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Jonathan Power: Tooth Fairies and the Economic Crisis

So far, not much seems to be working when it comes to stemming our great economic and financial crisis. Could tooth fairies help? But before the fantastical, a bit of history is needed: some experts are considering a major expansion of the resources of the International Monetary Fund (IMF) by a method envisaged at its founding in 1944 by the great economist John Maynard Keynes. The mechanism for doing this is to expand the issue of what the IMF calls "Special Drawing Rights" (SDRs), or what Keynes considered to be “paper gold.” This is one of the important items on the agenda at Thursday's summit of the G-20 in London. SDRs could prove to be a major contribution to curing the world's crisis of liquidity and lack of demand. Moreover, some members of the G-20 seem willing to support the revolutionary suggestion made earlier this month by Zhou Xiaochuan, the boss of China's central bank, to use SDRs as a worldwide reserve currency to replace the dollar and the euro, at present the two most important world reserve currencies, although US Treasury Secretary Tim Geithner suggested last week that was not likely anytime soon. What do fairies have to do with it? SDR's are created almost literally at the stroke of a pen—an accounting transaction within a ledger of accounts which can then be used to bolster the financial reserves of any IMF member country. And, to sweeten the pot, the fairies don't even require a tooth. The IMF can allocate these SDRs to any of its members—especially those in desperate need—giving these countries a costless asset for which interest is neither earned nor paid. Recipient countries, with important provisos, can use these SDRs to purchase the currencies of other IMF members that are in a healthier financial state than they are. Richer countries can also use them as a form of aid to poorer countries. So far, there have been two major allocations of SDRs—one in 1970-72 and the second in 1979-81. In 1997, the board of the IMF agreed, in principle, on a much larger allocation—double the total of the two allocations before. Three-fifths of the member states, however, had to agree to this before the IMF could start using this new allocation. So far, over 130 members have signed on; the only thing holding it up is U.S. approval. Thus, with another stroke of the pen, the United States could put this allocation into effect. It would have a powerful stimulating effect, especially for those countries at the bottom of the heap.

Vladimir Kvint: It's Time for a G-25

The leaders of major countries are in agreement on the need to respond quickly and cohesively to the current global economic crisis. But while developed nations are experiencing tremendous slowdowns, emerging market countries are still expected to achieve gross domestic product (GDP) growth rates of 2.5 percent to 3 percent, on average. In this global downturn, can emerging market economies can be the locomotives of the world’s marketplace? Perhaps. But only if the global community substantially changes the current organizational structure of the global economic order to allow these new and dynamic economies to assume greater responsibilities commensurate with their greater roles. Today, there are only three major multilateral Bretton Woods institutions still in existence: the World Bank, the International Monetary Fund (IMF), and the World Trade Organization (WTO). This is not enough. In 1944, these organizations were created as multilateral bodies, bringing together the biggest economies of the time. But, with the birth of emerging markets, the economy is now global. New rules and practices are needed. The global marketplace needs new global ratings agencies, global crisis monitors, and monetary and financial instruments for global regulators.

Peter Wilson: Those in Glass Houses...

Peter WilsonHopes that an Obama presidency could thaw ties between the United States and Venezuela are quickly receding after President Hugo Chávez called the U.S. president an "ignoramus" this past weekend. Chávez went on the offensive Sunday, during his weekly broadcast over remarks President Barack Obama made two months ago criticizing the Venezuelan leader for supporting Colombian guerillas and being an obstacle to regional progress. The new Chávez offensive coincides with stepped up attacks against the country's opposition and fresh overtures to Moscow, including the offer of Venezuelan airfields for Russian long-range bombers. It also dents rumors of an impending thaw in ties between the two countries after Chávez's meeting last week with U.S. Congressman William Delahunt. Chávez's blunt talk may be intended to take away some of Obama's thunder at next month's Summit of the Americas in Trinidad and Tobago, when the two leaders will be jockeying for position and press attention. The Venezuelan head of state, who wants to be acknowledged as a regional leader, may also be smarting after Obama met Brazilian President Luiz Inacio "Lula" da Silva earlier this month, signaling that the new U.S. administration's principal focus in Latin America is, for now, Brazil. Chávez, who just won voter approval last month to abolish the country's presidential term limits, may also be attempting a preemptive strike as differences with Washington are bound to increase in the coming weeks. (The de facto leader of the Venezuelan opposition, Manuel Rosales, is expected to be arrested for alleged corruption within days, which will inevitably raise political tensions in the country and raise charges of political repression.) Chávez has also sought to limit the power of opposition governors, who won five states in last year's election, taking control of the three largest, as well as Caracas and Maracaibo, the two biggest cities. Now, however, the country's National Assembly, which is overwhelmingly controlled by the president's followers, has talked about creating a post of vice president to oversee the country's capital—which would in effect strip a major Chávez critic, Mayor Antonio Ledezma, of any real power. To further bind the hands of the opposition, the assembly also rewrote the country´s Decentralization Law, stripping local states of their control over ports, airports, and highways, an important source of revenue. Chávez seems to be hoping that the cut off in revenue to opposition-led states will lead to a voter revolt and the possible recall of anti-Chávez governors. Meanwhile, the president is stepping up efforts to dampen dissent as the economy falters in the face of falling revenue from oil sales. He earlier removed police, hospitals, and schools from control of regional authorities. Such steps, which have been widely criticized by the country's opposition as well as international organizations, will likely be questioned by President Obama in future international forums. Given the war of words that may ensue, Chávez may think it better to step away now from pursuing any thaw in ties, especially as the chances of success seem to be diminishing.

Jonathan Power: How About a "Re-Entry Strategy" for Afghanistan?

“We must have an exit strategy [for Afghanistan],” said President Barack Obama on 60 Minutes this past Sunday night. But after seven years of steadily losing the war in Afghanistan isn't a "re-entry strategy" more appropriate? In a month's time, Obama will descend on NATO at its Brussels headquarters and insist that the Europeans help out. Well before then, Obama will have on his desk the interagency policy review on Afghanistan and Pakistan that he has requested. We should be able to guess its bias, if not every detail of its contents. The review committee is being chaired by Bruce Riedel, a former CIA officer and a senior advisor to three U.S. presidents on Middle East and South Asian issues. His views are easily accessible on the Brookings Institution website. My first reaction upon reading them is why on earth didn't Obama give the job to his old mentor Zbigniew Brzezinski or to Brent Scowcroft, the wise owl of previous Republican administrations (but not the last one). Why choose some lower level official who is used to being bossed around and told what to do? Both Brzezinski and Scowcroft have experience in standing close to a president and also, when necessary, standing up to him. The answer, I fear, is that the two most practiced men on foreign policy (excepting perhaps Henry Kissinger, who has already made clear his doubts on Washington's Afghanistan policy) wouldn't tow the White House party line. Obama made the decision to raise the stakes in Afghanistan and Pakistan way back in his presidential campaign. Was it to counterbalance his Iraq withdrawal position to show that he wasn't soft on the use of military power abroad? Bill Clinton used this gambit, calling for the expansion of NATO to win crucial votes in the American midwest from Poles and other Eastern Europeans in the diaspora, even though hardly anyone in the U.S. or European foreign affairs community was calling for it? Riedel, to his credit, does say some sensible things: “The war in Afghanistan is going badly, the southern half of the country is in chaos...and in Pakistan, the jihadist Frankenstein monster that was created by the Pakistani army and Pakistani intelligence service is now increasingly turning on its creators.” He goes on to say that the missile attacks inside Pakistan “have a counterproductive element in them...the American brand image has been badly eroded.” Nevertheless, says Riedel, the momentum of the Taliban “has to be broken.” But we know all that. So what does he advocate as a solution?

The Index - March 24, 2009

Israeli Defense Minister Ehud Barak and prime minister-designate Benjamin Netanyahu have reached a

Jonathan Power: On How Not to Press the Reset Button

Precise quid pro quos are not good in marital or romantic relationships. Neither do they work well in big time politics. If made too precisely, they suggest that the other side is not to be trusted unless there is a “deal.” When there is conflict—either at home, with friends, or indeed with enemies—one needs to change the atmosphere, to restore a sense of trust so that opinions and arrangements can be freely traded. One good turn encourages, but not demands, a good turn by the other side. At the end of the Cold War, we saw such magnanimity and Americans, Russians, Europeans, and the rest of the world benefited immensely from it. Two great presidents were responsible for this—George H. W. Bush in the United States and Mikhail Gorbachev in the Soviet Union. In 1991, Bush decided unilaterally to de-alert all bombers, 450 of the deadly accurate city-destroying Minuteman missiles, and missiles in ten Poseidon submarines (each with enough warheads to destroy Moscow, Leningrad, and every city in between). Gorbachev, taking the cue, deactivated 500 land-based nuclear tipped missiles and six submarines (weapons that could have reduced the most populated parts of the United States to ashes and dust). Moreover, this wasn't the cosmetic de-alerting that's talked about today. Missile silos and submarine crews actually had their launch keys taken away from them. This is why President Barack Obama (if The New York Times has got the story right) has made a big mistake in his opening move following the pressing of the now-infamous “reset button.” His letter to President Dimitri Medvedev suggesting that Washington was open to discussions on the dismantling of the anti-missile site now being constructed on Polish soil (if Russia would lean harder on Iran to halt its presumed nuclear weapons program) was misconceived. What his letter should have said is simply, “President George W. Bush initiated a policy that the United States no longer stands by. We want to reopen discussions with you that will lead to our abandonment of said project.” Full stop. Period. Then, once the reset button starts the music, the notes will start to write themselves, so long as the mood remains good.

Sophie Lubin: Examining the “Hillary Effect”

Hillary Rodham Clinton finds herself today in a unique position to affect political and social change for the status of women worldwide. Yet, while she leads, there are a number of lessons she and her American counterparts may take from many countries that are leagues ahead of the United States when it comes to gender parity. In celebration of International Women’s Day last week, the World Policy Institute, together with the Women’s Leadership Initiative at Demos and the American-Scandinavian Foundation, hosted a panel to consider these questions at the Scandinavia House in midtown Manhattan. The discussion focused on women in leadership roles around the world, as well as the specific ways in which Clinton represents the complex issues that face women in American politics. The panel consisted of four distinguished women, three of whom exemplified leadership roles women have held in countries outside the United States: Ambassador Kirsti Lintonen, Permanent Mission of Finland to the United Nations; Senator Pilar Cayetano, member of the Philippine Senate and president of the Inter-Parliamentary Union Coordinating Committee of Women Parliamentarians; Professor Rounaq Jahan, senior research scholar at Columbia School of International and Public Affairs and former Bangladeshi representative to the UN; and Dr. Blanche Wiesen Cook, bestselling biographer of Eleanor Roosevelt, and distinguished professor of history and women’s studies at the CUNY Graduate Center. The event’s moderator, World Policy Institute senior fellow and New York Times science writer Claudia Dreifus, opened the panel by calling attention to the complex political career path that has brought Hillary Rodham Clinton from community activist to first lady to presidential candidate, and now to President Obama’s cabinet as secretary of state. Yet, as Dreifus pointed out, the United States lags far behind the rest of the world in having women leaders in our political system. Indeed, while Mrs. Clinton’s candidacy for president was the first serious bid of its kind, other countries around the world have had women active at the highest level of politics for almost 100 years—Finland, for instance, has allowed women to vote and run for political office since 1906, the first country to do so; and in all Nordic countries combined, there are currently 40 female cabinet ministers, one female president, one female prime minister, and one queen (though not, of course, elected).

Azubuike Ishiekwene: Sudan Puts Africa in Tight Spot

This was not how Muammar Gaddafi wanted to start his tenure as chair of the African Union. The priority of the Libyan leader was to hit the ground running with his dream to create a United States of Africa. Now, the urgency of Gaddafi’s grand ambition must wait as the continent’s leaders struggle to come to terms with last week’s arrest warrant for Sudanese President Omar al-Bashir issued by the International Criminal Court. For decades, Africa has been plagued by notorious leaders. When one of the continent’s most gifted writers, Chinua Achebe, says in his book that the trouble with Nigeria is squarely that of leadership, he is perhaps speaking not only of his nation, but of Africa as a whole. From Mobutu Seseko to Idi Amin and from Sani Abacha to Robert Mugabe, the continent has had to grapple with leaders who would rather destroy their countries than give up political power. Once in a while, a Julius Nyerere, Joachim Chissano, or Nelson Mandela comes along to renew hope and the promise of a future. But, more often, the continent’s landscape is blighted by tyrants who start off on a promising, even messianic note, and yet end up leaving their countries in the throes of war, disease, and deeper misery than before. That’s the story of al-Bashir, who the continent’s political leaders condoned for six years—because confronting him meant confronting the very demon that haunts many of them. So, what will the African Union do about al-Bashir’s indictment? It has called for a suspension of the sentence. There are muffled concerns about the safety of the civilian population, especially around the Darfur area, and also the fate of the 7,000-strong AU troops that had only in January received UN reinforcement. In a foretaste of the grimmer days ahead, Khartoum kicked out 10 major humanitarian agencies struggling to provide food and water to about 1.5 million people, prompting suggestions of a possible AU emergency meeting to discuss Sudan. But talk is cheap.

Jonathan Power: To Help Afghan War, Talk to India

Today Pakistan is probably the most dangerous country in the world. But it is India, not Afghanistan and Al Qaeda, that now bears much of the responsibility for this and arguably is the country that holds the key to the beginnings of a solution. More the pity that President Barack Obama backed straight down when India protested at the mandate he wanted for his sharpshooting diplomat, Richard Holbrooke­—including India, as well as Pakistan and Afghanistan. So Holbrooke is reduced to dealing with only two sides of the triangle of madness. Of course, it is an over simplification to finger India first. It ignores history, not least the Soviet invasion of Afghanistan in 1979, which left behind a raging civil war in Afghanistan, enabling the rise of the dogmatic Taliban, who in turn gave a home to Osama bin Laden. In 1986 I visited Peshawar, capital of the North-West Frontier Province in northern Pakistan, at the eastern end of the Khyber pass. The town, even then, was full of armed encampments in its outer suburbs settled by Pashtun chiefs who had escaped from the Afghanistan war with their people, building huge, well-defended compounds to house the refugees from their kin group. It was clear then that the hospitality Pakistan felt it had to extend to the displaced Pashtuns would cause trouble up ahead. Two million such refugees bred violence and extremism.

Jodi Liss: China, Rio Tinto, and The Future of Diplomacy

Help is the sunny side of control.”—Saying among social workers

Consider the following bit of news: two weeks ago, Chinalco, a Chinese state-owned aluminum mining company, invested more than $19 billion in faltering international mining giant, Rio Tinto. They paid $124 million above market value for what they got. While everyone knows oil has cratered to less than $40/bbl, mining of all sorts is equally calamitous. Copper, for example, has plunged 60 percent. Mining giants like southern Africa’s Anglo American, Freeport McMoRan and BHP Billiton, the world’s largest mining company, have laid off tens of thousands of workers and closed mines everywhere. Rio Tinto, Fortescue, and others are desperately seeking investors to stay afloat. The investor they see on the horizon is China. And that is just the private sector. In the past week, China offered cash-strapped Russian oil company Rosneft and Russian pipeline giant Transneft $25 billion in exchange for 15 million tons of oil a year for twenty years. China has lent Brazil’s state-owned oil company Petrobras $10 billion in exchange for a long-term oil relationship. Venezuela has borrowed another $6 billion from them. Most people interested in geopolitics prefer to spend countless hours analyzing the power politics and security aspects of it all. But since the end of the Cold War, geopolitics has changed radically because the relationship in the developing world between money and power has profoundly changed. No longer can developing countries line up for cash behind a chosen sponsor, the United States or Russia. In many places, the economy is heavily dependent on commodities. He who owns the commodity (the money) has the political power; the commodity is the source of the power. The two are inextricably intertwined.

Michael Deibert: Australia’s Parched Landscape

When Australia was ravaged by wildfires that killed over 200 people earlier this month, the acts of arson that police suspect were behind at least some of the blazes were made even worse by the decade-long dry spell the country has been enduring. Though this heavily eroded and sparsely populated continent has experienced two other major droughts over the last century, both the intensity and duration of the current lack of rainfall has scientists worried that the country’s environment may be permanently shifting to a drier regime. The Murray-Darling Basin—a river system in the southeast that drains one-seventh of Australia's land mass—has been particularly hard hit, with official figures showing that, from 2006 until 2007, the amount of water flow into the basin was just 1,000 gigaliters. Normal inflows into the basin previously measured about 10,000 gigaliters a year.  From 2007 until 2008 it improved marginally to a still-meager 3,000 gigaliters. The region had record low inflows of water between 2006 and 2008, with the inflows for 2006-2007 less than 60 percent of the previous minimum—a figure based on 117 years of records. Helping to irrigate such states such as Victoria, the site of the worst wildfires, as well as New South Wales and Queensland, the basin was once wet enough to irrigate crops that produced 1.2 million metric tons of rice. Last year, the rice harvest fell to 18,000 metric tons. Across southern Australia, scientists have also witnessed an intensification of the subtropical ridge phenomenon, a swath of high pressure characterized by a reduction in the amount of rainfall in autumn and late winter. The expansion of the ridge has been closely linked to global warming.

Jonathan Power: The Great Khan of Pakistan's Nukes?

Whenever I introduced Munir Khan to a friend I would say light-heartedly "and this is the father of Pakistan's nuclear bomb"—just to enjoy the pleasure of watching the reaction. Khan himself would give a self-deprecatory smile. As Hans Blix, the former director of the International Atomic Energy Agency, the world's nuclear policeman, once put it to me, Khan was "a cheerful soul."

The world has been told over and over again that the father of the Pakistani bomb was A. Q. (Qadeer) Khan, the famous metallurgist. But he, in fact, ran only one part of the Pakistan Atomic Energy Commission, which Munir Khan chaired. More correctly, we have been told that Qadeer Khan secretly set up an international network to supply the likes of North Korea, Libya, and Iran with blueprints and materials for the manufacture of their own nuclear weapons. This was done for his private profit. Just over one week ago, after five years of house arrest for this offense, Pakistan's top court restored his freedom. Khan and Khan. Too many got the two men muddled. This worked in Qadeer's favor. He was a man who had no compunction about claiming every bit of credit for himself and who loved to woo gullible journalists and parliamentarians with his tales of achievement. No wonder that when he was finally exposed as a nuclear racketeer five years ago, President Pervez Musharraf couldn't have him formally arrested and tried. Musharraf, in fact, pardoned him for his alleged crimes. Qadeer—a popular icon in Pakistan—was untouchable.

Peter Wilson: Chávez Ad Infinitum?

Peter WilsonVenezuelan President Hugo Chávez had much to crow about following Sunday's decision by voters to back his proposal to abolish term limits, enabling him to run for re-election in 2012. Chávez, who first won election in 1998, called the vote a fresh mandate for his "socialist" revolution. The victory, which is the fourteenth he or his supporters have enjoyed in 15 elections since 1998, paid tribute to his political skills. When he first announced plans to put a proposal to repeal constitutional term limits (an earlier effort in December 2007 failed) to a fresh vote, polls showed his request likely to be rejected. But with massive state spending, heavy saturation of the country's air waves, and the helpful indulgence of the national election agency, he coasted to a 10 percentage point victory. Chávez was also helped by the lack of a strong strategy from the opposition. And finally Chávez, who remains personally popular—although his government is not—made the issue into a personal referendum. He repeatedly told supporters that if he lost the vote, the opposition would then seek to recall him. "My political future is in play today," Chávez told supporters after casting his ballot.

Zachary Karabell: Enough Already

The financial markets are again getting pummeled, both domestically and globally. The nearly $800 billion stimulus package signed with fanfare by President Obama has done little to alter the mood. In fact, if you read through financial websites and assorted blogs on politics, economics, or anything related to those, you will find a nearly endless sea of misery. The level of anger, pessimism, despair, and sheer hopelessness seems to reach new highs every week, in inverse relation to the movement of global equity prices and the size of individual retirement accounts.

It’s been said but bears repeating: global economic activity fell off a cliff after October last year, and has remained there. The implosion of the credit system—built as it was on the flimsiest of foundations, layered as it was onto a few million sub-prime mortgages of homes predominantly in Arizona, Nevada, Florida, and California—led to a near halt of buying, spending, and investing.

But bad fundamentals are only one aspect of what is going on. What makes the present that much worse is a complete meltdown of confidence about the very possibility of a more balanced future. And it’s not just an erosion of confidence. It’s the flourishing of our destructive instincts, the opposite of the “better angels of our nature,” the demons, the whispers in the night that all is about to go up in flames. We all have our fears, whether we admit them or not. But this has gone too far. In the financial world, there is a game of one-upmanship to find more dire adjectives, and any who dissent and suggest that yes, there will be a tomorrow, and yes, there will be a future of growth, moderate and different but still motion forward and movement upward, they are treated with contempt. Indeed, contempt on the order of those made to walk the streets during the Cultural Revolution with dunce caps and signs of shame around their necks. Those who bet that the market will go down until there’s nothing left to lose, who are convinced that value will be permanently wiped out—the shorts and the traders—they are enjoying their moment in the sun, and some are undoubtedly profiting from the collective misery. There’s nothing wrong with that in small doses, and almost everyone can benefit from hedging their bets in the market. But you can’t be short forever, and you can’t ultimately profit from everything going down. A few can make money for a while, and if you believe that it’s all survival of the fittest, then you probably don’t care if 99 percent suffer as long as you’re part of the 1 percent that prospers. The sheer delight in “burn, baby, burn” is hardly unique to our age. We’ve been there before, and it leads nowhere, except to a whole world in flames.
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