on the subject, Arjomand creates a picture of a country whose future is bound by the ideology of the Islamic Revolution.

R

are is the occasion that Iran is not making headline news, and more often then not, it is news that perplexes the world. Since 1979, the political development of Iran has been watched by the world with a degree of bewilderment.

Professor Said Amir Arjomand aims in his latest book, After Khomeini, to shed light on the political dynamics of the country, which he argues have been put in motion by the Islamic Revolution.

As a professor of sociology, Professor Arjomand is in a particularly advantageous position to assess the particularities of the revolution and its impact on the society of Iran to this day. He brings in an original outlook at the dynamics of change in the country, and explains many of the most recent political events in Iran that have baffled the west, including the resurrection of the regime’s hardliners, the stability of the position of the Supreme Leader, and the country’s fixation with building its nuclear capacity.

Beginning with the premise that the source of the West’s misunderstanding of Iran is the assumption that the 15 February, 2010

revolution ended with the death of Khomeini, Arjomand is able to not only explain Iranian politics but also develop a theory on the degree to which revolutionary models are helpful in understanding Iran. He highlights that Iran might

The far reaching changes caused by the Islamic revolution in Iran are not denied, but nor are they misunderstood have been better understood if the world had not compared the Iranian revolution to the French revolution—characterized by a peak of radicalization that then gave way to a moderate reformist agenda.

The death of Khomeini was therefore not the opportunity reformists were

looking for, but ‘only the beginning of a prolonged struggle among the children of the revolution over his heritage’ (pp 5). More importantly, he notes, the struggle to define the structure of the new Islamic political order set up by Khomeini has a logic that can only be understood as a consequence of the revolution. That is, Khomeini’s heritage produced a unique political regime that is to this day defined by the struggle between hardliners and former revolutionaries that have since moderated their politics. No event speaks more clearly to Arjomand’s insight in this case than the recent presidential elections where hardliners emerged victorious despite the popular support of reformists.

In explaining Iran’s domestic and foreign politics, Arjomand also manages to explain important sociological terms that help the reader better understand the degree to which the revolution affected Iranian society. One important example of this is Arjomand’s reference to constitutional politics, or the struggle for the fashioning of a particular political and social order.

He demonstrates how constitutional 48

Reviews - Books politics are based on the principle of compromise so that these may be institutionalized. He further notes how in Iran the parameter for the struggle of constitutional politics was based on Khomeini’s ideology that mixed theocratic, republican and populist elements.

This insight proves particularly helpful in Arjomand’s analysis of Ahmedinejad’s presidency and the power differences that define his relationship to the Supreme leader.

Chapter eight specifically looks at how Ahmedinejad, as a member of the ‘new political class’, has managed to secure a modicum of independence from the Supreme leader by personifying two components of the Revolution that are largely outside Khamenei’s reach, namely populism and social justice. Arjomand’s presentation of this issue is as informative about Iranian politics as it is about Ahemdinejad as a leader. Anecdotes of Ahmedinejad referring to himself as the street cleaner of Tehran during his position as governor illustrate this point. As does Arjomand’s recollection of the populist policies Ahmedinejad conveniently put into effect right before the 2009 presidential elections.

Equally interesting is Professor Arjomand’s telling of the impact the military’s economic interests have on the foreign policy of the country. In Iran, he explains, the revolutionary committees, the Basij militias and other mobilization structures developed into ‘self interested cartels under the auspices of the revolutionary guards’ (pp 192). Large economic bodies have developed ties with the Defense industry and with members of the political elite who have a strong influence on foreign policy. Arjomand explains that the development of these special interest cartels has created a hydra-like political structure that functions alongside the oligarchy, often sabotaging attempts of Iranian reformists to engage with Western Issues 1545

Ayatollah Ruhollah Khomeini © getty images

countries. Of the most notable examples that the book provides to support this theory are the assassination of a Kurdish opposition group in Germany, and the explosion of a Jewish centre in Argentina.

Overall, Arjomand’s ability to use the revolution to explain so many aspects of Iranian political life is an impressive feat. However he does leave some questions unanswered.

This book should make the consequences of the Islamic revolution intelligible to the reader First, while he acknowledges that the Iranian model has not

undergone the liberalization phase of other revolutions, he does not convincingly explain why efforts by reformists have failed. Instead he notes that the revolutionary rhetoric in place undermined their efforts.

Why was this the case in Iran, and what did reformists in the context of other revolutions do to overcome the constraints of the political parameters set out by the revolution?

Arjomand’s answer to many of the questions people have about Iran thus goes back to the revolution.

While he undoubtedly succeeds in demonstrating the revolution’s importance for Iranian politics he risks creating an un-falsifiable theory based on a circular argument—namely that the revolution determined everything, and that everything is explained by the revolution. Nonetheless, After Khomeini is an important book in its analysis of Iran’s political and ideological transition, and impressive for its ability to deal with a broad range of issues that defined Iran’s current state of affairs.

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Reviews - Readings

Readings Books

Race of a Lifetime: How Obama Won the White House

Mark Halperin and John Heilemann

Halperin and Heilemann’s account of Obama’s electoral triumph has been hailed as a riveting and definitive chronicle of the most exciting presidential campaign for generations.

A combination of informed political analysis and detailed reconstruction evokes the kind of technique which Bob Woodward pioneered in his bestselling books on American politics. This gripping insider

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story exposes the characters of the campaign and charts the course to the White House in minute detail, appealing to anyone with a sense of thrill. In the way only American reporters can, Halperin and Heilmann take the reader into the heart of the most seismic presidential contest the world has seen and leaves one with a heightened sense of the stakes of modern history.

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Country Driving: A Journey through China from Farm to Factory

Peter Hessler The shift in the global balance of power has become increasingly evident since the onset of the financial crisis. Given China’s economic growth, its ambitions are being increasingly analyzed. In an epic trip across China he encounters many of the contradictions in the vast upheaval created by economic growth.

Hessler’s knack of uncovering the human interest stories behind a nation on the rise is valuable, given China’s recent tussle with America over the arms sale to Taiwan. Hessler’s often humorous perspective on the last 15 years of change is the latest in a series of social reportage by the writer.a

Tea with Hezbollah: Sitting at the Enemies Table; Our Journey through the Middle East

Ted Dekker. and Carl Medaaris

Ted Dekker and Carl Medearis take the reader on a thrilling real life adventure and discuss what it means to “love your neighbour” with many of America's greatest enemies. The authors have sought to challenge much of the assumptions made about America’s enemies by revealing their human side so rarely portrayed in the West. A series of 15 February, 2010

encounters is intended to be eye opening to those who wish to better understand the mindsets of many of the most controversial figures in the Middle East. For the more informed reader, the mixture of personal stories and interviews offers a largely unprejudiced perspective of Middle Eastern life, refreshing in its depiction of a common ground.

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50

Reviews - Readings

Reports Fixing a Failed Strategy in Afghanistan Carnegie Endowment for International Peace Gilles Dorronsoro As the drawn out debate on future US military strategy in Afghanistan continues, Dorronsoro explains why a surge in troops will not be sufficient to fix the flaws in approach. One vision of a potentially disastrous scenario in Afghanistan would see the war spreading to the North, which has remained quiet so far. The potential for lawlessness to spread beyond the current areas of fighting is

discussed. This report details what a successful strategy would entail and suggests the International Coalition should focus more on maintaining this area of peace. Dorronsoro attempts to chart a route out of the morass after eight years of war. The report provides no answer to the question that really matters—will the new strategy work? Of course, only time will tell and the author acknowledges this.

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Iran: Breaking the Nuclear Deadlock Chatham House Report

Sir Richard Dalton (ed), December 2008

An opportunity to redefine the deadlock over Iran’s nuclear programme was afforded by President Obama’s expression of willingness to explore new avenues of engagement. That current US and European policies towards Iran have been largely unsuccessful is acknowledged in this report.

Recommendations for future engagement which could halt rising bilateral political tensions are made by the editor, Sir Richard Dalton, former Ambassador to Tehran. Dalton determines that Issues 1545

Iran’s relations with the US cannot continue indefinitely. The gravity of continuing diplomatic deadlock for the region and beyond is stressed; the possibility of conflict with Iran is accelerating. Obama’s order to send missile batteries to four Gulf States and two cruisers to be stationed in the upper Gulf is seen by commentators as a sign of a looming world crisis to come. This report is prescient in its recommendations and provides a useful context for understanding how this situation may develop.

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51

Reviews - Reports

Making a Virtue of Necessity Pakistani Partnerships with the United States: An Assessment Council of Foreign Relations Daniel Markey

Markey’s report relates the importance of cultivating alliances with the Pakistani government, while acknowledging Pakistan’s differing levels of willingness to engage with the US. Accordingly, he proposes a range of potential strategies for constructive engagement with the country’s leadership.

The potential success of a variety of counterterrorist strategies which the US could pursue hinge on strengthening partnerships with Pakistan.

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In the “War on Terror”, the role of Pakistan has grown increasingly important.

In response to this trend, Daniel Markey of the Council of Foreign Relations has published a report, Pakistani Partnerships with the United States, to assess the degree of cooperation between the two 15 February, 2010

countries. Markey reiterates the view that the continued cooperation between the leaders of Pakistan and the United States has become increasingly urgent in the fight against terrorism and extremism in the region.

He explains that the failure of counter-terrorist operations

would have grave repercussions beyond the borders of Pakistan.

In profiling the various national institutions of power, Markey is able to propose possible options for improving joint AmericanPakistani counterterrorist efforts.

According to Markey, the recent surge in regional violence as a 52

Reviews - Reports consequence of increased US military intervention has further contributed to a widespread popular dissatisfaction regarding cooperation with Washington. The report notes that there has been a failure to convert such public feeling into policy outcomes.

This reality is developed by an acknowledgement that the elites of Pakistani society continue to value relations with Washington despite the sentiments of the majority.

of the opposition. In addressing the interests of the leadership and its opponents, the report demonstrates that the degree of support for the relationship to the US and their operations in the region varies extensively.

The emergence of new sources of independent information in the region have recently spread to Pakistan and facilitated the development of opportunities to influence public opinion with regards to violent extremism.

The use of radio broadcasts by Taliban groups as a means to incite violence is mentioned as an example of the significance of new media. Implicit in this discussion is the suggestion that the US could potentially change negative public opinion in Pakistan by means of a communications strategy. The harnessing of new media sources could thus be vital in cultivating the support of the Pakistani population as willing and informed partners in counterterrorist efforts.

The report highlights how fragile bilateral cooperation currently is, but does not adequately discuss how moribund relations have been in the past

Having addressed the importance of engaging with popular opinion in Pakistan, Markey turns to the wide spectrum of political opinions on the threat posed by terrorism and the necessity of cooperation with the United States. President Zardari’s support for cooperation as a crucial component of counterterrorism operations has been questioned by many, both within his own party and by those Issues 1545

The opportunism of Pakistan’s political leaders and parties in attempting to identify with public sentiment to secure electoral success and political power is evident in Markey’s discussion

of the motivations for continuing and strengthening the partnership with the US. However, the article indicates that the political establishment as a whole is responsive to the priorities of the United States’ counterterrorist strategy which is broadly viewed as compatible with their own aims.

The report highlights how fragile bilateral cooperation currently is, but does not adequately discuss how moribund relations have been in the past. A greater historical context could have been provided by comparing American-Pakistani relations during the Cold War to the cooperation that took place

under the Bush and Musharaff administrations. The army chief’s often tenuous relations with Washington is explained as the result of a concern that continued cooperation with the US may be viewed as an encroachment on the independence of Pakistani military institutions. Markey does not fully consider the extent to which historical inconsistencies in US support may contribute to current tensions in the bilateral agreement.

In this context, the railing by military leaders against aspects of US operations whilst cooperating with the US, is viewed as an attempt to demonstrate the army’s autonomy. The potential for public backlash against a foreign influence is additionally highlighted as contributing to tensions between the two countries.

The Pakistan military’s concern with the long standing threat that India poses has also impacted greatly upon America-Pakistan cooperation in many critical ways. US insistence on the benign nature of Indian intentions fails to resonate with the Pakistani military, which has supported a number of terrorist groups as a means by which to attack India. This difference of opinion continues to place pressure upon the partnership between the two countries. Markey terms it prudent for Washington to maintain patience with Pakistan’s military in this regard as a method by which future support for extremist groups can be quelled.

For the full report please refer to: http://www.cfr.org 53

The Political Essay

Bad Governance Revisited On the anniversary of Iran’s Islamic Revolution, and in the face of the massive protests also against Khamenei himself, the issue of whether the Revolution was an Islamic one re-gains its relevance. Furthermore, some parallels can be drawn between today and the pre-Revolution era, the main one being bad governance.

I

n Iran, 11 February is celebrated every year as the day of the triumph of the Islamic Revolution. This year, one of the most tumultuous the country has seen in the last three decades, the tradition was kept—though not without the protests that have been ongoing since the June 2009 elections. The magnitude of these protests in the recent past led to comparisons with the events that put an end to the Shah’s regime 31 years ago. There is much to be said about the 1979 Revolution, a milestone in modern history, and the extent to which it was an Islamic Revolution is a matter of debate. As David Patriakarakos wrote in February last year in The Financial Times regarding the demise of the Shah’s regime, “The reasons are clearer than the mechanisms.”

The Shah’s drive to modernize Iran in the 1960s and 1970s transformed what was a largely agrarian based society into an industrialized one. The main beneficiaries of this move were the Pahlavi family and a few Iranian industrialists. Those workers who moved from the countryside to Iran’s major cities seeking job opportunities were the ones who suffered the negative effects of this modernization program’s unsustainable pace. Furthermore, the billions of dollars in oil revenues were mainly invested in modernizing projects of transport infrastructure and the military.

Affiliation with the Pahlavi family was the criteria through which the contracts for these projects were attributed. Together with massive corruption and wasted resources, the rate of inflation rose steadily. The Shah’s regime grew increasingly militarized and repressive towards freedoms of speech and of the press. And the Shah was largely perceived within the country as a puppet of foreign interests, namely of the US. In the face of such precarious government, there was no single sector in Iranian society—the upper class, the modern middle class, the abandoned working class—that was not deeply dissatisfied with the Shahs’ rule. The more vocal protestors were the jobless students, many of whom were to study in the United States and become advocates of freedom. The Shah’s reforms also clashed with Iran’s Ulama, until then highly independent from state authorities, 15 February, 2010

Manuel Almeida due to the government’s meddling in the areas of education and law. The Shah reacted by shutting down several religious schools and by trying to enforce an apolitical Shi’ism obedient to the monarchy. Iran’s clerical establishment, and Khomeini in particular (exiled since 1964 for accusing the Shah of undermining national sovereignty), thus became an active part of the opposition to the Shah.

Iran’s religious establishment was one among the variety of disenchanted social groups—and the most resourceful. All these groups came together in one single movement united in the opposition to the Shah, and around the goal of creating a new state. As Patriakarakos explains the 1978 protests in Tehran, “The people marched and then, en masse, they prayed.

But 90% of them didn’t know how—they just copied the mullahs.” Indeed, one of the slogans of the revolution became an allencompassing “Freedom, Independence and Islamic government”. However, after the Shah’s removal, the differences within this coalition, particularly between secular and religious groups, became obvious. Upon Khomeini’s return, he quickly consolidated his power among religious groups, and drove away the secular ones, opening the way for the Islamic Republic of Iran. In the referendum to decide on the adoption of an Islamic Republic, 98% of the Iranian population voted in favour.

The Iranian revolution can be seen as Islamic in the sense that religion did play an important role in mobilizing the revolt against the Shah, and the religious establishment

was one of the most important opposition groups. Essentially, Ayatollah Khomeini and the Islamic Republic came to replace the leadership vacuum that was left after the Shah was deposed. In his defense of Islamic values, Khomeini came to personalize the promise of a leader that would secure a better future for the Iranian people.

Moving forward to present times, some parallels are being drawn between the Shah’s absolute loss of legitimacy, and the magnitude of the protests advocating the illegitimacy of President Ahmadinejad, but also that of Khamenei himself. There are indeed some parallels in the lack of civil liberties, the ruthlessness of security forces, the oil revenues which are not reaching a majority of the population, and rising inflation. Furthermore, there is massive corruption, in which the Iranian Revolutionary Guard Corps is deeply involved. As Karim Sadjadpour recently wrote in The Majalla, “Khamenei’s Iran is no longer an Islamic Republic, but a tight-knit cartel of hardline clergymen and nouveau riche Revolutionary Guardsmen.”

In spite of these parallels, the magnitude of today’s protests seems to be exaggerated by many observers to the extent that they ignore the considerable percentage of the Iranian population who still backs Ahmadinejad. More importantly, and despite the slogans such as “death to Khamenei”, today’s protests do not aim to defy the character of the Islamic Republic of Iran, but aim at the legitimacy of the current government. As Najah Mohammed Ali wrote in The Majalla, “Political insiders say the situation now is a revolution within the Islamic Revolution itself.” What we are witnessing is “a struggle between supporters of the “Islamic Republic”, with all its institutions and election mechanisms, and advocates of transforming it into an “Islamic government”.

So, is what we are witnessing today, with the massive protests in the streets of Iran’s major cities, a revolt against Iran’s Theocracy? It seems not. The main issue, as in the Shah’s era, is bad governance. The ongoing protests are not a revolt against the ideal of the Islamic Republic of Iran, but against the way it’s being run.

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Issues 1545

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15 February, 2010

THE MAJALLA

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