Tag Archives: failed state

Five Stories You Might Have Missed

Debates over Wall Street compensation reemerged on the national stage last week, as the government urged companies that received federal assistance under the Troubled Asset Recovery Program (TARP) limit executive compensation. On Thursday, the Federal Reserve issued draft rules governing compensation for companies that have not repaid TARP assistance. Under the new rules, the companies would be required to demonstrate that their compensation packages do not encourage excessive risk-taking. In an interview with the Financial Times, George Soros weighed in on the debate, calling Wall Street’s profits this quarter “hidden gifts” from the U.S. government. He commented that, “Those earning are not from the achievement of risk-takers. These are gifts, hidden gifts, so I don’t think that those monies should be used to pay bonuses. There’s a resentment which I think is justified.”

Meanwhile, concerns over the spread of the H1N1 (swine flu) virus continue to grow. On Saturday, President Barack Obama declared a declaration of “national emergency” to combat the flu. Under the declaration, hospitals eases some restrictions on hospital operations, giving them additional powers to treat the flu. 

In news from outside the United States last week:

1. German Chancellor Angela Merkel formally announced her new coalition agreement on Saturday. There were few surprises, as Merkel’s center right Christian Democrats allied with the liberal Free Democratic Party. The coalition contract included a promise to pass a €24 billion tax cut for poor and middle-income Germans and will reform inheritance laws. Under the new coalition agreement, Guido Westerwelle, the leader of the Free Democrats, will assume the post of foreign minister. The Christian Democrat’s Wolfgang Schäuble, a strong fiscal conservative, will become finance minister.

2. In two separate attacks, two car bombs exploded outside government buildings in Baghdad, Iraq, on Sunday, killed more than 130 people and injuring more than 500. The attacks were the deadliest in more than two months. Iraq had been enjoying a period of relative stability, as Western-backed tribal leaders had pushed al Qaeda militants into the margins. But U.S. officials contend that Iraq may be entering a period of increased violence, as militants attempt to reignite sectarian violence ahead of parliamentary elections scheduled for next year.

3. Negotiations intended to resolve the standoff over the Iranian nuclear program appear to have stalled. The talks, which were reopened early last week, were intended to develop an agreement which reduced Iran’s stockpile of low enriched uranium (LEU), building upon an agreement reached earlier this month under which Iran agreed, in principle, to send some of its estimated 1,200 kg of LEU to Russia and France, which would convert the fuel into medical isotopes before sending it back to Iran. But after Iran failed to meet a Friday deadline, the United States warned that it would be willing to wait for a few more days, but cautioned that its patience was limited. Iran’s current stockpile, if enriched, could provide enough uranium for a single nuclear weapon.

4. Figthing between Somali insurgents and African Union (AU) peacekeepers broke out in Mogadishu on Thursday, killing at least 30 people. According to witnesses, militants attacked using mortars as Somali President Sheikh Sharif Ahmed was leaving the country for a meeting in Uganda. AU forces responded with artillery fire. More than 19,000 civilians have been killed, and an estimated 1.5 million people have been displaced from their homes since 2007 as a result of ongoing fighting in Somalia, which has made the country a center for international piracy and terrorism.

5. The government of Brazil on Tuesday imposed a two percent tax on some capital inflows into the country. The decision, which as intended to slow the increase in the value of the real, Brazil’s currency, which had already increased more than 36 percent against the U.S. dollar this year. The new tax targets portfolio investment and financial speculation, not productive investment in the country. Nevertheless, the announcement was not well received by the market, and stocks fell sharply after the government made its announcement. But analysts offered a more positive pronouncement. In an editorial comment, the Financial Times described the new tax as “wise,” “sensible,” and “honest.”

Advertisements

Five Stories You Might Have Missed

Economic data out this week suggests that the end of the global recession may be nearing. The most recent jobless numbers out of the United States gave economists reason to celebrate, as the unemployment rate declined by 1/10 of a point, leading to a price rally on Wall Street. Germany, which has seen a sharp decline in gross domestic product (glossary) during the global recession, benefitted from an unexpected expansion of exports—7 percent in June. While other countries continue to struggle, including Russia and Iceland, many economists now believe we are seeing the proverbial light at the end of the tunnel.

In other news from the previous week:

1. The trial of dozens of people, including a French national and two Iranians employed in the British and French embassies began in Iran on Saturday. The defendants are charged with espionage and “acting against national security” by taking part in and reporting on post-election protests to Western embassies. Under Iranian law, a conviction on either charge could be punished by death. Several of the defendants have confessed, but Western governments have dismissed the charges as “baseless” and contend the confessions were made under duress. The government of Iran accuses the United States and Britain of interfering in its internal affairs by “proving financial help to Iran’s opposition.” Meanwhile, the trial of 100 opposition leaders continued last week. The opposition leaders have condemned the trials as a spectacle, but the defendants face charges punishable by death. Opposition leaders continue to assert that the election of President Mahmoud Ahmadi-Nejad in June’s disputed presidential election was the result of electoral fraud. Nevertheless, Ahmadi-Nejad was sworn in on Monday.

2. A power struggle inside Taliban in Pakistan emerged over the weekend after the organization’s top leader, Baitullah Mehsud, was killed in a U.S. drone strike on Friday. Mehsud was a powerful figure in the Waziristan district of Pakistan, and Pakistani officials believe he was responsible for nearly all of the major terrorist attacks in Pakistan over the past two years, including the assassination of former prime minister Benazir Bhutto and the bombing of Marriot Hotel in Islamabad in 2008. Many analysts believe that Mehsud’s death will undermine the ability of the Taliban to operate in Pakistan. Already, political infighting in the Taliban in Pakistan’s leadership has led to the murder of one top leader by another, as Waliur Rehman, a leading contender to lead the organization, killed Hakimullah Mehsud, a rival for the same position. Pakistani intelligence now believes the organization is likely to splinter into several factions, each operating independently, but collectively much weaker than the original organization.

3. Former President Bill Clinton met with North Korean President Kim Jong-il this week, securing the release of two American journalists who had been sentenced to twelve years of hard labor for illegally entering the country. The meeting, which the White House maintains was not part of its official diplomatic efforts to address the challenges posed by the North Korean regime, was the highest level contact between the two countries in more than ten years. The Obama administration also reminded North Korea that, despite Clinton’s trip, that the United States will continue its efforts to increase diplomatic and financial pressure on the North Korean state unless it abandons efforts to secure nuclear weapons.

4. Secretary of State Hillary Clinton began her Africa tour this week, meeting with Kenyan officials on Wednesday. Clinton is hoping to apply pressure on the coalition government to move forward with political reforms intended to bring grater stability to the country and to prevent another flare up of the violence which rocked the country after February’s disputed presidential election.

On Thursday, Clinton met with Sheikh Sharif Ahmed, the embattled president of Somalia. Clinton used the opportunity to reiterate U.S. support for the Ahmed government, pledging to provide more military and economic assistance as the government continues its battle against Islamist insurgents. Meanwhile, in neighboring Eritrea, President Isaias Afewerki, who is believed to be a supporter of rebel groups in Somalia, dismissed U.S. efforts, saying that it is unrealistic to try and “imposing [a government] that doesn’t exist in reality.” Somalia has long topped Foreign Policy’s list of failed states. The lack of an effective central state has also made the country a haven for pirates in the Gulf of Aden.

5. A series of cyber-attacks aimed at social networking sites last week were believed to be directed at one individual—a blogger posting under the name of Cyxymu Livejournal. The denial-of-service attacks targeted several popular sites, including Facebook, Twitter, Google, and the blogging site Livejournal. Cyxymu Livejournal is a critic of Russian policy in the Caucuses, particularly Georgia. According to some sources, the Russian government has used denial-of-service attacks in the past, targeting sites critical of the Russian government in Georgia, Estonia, and Eastern Europe. But if responsible for the most recent round of attacks, this could represent an expansion of the strategy. Leading credence to the theory is the fact that this week marked the one year anniversary of the Russian-Georgian War over the breakaway regions of Abkhazia and South Ossetia.

The (Continuing) Problem of Piracy

Earlier this week, Secretary of State Hillary Clinton outlined a four-point plan for dealing with the continuing problem of piracy off the coast of Somalia. After a recent increase in attacks, including the much-discussed kidnapping of the captain of the Maersk Alabama, Clinton’s plan is an attempt to develop a more compressive solution to the problem. The Clinton plan includes:

  1. Sending an envoy to the upcoming Somali donor’s conference to develop a plan to improve the situation in Somalia.
  2. Increasing the multilateral response to piracy by expanding U.S. cooperation with the Con tact Group on Piracy Off the Somali Coast (CGPCS).
  3. Encouraging greater criminal prosecution of pirates by the states of the international community.
  4. Eliminating the financial incentive for piracy by tracking and freezing pirates’ assets and by refusing make concessions or pay ransoms for captured prisoners or ships.

The solution to the problem of piracy depends largely on how the problem of piracy itself is framed. Blogging at FP, Elizabeth Dickinson notes that Somalia is quickly becoming one of the world’s largest hostage crises. But in framing the problem primarily as one of criminal activity, she advocates policing solutions. Chris Blattman highlights the problem of incentives—essentially, that piracy pays.  He’s right, but again, this frames the problem as one primarily of criminality, leading again to solutions of increased policing. And at least three of Clinton’s proposals also fall into this camp.

But if we think of piracy as not just an act of criminality but also as a rational decision in the context of the failed Somali state, then solutions to the crisis must extend beyond increasing patrols and prosecutions. Since 1991, Somalia has effectively been without a government, and has instead been ruled by local militias and which have essentially divided the country into their own private fiefdoms. In the absence of a central authority, the formal economy has similarly collapsed, cutting off options for gainful employment for Somalis. In the absence of other options, young men turn to the militias (or piracy) for employment. As long as there remains no other viable options, piracy will continue to be a problem in Somalia. The long-term solution to the problem of piracy thus rests not just in treating it as a simple criminal activity. Any pirates arrested and tried could quickly be replaced from a waiting pool of recruits. Instead, real effort must be made to establish a stable political economy in the country. Unfortunately, this is probably the hardest of Clinton’s four proposals; it is also the most necessary.

Five Stories You Might Have Missed

The annual meeting of the World Economic Forum took place in Davos, Switzerland, over the weekend.  The forum is intended to provide world economic leaders an opportunity to meet to discuss issues of global importance.  The meeting is normally incredibly cordial, as the economic focus of the conference provides an opportunity to move beyond traditional political wrangling that characterizes official meetings of heads of state.  This year, however, the Gaza crisis prompted the Turkish prime minister to leave the meting in protest and tension filled the air.  In general, this year’s forum has been dominated by discussion of the global economic crisis  British Prime Minister Gordon Brown warned against a rising tide of protectionism similar to the trend that occurred leading into the Great Depression, while bankers cautioned the U.S. government against political interference in banking operations

In news outside Davos this week:

1.  Provincial elections in Iraq on Saturday were generally peaceful.  Although the final tally will take more than two weeks to complete, preliminary results indicate voter turnout was 51 percent, a slight decline from 2005.  Turnout in Sunni provinces, which had previously dismissed the electoral process as biased against their interests, was particularly high.  With more than 14,000 candidates competing for just 440 seats, there are bound to be a large number of disappointed political parties and candidates.  The question that worries observers now is: how do those who lose the vote respond?

2.  A last-ditch effort to craft a government of national unity in Zimbabwe appears to have been successful, as Morgan Tsvangirai’s Movement for Democratic Change agreed on Friday to join Robert Mugabe’s ruling Zimbabwe African National Union, Popular Front to govern the country.  Once one of the wealthiest and most productive countries in the region, Zimbabwe has gradually collapsed into economic chaos.  With the unemployment rate at an estimated 95 percent, the World Food Programme estimates that up to 70 percent of the country’s population may require food aid in the next six months.  In an effort to deal with the crisis and bring the country’s rampant inflation—currently believed to be running as high as a quadrillion percent (that’s 1,000,000,000,000,000%, incase you’re wondering) under control, the government last week also removed restrictions on using foreign currencies for economic transactions within Zimbabwe.  It is now possible—indeed likely—that bread, gas, and other basic commodities will be priced in U.S. dollars, pound sterling, South African rand, or other foreign currencies.

3.  The crisis over the future of South Ossetia and Abkhazia, which was at the heart of a diplomatic standoff between the United States and Russia lat year, has once again reemerged on the international stage.  Russia has announced plans to construct a new naval base in Abkhazia, a move which Georgia claims will undermine its national sovereignty.  Meanwhile, in an apparent overture to the west, Russia has suspended plans to deploy a missile station in Kaliningrad.  Russia had announced its intention to deploy cruise missile batteries in the enclave last year after the United States moved forward with plans to deploy its missile defense shield in Eastern Europe. 

4.  The Mexican government announced on Tuesday that the country is likely headed into recession, with the economy estimated to contract by as much as 1.8 percent in 2009.  The Mexican economy is heavily dependent on exports to the Untied States, with exports to the U.S. accounting for 80 percent of all Mexican exports and representing about 25 percent of all economic activity in the country.  Already, Mexico’s central bank has cut interest rates in an attempt to stimulate the domestic economy.  Meanwhile, an ongoing conflict between powerful drug cartels and the central government has led some analysts to forecast that Mexico could achieve “failed state” status if it is unable to assert control over the cartels.

5.  Although the fragile ceasefire in Gaza has officially held, a number of fractures are beginning to appear.  On Thursday, Hamas launched rockets into Israel in response to an Israeli airstrike against a suspected arms factory in Gaza on Wednesday.  President Barack Obama named George Mitchell his Middle East envoy, and Mitchell appears to have his work cut out for him.  Arab states are demanding an investigation into alleged war crimes committed by Israel during the conflict in which more than 1,300 Palestinians were killed and more than 5,000 were injured. 

And in a bonus story this week:

6.  A moderate Islamist leader, Sheikh Sharif Ahmed, was declared the winner of Saturday’s presidential elections in Somalia.  Ahmed was the head of the country’s sharia court system that brought stability to southern Somalia in 2006.   But the withdrawal of Ethiopian troops earlier this year has led to even more instability in Somalia, and the political process, now to be led by Ahmed, has been dislocated from the country, now based in neighboring Djibouti.  Somalia has become a haven for piracy in recent months, and the World Food Program was forced to halt shipments to the country due to insecurity.

Yo, Ho, Ho…A Pirate’s Life for Me?

For anyone who thought pirates were a thing of the past—confined to Disney theme parks and Johnny Depp movies—you haven’t been paying attention!  Although the “golden age” or piracy ended by the mid-eighteenth century, modern day piracy has been growing in recent years, especially off the coast of Somalia and in the Straits of Malacca.  There’s even a modern-day pirate city—Eyl, Somalia —where pirates store their captured ships and plundered cargo while awaiting ransoms demanded for their return.  Pirates generally demand between $300,000 and $1 million for the return of the ship and its crew.

But over the weekend, Somali pirates struck a far larger target.  A Ukrainian ship destined for Kenya was carrying 33 T-72 tanks, other “military hardware,” “an assortment of spare parts for use by different branches of the Kenyan military,” and “a substantial quantity of ammunition,” according to Kenyan government spokesperson and the Ukrainian foreign ministry.  The U.S. Navy is monitoring the situation, and Russian naval vessels are heading to the area.  The pirates are demanding $20 million for the return of the ship and its cargo—a bargain compared to their initial $35 million offer.

The fact that the pirates operate so freely is largely a function of the collapse of the Somali state.  Somalia has effectively been controlled by warlords, and has been without an effective national government since 1991, when a civil war tore through the country.  The internationally-recognized government of Somalia has been forced to meet in neighboring Kenya due to violence and political instability, allowing local pirates and warlords to reign free.  In June, the United Nations authorized member states to send warships into Somalia’s territorial waters to tackle piracy, but little progress has been made so far, as the most recent seizure suggests.

Peter Leeson’s article, cleverly entitled “An-arrgh-chy: The Law and Economics of Pirate Organization” contrasts the political economy of historical pirates with that of today.  It’s also a fun read!