Tag Archives: financial crisis

Social Media and the New Frontiers of War

According to a press conference statement by US Air Force General Hawk Carlisle, a selfie posted to a social media sight by an ISIS (Islamic State in Iraq and Syria) fighter led to a successful US airstrike against an ISIS command-and-control facility in Syria. The airstrike follows the announcement that between 10 and 13,000 ISIS fighters have been killed since US operations began, but that the overall strength of ISIS remained unaffected due to successful recruitment of new fighters by the organization.

ISIS has made effective use of social media to recruit new fighters, reaching a following of more than 200,000 through Twitter and other social media sites. But as the story suggests, the organization’s use of social media represents a double-edged sword, as it provides its opponents with intelligence regarding the organization’s operations and status.

What do you think? How has the use of social media affected the conduct of war in the 21st century? How will future conflicts (military, economic, or otherwise), look different as a result of social connectivity? How does the recent report of Chinese hacking into US federal employee databases fit into this context? And how should governments adapt to the new landscape?

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The Ongoing Fight Against ISIS

Fighting between the Iraqi government and Islamic State in Iraq and Syria (ISIS) intensified over the weekend, as ISIS apparently captured the center of the city of Ramadi west of Baghdad. Ramadi is the capital of Anbar province, and the Iraqi government had thought it was making progress in driving ISIS from the area.

At the same time, US Special Operations forces announced on Saturday that an operation in Syria had resulted in the killing of Abu Sayyaf, the Chief Financial Officer and second in command of ISIS. The operation also resulted in securing several prisoners and “reams” of data on ISIS’s financial operations.

What do you think? What strategy might be successful in countering the growing influence and reach of ISIS in the region? Should the United States use its military in support of operations? Or should it leave primary responsibility for dealing with ISIS to regional actors? What would you advise?

The Expanding ISIS Threat

The Islamic State in Iraq and Syria (ISIS) has claimed responsibility for a suicide bomb attack against a bank in Afghanistan, killing at least 33 people. ISIS claimed the attack was targeting government officials cashing paychecks. If ISIS is responsible for the attack, it would represent a significant expansion in the organization’s reach, which had historically been confined largely to Syria and Iraq. It also highlights the ongoing challenges faced in providing security in Afghanistan.

The expansion of ISIS also highlights a shift in the balance between terror organizations, with al Qaeda apparently in decline and ISIS clearly on the rise.

What do you think? What factors account for the increasing reach of ISIS? Has ISIS replaced al Qaeda as the primary terror threat in the region? Why? And what, if anything, should be done to address ISIS’s growing reach?

Two-Level Games and the Greek Financial Crisis

Violence erupts on the streets of Athens in response to the Greek parliament's approval of harsh austerity measures demanded by the EU and IMF.

The financial crises that have gripped debt-ridden countries in the eurozone in the last year offer some excellent examples of the challenges and complexities of “two-level games.” A two-level game, as defined by political scientist Robert Putnam, refers to a common situation faced by political leaders when negotiating agreements such as trade deals with foreign states. To reach an acceptable agreement a leader must take into account the demands of actors at two levels: the domestic level and the international level. For example, in negotiating a trade deal with China, President Obama would need to try to balance the demands of China’s government with the demands of domestic actors such as Congress and business or labor interest groups. These demands restrict the set of acceptable outcomes at each level, and the final agreement must therefore be located within that window of overlap where both domestic and international actors would find an agreement acceptable. The absence of an overlapping set of acceptable options would ordinarily produce a negotiating failure (examples might include the Kyoto and International Criminal Court Treaties, which President Clinton favored but could not get the U.S. Senate to ratify). The theory of two-level games also highlights the fact that leaders can use constraints at one level to gain leverage at the second level. So Obama might tell China’s leaders that he can’t budge any further on trade concessions due to American business demands, or he might tell Congress this is the best deal they’re going to get from an intransigent Chinese leadership.

What does all of this have to do with the eurozone financial crises? Debt-ridden countries such as Ireland, Portugal, and Greece have sought emergency loans from the European Union and the International Monetary Fund in order to stay afloat financially, but the EU and IMF have attached strict conditions to these loans. Recipient countries have been required to enact harsh austerity measures designed to correct the problems that necessitated the emergency bailouts. These unpopular measures include raising taxes, slashing welfare spending, and cutting government jobs and pensions. Leaders such as the Prime Ministers of Ireland and Greece have faced strong opposition to these internationally imposed demands from a range of domestic actors (the general public, interest groups, and some members of parliament). George Papandreou, the Greek Prime Minister, narrowly survived a no confidence vote in parliament on June 22, and violent protests have erupted in the streets of Athens in response to the proposed austerity measures. Papandreou succeeded in holding together enough domestic support to get these measures approved by parliament, although clashes between riot police and protesters escalated after the vote.

But this isn’t the end of the story. As Foreign Policy blogger David Rothkopf notes in a post entitled “15 Things the Greek Austerity Vote Won’t Accomplish,” the parliament’s decision to approve the controversial measures “won’t guarantee that Greece sticks with the plan that’s approved. Riots in the streets illustrate that the people of Greece are deeply unhappy with what they perceive as a foreign-imposed squeeze. They can force a political reversal that leads to a policy reversal.” In other words, round one of this two-level game may have been won by actors at the international level, but the game continues…and domestic actors in Greece, Portugal, and elsewhere may yet be able to exert sufficient pressure on their leaders to change the game decisively in their favor.

The Irish Crisis

Irish PM Brian Cowen

Irish PM Brian Cowen concedes Ireland requies assistance.

Once the “Celtic Tiger,” the envy of most other European (and indeed global) economies, the economoy of Ireland now lies in tatters. The economic crisis in Ireland reached boiling point over the weekend, as the government announced it would accept loans from the European Union. The Irish government had been resistant to the idea, believing that the conditions imposed on Ireland as part of the relief package were too strict.

According to a statement released Monday by European finance ministers, Ireland will now undertake dramatic “fiscal adjustment” and “structural reform” in order to receive EU and IMF assistance, amounting to some €80bn-€90bn. The proposed relief package covers just a small portion of the bailout needed to pay off foreign banks and keep the Irish economy afloat. Kan Kees de Jager, the Dutch finance minister described the cuts as “fast and deep.” The cuts will likely have profoundly negative effects on the people of Ireland. Already, dramatic cuts in the country’s minimum wages and reductions to universal child benefits have been proposed. Apparently off the table, at least for now, are tax increases. Ireland currently has a corporate tax rate of 12.5 percent and is among the lowest in the world. In many ways, the conditionalities imposed as a part of receiving the relief package echo the era of structural adjustment in the global south.

The package has already provoked considerable discussion in the blogosphere. The FT’s Brussels Blog offered extensive analysis. Also blogging at the Financial Times, Gideon Rachman explores the possible effects on the Euro, while the bloggers at Baseline Scenario point to the moral hazard of socializing the risk associated with investment decisions onto the backs of Irish taxpayers. 

Politically there are costs as well. According to the New York Times, the government of Prime Minister Brian Cowen will likely collapse as a result of the bailout package, forcing new elections early next year. By that time, however, the rescue package will be done, and the new government will be bound by the conditions it imposes.

The Irish crisis certainly raises questions about the viability of the Euro and the strength of the Eurozone economies. While Germany appears to be humming along, many other Eurozone members, including Greece, Portugal, Spain, and Ireland are in the doldrums. Greece has already accepted a EU/IMF rescue package, and investors widely believe that Spain and Portugal will also be forced into austerity. Can the Euro survive such a widespread crisis?

The Global Financial Crisis, Revisited

Blogging at Triple Crisis, Kevin Gallagher noted an interesting development in the “blame game” between the International Monetary Fund, the World Bank, the United Nations, and the World Trade Organization regarding the causes of the global financial crisis last year. As Gallagher notes, the World Trade Organization held its much anticipated session on the WTO and the financial crisis last week, claiming that the WTO played no negative role in the crisis.

The debate centers on the role of financial controls and capital account liberalization in the broader liberalization process. While the International Monetary Fund increasingly recognizes the importance of capital controls in preventing financial crises, the World Trade Organization continues to maintain that the imposition of capital controls may be “actionable” under the General Agreement on Trade in Services. In other words, even as the IMF acknowledges that imposing limits on the ability of speculative investors to move in and out of particular economies may provide an avenue for governments to limit the negative impact of such speculative investment on their national economies, the World Trade Organization’s rules make such restrictions a punishable offense.

The recognition of the importance of capital controls is not new. Joseph Stiglitz made a similar argument following the 1997 Asian financial crisis, arguing that the IMF ignored the importance of sequencing liberalization to avoid economic crises in developing economies. But there are two important take-away points here. First, the fact that the IMF—the former bastion of unrestricted liberalization—now recognizes that liberalization must be paced represents an important development in the international economy. Indeed, as a February 2010 IMF Staff Paper noted, controls on capital inflows “can usefully form part of the policy toolkit to address the economic or financial concerns surrounding sudden surges in capital.” Second, as Gallagher argues in his paper on the topic, capital account liberalization is not associated with economic growth in developing countries. In other words, at least among developing economies, there is little benefit but much risk in liberalizing financial flows. This is something that the government of Brazil recognized early in the global financial crisis, when it imposed a two percent tax on capital inflows attempting to limit portfolio investment tin the county.

Five Stories You Might Have Missed

The U.S. political scene this week was dominated by coverage of Sonia Sotomayor’s confirmation hearings in the Senate. After the hearings, Sotomayor appears to be headed for an easy confirmation to the U.S. Supreme Court, a fact conceded by Republican Senator Lindsay Graham on the first day of the hearings.

Also on the domestic political scene, the battle over President Barack Obama’s proposed health care reform heated up this week, with both sides spending increasingly large sums of money on television advertising. So far, Obama has been content to allow Congressional Democrats to lead the reform effort, but that strategy appears to be in danger after several moderate Democrats expressed hesitation over the bill introduced in the House last week.

In news from outside the United States last week:

1. A suicide bomb attack in Jakarta, Indonesia, killed 9 people and injured more than 50 on Friday. Although no group has yet claimed responsibility for the bombing, the police investigation is focusing on Jemaah Islamiyah, a terrorist group with ties to al Qaeda. The group was responsible for a series of attacks between 2002 and 2005, including the 2002 Bali bombings, which killed more than 200 people.

2. The standoff between President Manuel Zelaya and the leaders of the military coup in Honduras remains unresolved. On Friday, Zelaya attempted to return to Honduras, only to be denied entry. He is currently in Nicaragua. Meanwhile, Venezuelan President Hugo Chávez, a close ally of Zelaya, has become increasingly vocal in his condemnation of the coup, accusing it of being backed by the United States. On Thursday, Chávez said, ““The Honduran army wouldn’t have gone forward without the approval of the state department. I don’t think they told [US president Barack] Obama, but there’s an empire behind Obama.” The de facto government of Honduras has filed a complaint against Venezuela with the United Nations Security Council, claiming that the Chávez government is interfering in its domestic affairs. But the Security Council has so far refused to deal with the complaint.

3. It’s been a month of relatively good economic news out of Zimbabwe. Although efforts at developing a new constitution to deal with the ongoing political standoff between the country’s two leading political parties appear to have stalled, the economy is slowly recovering. Finance Minister Tendai Biti announced on Thursday that the government would have a balanced budget this year, with total spending increasing 39 percent to U.S. $1.39 billion. After peaking at more than 231 million percent last year, inflation has been brought under control and the economy has effectively been dollarized, with foreign currencies used for most transactions. Nevertheless, the government is forecasting a sharp increase in agricultural production and a smaller increase in tourist revenues, which should offset a decline in mining revenue caused by the global economic crisis. Meanwhile, the International Monetary Fund issued a statement describing Zimbabwe as experiencing a “nascent economic recovery” facilitated by “a more liberal economic environment, price stability, increased financial intermediation and grater access to foreign credit lines.”

4. The Russian economy is currently experiencing its worst economic decline since the transition from communism in the early 1990s. According to a Financial Times report issued on Wednesday, the Russian economy contracted by 10.1 percent in the first half of 2009, a much sharper decline than the 7.9 percent forecast by the World Bank just one month ago. Russia’s current economic woes have been caused largely by the sharp decline in global oil prices, which have recovered to $60 per barrel after falling as low as $35 per barrel earlier this year. Russia is also experiencing its own financial crisis, as commercial banks there are bogged down with bad loans. The Russian government may be forced to turn to international markets, barrowing to offset the sharp decline in tax revenues caused by the economic downturn. Based on the new figures, its projected deficit for 2010 could reach as much as 7.5 percent of GDP, a figure far above the 5 percent originally projected. Unemployment has increased from 6 to 10 percent and continues to grow. Meanwhile, many Russians are responding to the economic crisis by returning to the soil, growing their own food on small plots just outside the city.

5. Natalia Estemirova, a human rights activist in Chechnya, was murdered on Wednesday. Estemirova was kidnapped as she left her house in Chechneya on Wednesday morning, and was found shot to death in Ingushetia, a neighboring Russian republic. Protestors fathered in Moscow on news of her murder, and the international community has condemned her death. Russian President Dmitry Medvedev has promised those responsible for Estemirova’s death would be punished, but the Russian human rights community remain skeptical of his reassurances. Estemirova was the third human rights activist killed this year. She was also a close friend of Anna Politkovskaya, the Russian journalist murdered in Moscow in 2006. No one has yet been punished for any of the deaths. Estemirova’s murder, however, raises concerns that the Caucasus region may be headed toward greater instability.