Diplomacy and International Institutions

International Organizations

  • China
    The Likelihood of Instability in Zimbabwe
    Tyler Falish is an intern for the Council on Foreign Relations Africa Studies program, and a student in Fordham University’s Graduate Program in International Political Economy & Development. Last spring, the Council on Foreign Relations published a Contingency Planning Memorandum (CPM) by Ambassador George F. Ward that described the potential for political instability and violence in Zimbabwe. Amb. Ward detailed three paths to instability in Zimbabwe: President Robert Mugabe’s death before an appointed successor is installed; a serious challenge to Mugabe’s control driven by increased factionalism; and an economic crisis triggering demand for political change. He also offered three corresponding “warning indicators”: any sign that Mugabe’s health is in decline; indication of increased dissent or infighting within the ruling party, Zimbabwe African National Union - Patriotic Front (ZANU-PF); and public unrest. Mugabe—who earlier this year celebrated his ninety-second birthday at great expense—has been in power since 1980, when Zimbabwe gained independence following a lengthy civil war. The Zimbabwean government routinely insists Mugabe is in good health, but he is showing his age. In early 2015 he took a well-documented fall down the stairs, and later that year he delivered the wrong speech at parliament. Though there are rumors about who would replace Mugabe, no clear successor is in place and Mugabe has asserted that he intends to run in 2018. Even if he lives to one hundred, as he hopes, Mugabe will likely die in office. It is not clear that dissent is growing within ZANU-PF. But that could be because former prominent party members have left to start or join opposition parties. Former Deputy President Joice Mujuru was removed from both the party and the government in 2014, and has since started Zimbabwe People First. Morgan Tsvangirai, who nearly bested Mugabe in the 2008 presidential election and served as prime minister through a power-sharing agreement until 2013, continues to lead the Movement for Democratic Change (MDC). Recently, a war veterans group publicly revoked its support for Mugabe. On April 14, thousands of MDC supporters marched in the capital, Harare, calling for an end to Mugabe’s lengthy rule and asking, “Where are our 2.2 million jobs?” The protest was the first of its kind in close to a decade, and was facilitated by a court’s overturning of a police ban. Agitation on behalf of economic issues is justified: southern Africa’s worst drought in decades is destroying crops and livelihoods, and Mugabe has asked for $1.6 billion in food assistance; Mugabe has uncharacteristically apologized for delays in the payment of civil servants’ salaries; and a recent move to nationalize the country’s diamond mines holds little promise of increased welfare for average Zimbabweans. South Africa enjoys an outsize influence on and, through the South African Development Community, partnership with Zimbabwe. However, with the ruling African National Congress in turmoil and President Jacob Zuma under pressure to step down, South Africa has its own problems. Zimbabweans residing in South Africa recently protested at the embassy in Pretoria, demanding the right to vote in their home country’s elections. China, Zimbabwe’s biggest trading partner, has tightened its funding tap, such that Zimbabwe is looking to the IMF for the first time in two decades. The risks to instability have only increased in the past year, as the warning signs become more prominent. Volatility and violence in Zimbabwe would affect the entire region, and with South Africa consumed by domestic affairs, regional leadership is not at its strongest. Drought-induced food insecurity has pushed other authoritarian regimes to the edge (and over) before. Needless to say, it would be wise to keep a close eye on Zimbabwe.
  • International Organizations
    This Is Your UN on Drugs: From Prohibition to Flexibility in Counternarcotics Policy
    Coauthored with Theresa Lou, research associate in the International Institutions and Global Governance program at the Council on Foreign Relations. World leaders gather at the United Nations this week (April 19-21) for the UN General Assembly Special Session (UNGASS) on the world drug problem. This is the first such event since 1998, when member states committed themselves to policies aimed at eliminating illegal drugs by 2008. Trillions of taxpayer dollars and many destroyed lives later, that goal remains elusive—and illusory. This year’s UNGASS offers an overdue opportunity to rethink the war on drugs, and to appreciate how much attitudes have changed over the last eighteen years. Simply put, the longstanding global consensus behind prohibition is fracturing. Though there is little appetite to overhaul the three main international treaties—the 1961 UN Single Convention on Narcotic Drugs, the 1971 Expanded Convention, and the 1988 Convention against Drug Trafficking—a growing number of governments are calling for greater national flexibility in interpreting and enforcing these international obligations. The war on drugs has been a costly failure with far-reaching, negative impacts. A short list includes unacceptable violence, political instability, mass incarceration, and human rights violations. Even the UN Office of Drugs and Crime (UNODC) concedes this point: “Global drug control efforts have had a dramatic unintended consequence: a criminal black market of staggering proportions…. The illicit drug business is worth billions of dollars a year, part of which is used to corrupt government officials and poison economies.” As the Global Commission on Narcotic Drugs concluded in its landmark 2011 report, supply-side efforts that focus on eradication, interdiction, and prosecution have had little impact on global markets, even as they provide cartels and gangs with massive resources to destabilize source and transit countries. Rather than insisting on “zero tolerance” and forcing all countries into “the same rigid approach to drug policy—the same laws, and the same tough approach to their enforcement,” the commission concluded, it was time to experiment at the national level. This reformist thesis has garnered adherents in Latin America, which has borne the heaviest brunt of the war on drugs. Murder rates in Honduras, Guatemala, El Salvador, and Colombia are among the world’s highest, while drug-related violence takes 30 lives a day in Mexico. Given these figures, it came as little surprise in 2012 when the presidents of Colombia, Guatemala, and Mexico jointly asked the United Nations to “analyze all available options…with the aim of establishing a new paradigm….” Agreeing that the “one-law-fits-all” strategy was counterproductive, the Organization of American States (OAS) in 2013 endorsed the concept of “differentiated approaches,” arguing that governments should tailor their policies to local contexts and “individual concerns,” and might even experiment with decriminalization and legalization. More generally, the OAS defined drug addiction as a public health issue, calling on authorities to focus on treating rather than imprisoning addicts. In 2014, Uruguay became the first country in the hemisphere to legalize marijuana sales. Canada’s recently elected prime minister, Justin Trudeau, has indicated that his government will follow suit. However, these progressive sentiments are hardly universal within the Western Hemisphere, much less across the broader UN membership. Standing in opposition to the reform-minded coalition of Latin American and Western European countries (including Portugal, which decriminalized all drugs in 2001) is a larger conservative bloc spanning much of Asia, the Middle East, and Africa, as well as Russia, which is dead set against liberalization. This divergence has been attributed to different historical experiences and threat perceptions. In Latin America, for example, aggressive strategies are associated with U.S. imperialism, whereas in East Asia imperial powers are remembered for addicting people to opium. Likewise, Latin Americans associate the global prohibition regime with intense crime and violence, a phenomenon absent from Asia despite similar drug production, trafficking, and consumption levels. As for the United States, its traditional standing as the global champion and enforcer of narcotics prohibition has become more complicated and tenuous. Much of the problem comes from below—that is, from the individual U.S. states. How credibly can U.S. diplomats defend the 1961 Single Convention when Alaska, Colorado, Oregon, Washington, and the District of Columbia, have already legalized marijuana for recreational use? At home, the federal government has adopted an innovative policy of “enforcement discretion,” in effect allowing states to experiment so long as they abide by certain rules. The White House, meanwhile, has subtly shifted the national conversation about drug addiction away from a focus on crime (and resulting incarceration) and toward public health approaches. Abroad, the United States has struggled with how to adapt to this changing landscape. Over the past two years, the Obama administration has tried to make the best of an awkward situation, arguing that the three major counter-narcotics treaties are not a straitjacket, and that countries should make use of the flexibility that they provide. As William Brownfield, assistant secretary of state in the Bureau of International Narcotics and Law Enforcement Affairs, argues, “there is a degree of discretion authorize and permitted by those conventions themselves…” Still, as Brownfield himself noted in an interview, “My use of the word ‘flexibility’ has been a policy Rorschach. People understand it according to what they want it to mean.” For the United States, the notion that the conventions are more flexible than anybody previously thought—while legally dubious—has obvious political utility, promising to mute potential tensions. So will UNGASS bring about any sweeping reforms to global drug policy? Not likely, to judge from the draft outcome document produced at last month’s Vienna meeting of the UN Commission on Narcotic Drugs. Wherever possible, the document pays homage to the existing conventions. By reaffirming their commitment to the objectives of the current prohibitionist regime, member states have all but ensured the debate will be held within the confines of the status quo, while acknowledging that the conventions “allow for sufficient flexibility” for states to design and implement policies according to their needs. Overall, the global appetite for change remains small. Major powers have little interest in reopening the international drug policy debate, and few countries are willing to openly recognize the structural deficiencies of the existing UN treaty framework for drugs. By papering over the current global “dissensus,” UN negotiators may avoid a headache in New York. It’s less clear that this rhetorical sleight of hand will be sustainable over the long turn. If parties to the three conventions continue to move in radically different directions—with some holding the hard line and others moving toward decriminalization or even legalization—a rupture in the global drug regime seems inevitable. The fragile consensus can likely tolerate disagreements over the treatment of cannabis. But fundamental divergences over the legal status of harder drugs like heroin, cocaine, and methamphetamines—and state obligations for interdiction and prosecution of such trafficking—could create enormous frictions, as well as open new criminal opportunities for legal and regulatory arbitrage. Rather than delivering the final word, this year’s UNGASS will be just the opening discussion in an ongoing—and ideally, more honest and realistic—conversation about the challenge of narcotics and the most promising approaches to limiting their damaging impacts. Attitudes toward drugs are evolving in many societies, and UNGASS is proof that these grassroots changes can affect global debates. At the last UNGASS, back in 1998, the assembled governments pledged themselves to the fantastical goal of a “drug free” world. This week’s slogan is for “a society free of drug abuse by 2019.” That is admittedly a subtle tweak. But given the history of the global war on drugs, it surely constitutes progress.
  • International Organizations
    Surface Tension: Chinese Aggression Roils Southeast Asian Waters
    In telling the Group of Seven (G7) yesterday to butt out of its controversial maritime claims in East Asia, China has doubled down on an historic strategic blunder. Beijing’s belligerence in the South China Sea is especially imprudent. By refusing to compromise on its outrageous sovereignty claims, the government of Xi Jinping discredits its “peaceful rise” rhetoric and complicates efforts by member states of the Association of Southeast Asian Nations (ASEAN) to “triangulate” between China and the United States. Continued Chinese muscle-flexing will only undermine support for president Xi Jinping’s signature One Belt, One Road (OBOR) initiative and push regional fence-sitters into the U.S. embrace. The most promising outcome for all concerned would be a face-saving climb-down by China. Under this scenario, Beijing would promote détente rather than confrontation—without explicitly abandoning its jurisdictional claims. These are the main takeaways from a week’s worth of discussions with officials, policy analysts, and academics in China, Singapore, and Hong Kong. Over the past two decades, Southeast Asian nations have sought to avoid permanently choosing sides between China and the United States to preserve national autonomy while reaping economic benefits. As veteran Singaporean diplomat Bilahari Kausikan noted in a recent speech, ASEAN countries have learned how to “balance, hedge and band-wagon” as the situation requires, to remain independent actors rather than passive objects of great power competition. The results have been phenomenal, permitting ASEAN’s emergence as an economically dynamic and largely peaceful bloc of more than 600 million inhabitants. But continued success rests on a fragile balance between two distinct orders: an economic one increasingly dominated by China, and a security one underpinned by the forward presence of the U.S. military, including formal alliances with two countries (the Philippines and Thailand) and growing defense ties with others (including Singapore and Vietnam). The Obama administration’s “rebalance” to Asia, welcomed by most ASEAN member states after U.S. distractions in the Middle East and Afghanistan, was intended to provide additional reassurance in the face of China’s inexorable rise. This dual order has allowed Southeast Asians to have their cake and eat it too. They can enjoy both growing economic linkages with China without worrying about their security. This freedom not to choose has underpinned both the “ASEAN way”—a consensus-based diplomatic tradition among the bloc’s members—as well as the concept of “ASEAN centrality”—which holds that ASEAN should remain the fulcrum of regional integration. Suddenly, ASEAN nations are being pressed to choose—in ways that threaten the cohesion of the bloc itself. At a commercial level, ASEAN nations confront two rival—albeit overlapping—schemes for trade liberalization: the U.S.-led Trans-Pacific Partnership (TPP), and the Chinese-favored Regional Comprehensive Economic Partnership (RCEP). The TPP, which has attracted twelve countries (Australia, Canada, Chile, Japan, Mexico, New Zealand, Peru, the United States, and ASEAN members Brunei, Malaysia, Singapore, and Vietnam), is conceived as a high-standard deal that will address difficult, behind-the-border trade barriers, including regulations related to intellectual property rights and environmental and labor protections. RCEP, by contrast, is a lower-ambition arrangement being negotiated by sixteen countries, including all ten members of ASEAN plus China, India, Japan, Australia, New Zealand, and South Korea. Experts disagree over whether these two trade schemes are compatible—much less whether they will ultimately facilitate a broader Asia-Pacific free trade zone. Of particular concern for ASEAN are asymmetries in membership, raising the prospect of fragmentation of the Southeast Asian bloc. Beyond these competing trade visions, Xi Jinping’s government has launched an ambitious OBOR scheme with two strands—a modern “Silk Road” intended to integrate the Chinese economy with those of Central and South Asia (and eventually Europe), and a “Maritime Silk Road” to do the same for Southeast Asia. The OBOR project is designed to fill a yawning gap in regional infrastructure needs—estimated at a whopping $8 trillion (with a “T”) through 2020—by modernizing road, rail, air, seaport, and communications facilities. It was to help finance such plans that Beijing spearheaded the launch of the Asian Infrastructure Investment Bank, or AIIB, last year. As it experiences economic slowdown, China also views OBOR as a way to export its own excess capacity, as well as labor. China’s bullying actions in Southeast Asia place these grand plans in jeopardy. Across the region—from Myanmar to Indonesia to Vietnam—governments worry about the geopolitical implications of their growing economic dependence on China. They suspect that OBOR will entail a political, not merely economic, quid pro quo. The sometimes ham-handed actions of Chinese diplomats have not helped. (In several countries, including Malaysia, visiting Chinese officials have met separately with Chinese diaspora communities, stoking anxieties that China is pursuing an irredentist, or at least hegemonic, agenda.) After years of crouching and hiding, China now seems intent on treating its neighbors as tributary states, with President Xi as suzerain. Little wonder that states in the region are cozying up to the United States and looking urgently for signals of its staying power. In the wake of the triumphant Sunnylands summit in February, where President Obama reaffirmed the notion of ASEAN centrality, nations increasingly regard the United States as their partner of choice. This brings us back to the most obvious regional flashpoint, the South China Sea. Despite repeated assurances that it seeks a peaceful resolution to this maritime dispute, China brooks no challenge to its historically dubious “nine-dash line.” This asserts Chinese jurisdiction over some ninety percent of that sea—where five other nations (Vietnam, the Philippines, Malaysia, Brunei, and Taiwan) have advanced their own, albeit more modest, claims. Although Beijing has pledged to negotiate a binding “code of conduct” with other claimants, it has never taken such talks seriously. Rather, it has adopted a breakneck strategy of island-building to create “facts on the sea,” including air bases and port facilities, enforcing its will through a growing detachment of armed coast guard vessels. It has also asserted—contrary to the terms of (and its obligations under) the UN Convention on the Law of the Sea (UNCLOS)—that the naval vessels of all countries, including the United States, must obtain prior permission before peacefully transiting what it considers to be its exclusive economic zone (EEZ). Expect matters to heat up this spring. Seeking a legal ruling where diplomacy has failed, the Philippines has taken China to court. The venue is the Permanent Court of Arbitration in The Hague, established under UNCLOS—to which both China and the Philippines are party. Having ruled in October that it has jurisdiction, the arbitral tribunal is expected to render its final decision by June. Observers anticipate that it will rule in the Philippines’ favor on most counts—including potentially on the most explosive matter, by declaring that China’s nine-dash line lacks any legal basis. Taking preemptive action, Beijing has already declared that it will neither accept nor comply with the tribunal’s ruling. Nevertheless, a judgment against China would deal it a huge diplomatic blow. It would also create domestic headaches for Xi. Having cultivated hyper-nationalism among its citizens and netizens when it serves its purpose, the government risks being propelled into precipitate action by an inflamed Chinese public. Such an incendiary climate will make it hard for cooler heads to prevail. The aftermath of the ruling will be a moment of great danger for China, ASEAN, and the United States. The Xi government may well lash out with more aggressive actions to assert its sovereignty claims, including potentially declaring an air defense identification zone (ADIZ) over the entire area contained within the nine-dash line. ASEAN nations, meanwhile, will struggle to maintain solidarity. Claimant states, particularly the Philippines and Vietnam, will press for a united, hard line, even as Chinese allies Cambodia and Laos will press for accommodation. Steering between these camps will require deft diplomacy, particularly by Singapore—often ASEAN’s unofficial leader—and Indonesia, the bloc’s most populous nation. Finally, an escalating war of words in capitals—and of actions on the high seas—will test the mettle of the United States, as it seeks to defend maritime rights through freedom of navigation operations (FONOPs), while restraining reckless impulses on the part of its allies and friends in the region that could draw it into a military confrontation with China. In view of this looming danger, the time is ripe for discreet bilateral discussions between Washington and Beijing on the imminent tribunal ruling and steps that both governments can take to limit its fallout, both international and (particularly in China’s case) domestic. The goal should not be some “G-2” condominium—something that ASEAN States would understandably reject. Rather, the objective should be some face-saving formula whereby China can make clear its displeasure with the ruling, while announcing that it would accept a multilateral moratorium on further island reclamation. Without relinquishing its sovereignty claims, Beijing would essentially recognize that these jurisdictional matters cannot be resolved in the near or perhaps even medium term without potentially catastrophic military confrontation. In the meantime, China would declare itself open to joint development of mineral resources with other regional states, as well as practical steps to preserve other marine resources, including fishing grounds, on which all parties depend. For its part, the United States could agree to ramp down the tempo of its FONOPs and overflight exercises, without renouncing the principles of maritime law, as established under UNCLOS (the vast majority of which the United States recognizes as customary international law). Finally, ASEAN claimant nations, particularly Vietnam and the Philippines, would need to signal restraint in advancing their own jurisdictional claims, particularly in regard to occupying and fortifying island features. They should also work closely with China, as well as the United States, on procedures to prevent the escalation of “unplanned encounters at sea,” as Singapore has recommended. The envisioned scenario, to be sure, will require multiple moving parts to come together, and in the right sequence. And it will entail a politically difficult climb-down for China. But it will also help the Chinese government escape from the blind alley into which its imprudent policies have led.
  • International Organizations
    The Race to Be UN Secretary-General: Five Questions for the Candidates
    The following is a guest post by Megan Roberts, associate director of the International Institutions and Global Governance program at the Council on Foreign Relations. Next week the United Nations General Assembly will begin a series of informal meetings with candidates for the next secretary-general (SG). The official list of those seeking the United Nations’ top spot is beginning to take shape. Though still far from a truly open and competitive process, this year’s race to succeed current Secretary-General Ban Ki-Moon is already very different from the past. Ban and his predecessors were selected in closed-door Security Council meetings dominated by the five permanent members, or P5. The General Assembly was limited to a rubber stamp role: it simply approved the Council’s preferred candidate. Ban Ki-Moon’s successor will be chosen in a more consultative and transparent manner, and the prospect has already generated attention from member states, civil society, and the media. This month the General Assembly will for the first time conduct informal interviews with each candidate for what has been called “the most impossible job in the world." While the veto-wielding P5 will retain their outsized voice in the selection process, the interviews will give other UN member states a more meaningful role in choosing who will occupy the United Nations’ top post. And if they manage to coalesce around a single candidate—an admittedly distant prospect—they could make it more difficult for the Security Council to select an alternative applicant. To make the most of this opportunity, UN member states should avoid posing lofty, open-ended questions or discredited Google-type brain teasers. Instead, the General Assembly should stick with five tried and true job interview questions. Why are you the right person for the job? Last December the presidents of the General Assembly and Security Council outlined their criteria for a successful candidate: “proven leadership and managerial abilities, extensive experience in international relations, and strong diplomatic, communication and multilingual skills.” This year’s crop of candidates includes several with significant UN management experience. Antonio Guterres recently stepped down from a ten-year run as head of the UN’s refugee agency. Irina Bokova of Bulgaria heads the United Nations Educational, Scientific, and Cultural Organization (UNESCO). Danilo Turk served both within the United Nations and as his country’s UN ambassador, before being elected president of his native Slovenia. Helen Clark of New Zealand, who recently announced her candidacy after months of speculation, leads the UN Development Group. Several candidates boast impressive linguistic skills. The leader in this regard, though a long shot for the post, is Srgjan Kerim of Macedonia, who speaks nine languages. Beyond the official criteria, there is increasing pressure both within and outside the United Nations to appoint the first female secretary-general, after eight male predecessors. There is also an informal consensus that Eastern Europe, the only region that has not filled the post, deserves the slot. Three of the eight official candidates—Bokova, Natalia Gherman of Moldova, and Vesna Pusic of Croatia—meet these two additional criteria. (Three more candidates—Turk, Kerim, and Igor Luksic—are Eastern European men). For the P5, the attribute that matters most is an individual willing to be, as the saying goes, “more of a secretary, less of a general.” As Anne Marie Goetz explains “virtue and command power are not, in practice, the qualities chiefly valued.  Inoffensiveness is.” In a recent review of Eastern European candidates, Bokova received high marks for acceptability among P5 members, including Russia. However she was the leader of UNESCO when it voted to admit Palestine into the organization, drawing the ire of many in the United States which may affect whether the United States will support her candidacy. To be sure, this year’s selection process could tempt member states to seek quid pro quos—demanding top spots in the secretariat, for instance, in exchange for vocal political support. That inherent danger, however, is outweighed by the benefits of a transparent consultative process, which enhances the likelihood that support will flow to the candidate promising to do the most for the entire membership, rather than making dispensations to individual countries to secure the position. Why do you want this job? Ban Ki-Moon’s successor will assume the position at a time of mounting crises, both global and institutional. The United Nations confronts the largest humanitarian and migration crisis since World War II, even as it reels from a growing sexual abuse scandal perpetrated by UN peacekeepers. These and other failings have exposed rampant dysfunctionality within the UN system, outlined in a scathing critique by departing senior UN official Anthony Banbury: “If you locked a team of evil geniuses in a laboratory, they could not design a bureaucracy so maddeningly complex, requiring so much effort but in the end incapable of delivering the intended result. The system is a black hole into which disappear countless tax dollars and human aspirations, never to be seen again.” So who would even want this job, particularly since its occupant wields little real power?  The secretary-general can express disappointment, concern, and alarm—but getting real action typically depends on whether the secretariat’s goals align with the interests of member states—particularly the major powers. And the multi-billion dollar budget that the SG manages? Every dollar is scrutinized and apportioned by the General Assembly in all-night negotiations. The candidates who really want the job must believe that they can not only make a difference to the burning crises of the day but also improve the United Nations’ creaking bureaucracy. As Jim Della-Giacoma notes, “only optimists need apply.” What would you look to accomplish in your first one hundred days? The next SG must hit the ground running. If the fragile cease-fire in Syria unravels, she will need to adjust on the fly. And even if the cease-fire holds, as Richard Gowan notes, the next SG will find herself in the unenviable position of consolidating a peace whose terms have been heavily influenced by the Syrian regime and its allies. Still, the arrival of a new UN leader, particularly if chosen through a more transparent process, will generate a honeymoon period. The next SG should have a window of opportunity to breathe new life into the organization—though it will close quickly. The General Assembly should ask candidates how they plan to best exploit this brief window to tackle a host of institutional reforms. New thinking is urgently needed on the United Nations’ bread and butter issue: peacekeeping. A recent review of this $8 billion per year endeavor identified a host of urgently needed reforms. One free suggestion for SG aspirants from the review: propose the creation of a second UN deputy secretary-general, focused solely on peace and security issues. Where do you see yourself in five years? All previous secretaries-general have served a five-year renewable term. But there is pressure both from within and outside the United Nations to appoint the next SG for a single, but longer, term of perhaps seven years. This argument has been made most forcefully by the Elders, a group of eminent retired statesmen and women, chaired by former Secretary-General Kofi Annan. They contend that a single term would help free the SG from Turtle Bay politics—allowing him or her to focus on the real issues, without feeling beholden to member states, particularly the P5, for reelection. Whether the SG is eligible for a second term or not, the General Assembly should give preference to a candidate prepared to focus on the job through the full mandate, and who has the temperament and leadership to drive the agenda, rather than constantly reacting to crises. It should also favor the candidate prepared to make tough calls to the end, even if they are eyeing top spots within their home country (Ban Ki-Moon is widely rumored to be considering a presidential run in South Korea) or elsewhere when their term expires. Tell us about a time when you disagreed with your boss. This will be a tricky question for candidates. The secretary-general has 193 bosses, and much of any SG’s time is spent navigating their competing concerns and interests. Traditionally, SGs have paid more attention to the Security Council (especially the P5), which even under amended procedures will have disproportionate weight in the SG selection process. Members of the General Assembly will want an SG that represents the full membership. History suggests that the United Nations needs an SG who can stand up to the Security Council when necessary. The dynamics of peacekeeping are instructive in this regard. Back in 2000, the Brahimi report on UN peace operations insisted that the UN Secretariat must learn to tell the Security Council “what it needs to know, not what it wants to hear.” Yet SGs still struggle with delivering honest, if unwelcome news to the Council. And yet, an SG without a good relationship with the Council, especially the P5, will find often find him- or herself sidelined. The GA should thus look for a candidate able to speak honestly to his or her bosses without irreparably damaging the relationship. Two candidates have particularly relevant experience on this front: Bokova and Gutteres. During Bokova’s tenure at UNESCO, the organization voted to include Palestine as a member state, angering the United States, which pulled its financial support in response. Bokova expressed concern about this loss of funds, not only for UNESCO but also for U.S. security interests, expressing hope that the departure would be temporary. During his time as head of the UN refugee agency, Antonio Guterres warned that the increasing number of conflicts and escalating risks of climate change had driven the humanitarian system to “a breaking point,” and he criticized the international community’s fragmented approach to humanitarian assistance. In the end, both leaders proved willing to speak truth to power, without rupturing relationships. The General Assembly, previously limited to approving the Security Council’s choice, has an unprecedented opportunity to influence the selection of the next secretary-general. The candidate interviews next week will give the United Nations’ full membership its first real chance to influence the historically closed process. If the General Assembly wants to make the most of this chance, it should stick to these five questions, asked in interviews throughout the world every day.
  • Americas
    Macri’s Surprising Honeymoon
    By all accounts, Mauricio Macri has had a remarkable honeymoon since he was inaugurated December 10, quickly moving to revise Argentina’s economic policies, restructure its relations with the world, and tackle a variety of rule of law challenges, ranging from corruption to the drug trade. President Obama’s trip to Argentina last week was in many ways the capstone to Macri’s dynamic first hundred days in office. The visit signaled a generational shift in U.S. policy toward Latin America, seeking to repair some of the worst damage done by U.S. support of the military dictatorship that took office when Obama was a teenager, but Obama and his entourage of more than four hundred business representatives were even more convincing in their strong praise for the Macri administration’s new openness to foreign investors. Indeed, Macri’s presidency has moved very quickly to change the climate. It has freed the foreign exchange market, cut government spending, fired public sector workers, raised repressed energy prices, reduced export taxes, and opened up trade. Early today, the government scored a major victory as the Senate approved legislation needed to end a fifteen-year debt dispute with creditors, paving the way for a return to international markets and demonstrating the government’s ability to corral the opposition toward pragmatic policies. The government’s rhetoric has been overhauled, shifting quickly away from the dirigiste and southern-focused language of Cristina Kirchner and her economics minister Axel Kicillof, and turning instead toward the global north and potential OECD membership. Hoping to change the tone, Macri has met the United Kingdom’s David Cameron to reassure him of his desire to improve ties between the two countries, flown to Brazil to reassure Rousseff of his desire to restart trade and revamp Mercosur, and moved toward isolating the chavista regime in Venezuela, including by withdrawing support for the Bolivarian-inspired broadcast company Telesur. For all these successes, however, the challenges Macri will face in coming months are formidable. Argentines are twice shy about economic liberalization after the deep trauma that accompanied the collapse of Domingo Cavallo’s convertibility plan and the subsequent debt default of 2002. Meanwhile, the economic situation Macri inherited is dire: high inflation, exchange rate depreciation, low foreign reserves, a primary fiscal deficit nearing 6 percent of GDP, and projections of negative real GDP growth in the coming year. Correcting the excesses of the past decade will be painful: utility and food prices are rising in response to Macri’s reforms, even as unemployment threatens, commodity prices remain low, and neighboring trading partners stagnate. Politically, Macri is governing with a bureaucracy populated by Kirchneristas and faces a court system stacked with the previous administration’s appointees. His Cambiemos coalition lacks a majority in either house of Congress, with only 15 of 72 seats in the Senate. Macri has managed to prevail in the crucial votes on debt repayment, but moving forward on deeper reforms will require him to continue to seek out common ground with portions of the opposition, such as the Frente Renovador faction of the Peronists, whose enthusiasm for radical reform is limited and self-interested. These conditions mean that while Macri represents a shift in Latin America, away from the “pink tide” of leftists who have governed the region since the turn of the century, his will not be a hard right turn. The positive upshot, as Andres Oppenheimer notes, is that Macri may be the leading edge of a “pragmatic cycle” in Latin America. But even accomplishing this pragmatic turn may be difficult until the economy and jobs creation perk up. In the interim, Macri may need to rely on symbolic and outward-looking moves that attract investment and build popular support, such as reforming Mercosur, driving forward EU-Mercosur negotiations (initial proposals are due on April 8), and perhaps even pushing a deal between Mercosur and the United States or signing on to the Trans-Pacific Partnership. Don’t be surprised if there are further surprises from Buenos Aires.
  • Sub-Saharan Africa
    Flare-up Threatens Saharan Ceasefire
    Tyler Falish is an intern for the Council on Foreign Relations Africa Studies program, and a student in Fordham University’s Graduate Program in International Political Economy & Development. On March 22, at the request of the Moroccan government, the United Nations (UN) closed its military liaison office in Dakhla, a city in Western Sahara, the disputed stretch of sand in northwest Africa claimed by the Kingdom of Morocco and the Polisario Front. Two days earlier—also prompted by Rabat—seventy-three UN personnel were “temporarily reassigned” away from the headquarters of the UN Mission for the Referendum in Western Sahara (MINURSO). These steps—along with the threat from Rabat to call home the 2,300 soldiers and police it contributes to UN peacekeeping missions—are the kingdom’s reaction to UN Secretary-General Ban Ki-moon’s use of the term “occupation” to describe the Moroccan presence in the territory on his recent visit to refugee camps in southern Algeria, home to an estimated 150,000 ethnic Sahrawis. One million Moroccans marched in Rabat on March 13 to protest the secretary-general’s remarks, calling to mind the nationally heralded Green March in 1975, in which 350,000 Moroccan civilians—escorted by 20,000 troops—walked into what is now the Western Sahara. The march led to the Madrid Accords (under which Morocco and Mauritania were given control of the territory) and to a low-intensity war fought mainly between Morocco and the Polisario Front (with the support of neighboring Algeria) that lasted until a ceasefire in 1991. That ceasefire has since been monitored by MINURSO, and the Polisario Front has threatened war unless the UN peacekeeping mission is fully restored, a decision Morocco claims is “irreversible.” The Sahrawi Arab Democratic Republic (SADR), created by the Polisario Front in 1976, claims the entirety of Western Sahara, but controls only a thin strip—east of a 2,700 kilometer long, landmine-peppered sand berm—it calls the Free Zone. Morocco controls the remaining territory, referred to as its Southern Provinces, where most of the roughly 570,000 inhabitants of Western Sahara live. The Moroccan-held side includes the lucrative fishing of a long Atlantic coastline, all major settlements including the capital of Laayoune, and a phosphate mine contributing one-tenth of Morocco’s output. (Morocco possesses over half of the world’s phosphates reserves.) Morocco is serious about retaining control over what has been called “Africa’s Last Colony.” Morocco is the only African country not in the African Union (AU), and refuses to join unless SADR’s membership is revoked. However, the AU has reiterated its commitment to the Sahrawi right to self-determination. Although the UN Security Council has called for the hasty return of UN personnel to MINURSO, it did not release a strong statement on Western Sahara. Morocco’s plan for autonomy—and not independence—enjoys the support of the U.S. government, and Secretary Kerry recently reaffirmed that support. Although the Polisario Front enjoys some diplomatic support, Morocco has a clear military advantage, so renewed armed conflict is unlikely. This long-stalled territorial conflict will continue to play out in diplomatic statements, and there will be pressure from various parties on the Moroccan government through economic channels, as recently occurred when the European Court ruled an EU-Morocco farm trade deal to be invalid, based on a suit brought by the Polisario Front. Morocco has long been an important partner to the U.S., and the kingdom’s economic relationship with the EU continues to grow; Rabat is counting on the primacy of those factors. However, tens of thousands of Sahrawis remain in the effectively permanent refugee camps in Algeria, some entering their fifth decade of residence there. And, this issue stands in the way of the normalization of relations between Morocco and Algeria and a more integrated Maghreb, as well as the full integration of Morocco in the African community through the AU.
  • Defense and Security
    Ten Whats With…Adam Segal
    Adam Segal is the Maurice R. Greenberg Senior Fellow for China Studies and Director of the Digital and Cyberspace Policy Program at the Council on Foreign Relations. He is author of The Hacked World Order: How Nations Fight, Trade, Maneuver, and Manipulate in the Digital Age (New York, NY: PublicAffairs, 2016). 1. What is the most interesting project you are currently working on? We just did a workshop in California—on the edges of the RSA Conference—on zero-days and the market for vulnerabilities, and how we think about that as a national security and foreign policy challenge. I think the interesting things that have started to come out of it are fairly obvious to the actual operators but probably less known to the policy community. One is that the policy community tends to think of zero-days or vulnerabilities as a kind of atomic commodity—a unit that you can focus on—but instead, the operators think of them as morphing and changing. Another is that the problem probably isn’t that big. The market isn’t that big and, as the head of the National Security Agency’s Tailored Access Operations said in January, you don’t need to rely on zero-days. You can get in through lots of other types of vulnerabilities. 2. What got you started in your career? As an undergraduate, I knew I wanted to do something international, but I didn’t really have any idea what that meant. During my first year as an undergraduate at Cornell, I took a course on Chinese culture and then a course on Japanese culture. Everyone who was studying Japanese at the time wanted to be an investment banker (Japan was going to take over) and everyone who studied China was interested in peasant revolutions. So I took three years of Chinese and then realized I couldn’t speak any, and went to China after I graduated. From there, I just continued studying. My PhD was also at Cornell, in Chinese politics, and my dissertation became my first book, Digital Dragon: High-Technology Enterprises in China, which looked at how four Chinese cities—Beijing, Shenzhen, Xi’an, and Shanghai—tried to encourage and create their own Silicon valleys. 3. What person, book, or article has been most influential to your thinking? I think it has kind of shifted in every part of my career. Probably the most important book, the one that has always shaped my thinking and what I’ve done on China from the beginning, was Richard Samuel’s book, Rich Nation Strong Army, which looks at techno-nationalism in Japan and how the Japanese always thought about technological innovation and technology exchanges as essential to their national and military strength. I read that book as I was working on my dissertation, and I thought, “All of these same phrases are used all the time by the Chinese.” And ever since then, techno-nationalism has really been one of the main lenses through which I look at China. 4. What kind of advice would you give to young people in your field? It’s been more of a challenge as I’ve expanded my focus to cyber. As a China expert, it is relatively easy to tell people that they need expertise in China—they need to learn the language and spend time there—and also to master the international relations, comparative politics, and foreign policy literature. It is harder with cyber, where the career path is, so far, much less clear. You need to understand the technology (or at least know what you don’t understand, and who you should ask for help) and then you can decide, should I address cybersecurity as a foreign policy question, or do I want to use an economic or anthropological lens? I think one mistake a lot of younger people make is they are overly focused on the job they want. It is very hard to come up with the perfect topic that ends with someone as a tenured professor, a fellow at a think tank, or a member of the National Security Council. You are better off figuring out what kind of questions motivate you. It’s not enough to say, “I’m interested in China and cyber,” because there’s going to be lots of people who have that expertise. But what is it that’s really driving you? What is it really that you want to answer? 5. What was the last book you finished reading? In the field, I just finished Fred Kaplan’s, Dark Territory: The Secret History of Cyber War. Out of the field, I just finished, When Breath Becomes Air. That’s by Paul Kalanithi. He was a neurosurgeon at Stanford who died tragically young from lung cancer. It’s about his ruminations on life, purpose, meaning, and identity. 6. What is the most overlooked threat to U.S. national interests? It’s hard to say what’s overlooked since we are worried about everything. I do think that most of the problems are self-inflicted. We could address many of our threats much more effectively if we could solve most of our domestic political problems. A lot of the issues about infrastructure, education, and research and development spending tend to get short-shrift in the larger debate about national security. 7. What do you believe is the most inflated threat to U.S. national interests? Of course, a cyber Pearl Harbor would be high on the list. I think the Obama administration and intelligence agencies have pretty much said that’s not what they’re worried about. Director of National Intelligence James Clapper has been pretty clear that that’s not what he’s worried about. There was that interesting article in the New York Times several weeks ago about how lots of people are beginning to think that we have to consider if we’re going to be more like Israel, where threats of terrorism are around all the time and there will be small terrorist attacks, lone wolves that we can’t stop. But those are not existential threats. The biggest threat will be how we respond to them so that we don’t affect or change our domestic politics or society. I think we’re just going to have to get used to being more like Israel or Europe, where they have a more recent history of politically motivated violent attacks. We have been very insulated because of the ocean, and a long stretch of fairly stable domestic politics. 8. What is the most significant emerging global challenge? Hat-tip to our colleague, Laurie Garrett. I think Ebola and the World Health Organization’s (WHO) inability to move quickly enough to it, suggest we are in no way prepared for any real global pandemic. International institutions have just not kept pace, and that’s with new resources and ideas coming from places like the Bill and Melinda Gates Foundation. 9. What would you research given two years and unlimited resources? If I had an unlimited budget and two years, I think one of things that I would like to do, which I tried to do in the book, is hear more about the cyber debate in other places. We hear about the big players—China, Russia, the United Kingdom, Israel, Germany, and Brazil. But the next several billion users are going to be coming from places that we do not have a lot of interaction with or access to. Most of those users are going to be young, and most of those users are going to have  completely different conceptions of privacy, security, and how they want to interface with devices and the Internet. There’s been a little work done; on the CFR blog Net Politics we’ve carried maybe one or two posts. There’s not much focus on what’s happening in Latin America and throughout most of Asia, other than China. How do new users think about these questions and what needs to happen for them to actually shape it? Do they need technology companies? Do we have to have different types of international institutions? Or, do they have to hack things to cause problems or challenges that draw international attention? 10. Why did you write The Hacked World Order? I wrote The Hacked World Order in part as a reaction and in part to be more constructive. As a reaction, I was skeptical of the narrative of cyberattacks as empowering individuals, that the nation state would lose all this power, and that we were going to have radically empowered terrorists and non-state actors. I thought that these new technologies were going to be something that made the strongest states stronger, and that the strongest states would be pretty skilled at figuring out how to wield the new tool and develop new techniques to exert influence. They would, of course, lose some absolute power, but the relative gains would still be really important. The second reason I wrote the book was a sense that if “history is one damn thing after another,” then cyber history seemed like “one damn hack after another.” This was unsatisfying and so there must some kind of political grammar to cyber power. Could we see things as more than event after event, hack after hack? Instead, could we describe the political motivations for the hacking and see state-based hackers as driven by foreign or domestic policy concerns?  I was hoping to develop a framework for understanding states’ motivations in cyberspace and how they interact with the interests and actions of other states. I hope readers, after they finish the book, read the newspaper the next day and news of an espionage campaign or there the hack of the power grid in Ukraine, and they ask why it happened. What were the motivations? Why did it happen in this way? Why is it likely to happen again? And that they also think about how we can control that type of behavior, or at lease moderate or ameliorate it.
  • Elections and Voting
    Electoral Observers and ‘Free and Fair’ Elections
    Tyler Falish is an intern for the Council on Foreign Relations Africa Studies program, and a student in Fordham University’s Graduate Program in International Political Economy & Development. In late February, Yoweri Museveni was elected to his fifth term as Uganda’s president, extending a reign that officially began in 1986, but was preceded by years as an influential guerilla leader. The New York Times characterized the election as “widely criticized.” The main opposition party, the Forum for Democratic Change (FDC), had good reason to cry foul as party candidate Kizza Besigye was arrested twice in two days during the voting, and has been under house arrest almost continuously since the election on February 18. Further criticism came from some of the electoral observers. The European Union (EU) deployed a mission comprised of 137 observers to Uganda, and the EU Election Observation Mission (EU EOM) released a preliminary report on February 20, highlighting the first ever live presidential debates and “vibrant campaign events,” but bemoaning the “intimidation and harassment of [the] opposition,” the fact that polls in opposition strongholds like the capital, Kampala, opened hours late, and that access to social media was blocked on the day of the election. Observers from the Commonwealth (an intergovernmental organization consisting mostly of former territories of the British Empire), with a tendency to place a positive spin on polls, said the election “fell short of meeting some key democratic benchmarks.” The African Union Election Observer Mission (AUEOM) praised Ugandans for their turnout, and described the election itself as “largely peaceful, but not without shortcomings,” ultimately endorsing the poll. The East African Community (EAC) and the Common Market for Eastern and Southern Africa (Comesa) regarded the election as “generally free and fair.” However, as senior EU observer Jo Leinen quipped, “Free and fair are categories with large margins.” As the opposition plans to challenge the election results in court, what impact, if any, will the assessment of the various electoral observer groups have on the perceived legitimacy of the election outcome? Although it may not be immediately apparent, it is possible that judgement passed by electoral observer missions has the long-term effect of emboldening the opposition. Electoral observers are invited by the host country, and there is little doubt that their presence inspires some additional confidence in the electoral process. But does the incumbent—especially a deeply entrenched incumbent—risk anything by extending that invitation? The EU has already stated that it will not send electoral observers to the Republic of Congo for the presidential election later this month, citing the paucity of recent electoral reforms, and the treatment of opposition party members. President Denis Sassou Nguesso has been in power since 1979, with the exception of a hiatus from 1992 to 1997 that ended with a brief civil war and ultimately the reclamation of his role. In response to the EU’s snub, the Congolese government replied, “whomever does not observe cannot judge.” In some cases, staying home might say more than a carefully worded statement.
  • Sub-Saharan Africa
    Constitutional or Parliamentary Democracy in South Africa
    On February 19, governing African National Congress (ANC) Secretary General Gwede Mantashe addressed a party march for “unity, democracy and non-racialism” in Pretoria. There are press reports of eighty-seven thousand participants. Reportedly, Mantashe’s central message was, “We must defend the revolution and defend every attack on the ANC structures.” He went on to say, “We are a majority, we should be able to take decisions and enforce them.” Unlike the United Kingdom (UK), South Africa is not a parliamentary democracy. In other words, parliament is not sovereign, as is the UK Parliament. Instead, South Africa is a constitutional democracy with some of the most extensive legal protections for minority rights in the world. That is, the powers of the executive and parliament are limited by a written constitution. The South African judiciary may, and does, reject legislation passed by parliament and signed by the president. When that happens, the affected legislation has no force in law. Against a background of very slow post-apartheid social and economic change, some on the left, such as Mantashe, regularly attack the judiciary as a roadblock to achieving true democracy and  meaningful social change. They—alongside others in the ANC—argue that parliament should be supreme in a democracy. However, at present, and for the foreseeable future, there appears to be little popular appetite for moving South Africa away from constitutionalism toward unfettered parliamentary supremacy. Mantashe is a former chairperson of the South African Communist Party. He comes out of the labor movement, and was the secretary general of the National Union of Mineworkers. Mantashe excoriated the judiciary’s decision that the Zuma government neglected its legal obligation to arrest Sudanese President Omar al-Bashir during his 2015 visit to South Africa in response to a warrant issued by the International Criminal Court (ICC).
  • Americas
    The Long Arm of U.S. Law and Latin America’s Corruption Malaise
    Latin America’s corruption scandals of the past two years are moving slowly toward resolution. As they move forward, it is interesting to note that in a region that has been particularly protective of its sovereignty, foreign cooperation has played a significant role, whether it is via bilateral exchanges between prosecutors, mutual legal assistance treaties, or even United Nations support, as in the case of Guatemala’s International Commission Against Impunity (CICIG). But these various forms of international cooperation may soon be joined by another international anti-corruption effort that is less well understood in Latin America: prosecution by U.S. attorneys. The Petrobras scandal has so far touched down in Argentina, Peru, Panama, Brazil, and the United States, making it a truly hemispheric corruption case. I was therefore taken aback when a well-informed colleague from the region suggested to me that in his view, the United States would never prosecute Petrobras, because doing so might harm U.S. foreign policy interests. In reflecting on this remark later, I think that he meant that a U.S. government that seems to be trying hard to mend fences in the region would be loathe to be seen as violating national sovereignty or acting in ways that could cast the United States in the familiar role of an avaricious exploiter of Latin American resources. This perspective has deep roots. Brazilian academics have argued that the United States seeks to limit Brazil’s energy self-sufficiency as part of its broader geopolitical strategy of hegemony. A Brazilian senator echoed this perspective in floor debate last week, noting that, having weakened Petrobras, investors were now seeking a reduced role for the oil company that would hand “the future of Brazil to Shell.” Meanwhile, other prominent Brazilian politicians have shown little understanding of the independence of their own national prosecutorial office, and therefore may not be ready to accept that the discretion of U.S. prosecutors is also significant, even when foreign policy is on the line. Domestic legal calculations also play a role: Brazilian prosecutors, for example, have been very careful to paint Petrobras as a victim rather than a target. There are many reasons for this prosecutorial caution: there is doubt about the culpability of many of the firm’s directors, Brazil’s Clean Company Law is new and untested, and there are a variety of more attractive targets for prosecution. Furthermore, there may well be trepidation about the political costs of taking down the the crown jewel of Brazil’s state-owned companies: most Brazilians are up in arms that Petrobras has been so violated by graft and gross mismanagement, but they understandably do not want to see it further damaged. On the U.S. side, however, the big question is not really whether U.S. prosecutors are going to prosecute wrongdoing, but when. Given the sharp drop in Petrobras’ market capitalization—from a high of $380 billion to $23 billion today—the U.S. Securities and Exchange Commission (SEC) may have little option, given that its mandate is to curb behaviors that cause damage to shareholders and stock market integrity. Already, Petrobras has taken a write-down of more than $17 billion for overvalued assets, including $2 billion associated with corrupt acts, and the U.S. Department of Justice (DOJ) and SEC have announced investigations. News reports suggest that Petrobras could be the target of the largest ever penalties ever levied by U.S. authorities in a corporate corruption investigation, exceeding the record-breaking $800 million paid by Siemens in its 2008 agreement with the DOJ and SEC. If such fines came to pass, they would have a shocking effect on a Brazilian public already reeling from more than their fair share of bad news. A former Brazilian Supreme Court justice predicted that for those who are unaware that it is coming down the pike, a U.S. prosecution will be a “humiliation and a devastation.” U.S. prosecutors will also be keen to understand kickbacks and corruption that may have taken place on U.S. soil, as in possibly fraudulent refinery purchases, or that might have passed through U.S. banks via offshore accounts in Panama or Switzerland, as Brazilian investigators allege. There are a variety of potential avenues for enforcement, ranging from SEC administrative sanctions through a full prosecution under the Foreign Corrupt Practices Act (FCPA), made possible because Petrobras is publicly listed on the New York Stock Exchange (NYSE), and made more likely by the DOJ’s recent efforts to ramp up FCPA prosecutions. Prosecutions could be led by state prosecutors, the DOJ, by the U.S. Attorney for the Southern District of New York, whose office has been aggressive in prosecuting violations of corporate malfeasance, or by some combination of all of these autonomous actors. Potential oversight bodies could also include an alphabet soup of agencies involved in asset forfeiture and money laundering, in the DOJ and U.S. Department of Treasury, as well as state governments. And of course, Petrobras is already facing civil litigation in the United States, as well as the legal costs associated with nearly 300 foreign business partners who are also potential targets of investigation. In sum, the international dimension of Latin America’s corruption saga is only just getting underway. Legal action by the United States may not be greeted with acclaim across the Brazilian political spectrum, but together with Brazil’s enthusiastic prosecution of the case, it brings the hope that the regional compliance environment may change for the better.
  • Economics
    Global Economics Monthly: March 2016
    Bottom Line: The International Monetary Fund (IMF) deserves credit for effectively responding to the global and European financial crises. However, the institution will face different and potentially more difficult challenges in the next five years as it struggles to come to terms with a changing international power order and lending rules that are not well suited to address future crises.1 Five Years Defined by the Euro Crisis Christine Lagarde assumed the helm of the IMF in July 2011 at a moment of turbulence for the Fund. Roiled by the resignation of Dominique Strauss-Kahn two months earlier, the IMF was under attack on a number of fronts. The Greek adjustment effort, designed by and strongly supported by the Fund, was on the brink of failure; the IMF decision to provide one-third of the financing for Europe’s rescue packages had come under harsh criticism from emerging market members as a special deal for Europe; and there was a growing perception that the Fund was out of touch with the views of rising powers such as China, India, and Brazil. Efforts to strengthen its policy advice outside of financial programs—“surveillance” in Fund-speak—had run out of steam as the global financial crisis began to recede and major industrial countries found policy coordination inconvenient. Significant questions were being raised regarding whether the Fund would be able to deal with threats then facing the global economy. Difficult times demonstrate the importance of the IMF, and now, five years later, a brighter take on the Fund’s role is possible. A global recovery has taken hold and, although credit rests more with national authorities and central bankers, the IMF’s steady support for the European periphery no doubt helped stem the panic, shore up confidence, and provide essential resources to needed financing packages. The Fund has acknowledged that some of the early programs were poorly designed (for example, in underestimating the drag from fiscal consolidation), but it is unclear what could have been done differently absent additional (and more timely) finance from European creditors to allow a slower pace of adjustment. I am more sympathetic to the charge that Fund decisions to delay restructurings in Greece in 2010–2011 and Ukraine in 2014 led to deals that were “too little, too late,” resulting in new lending rules in January 2016. I have concerns with the new approach, as I note below, but on the whole it represents a sensible effort to reduce crisis risks. Looking Ahead The IMF was not the only institution that failed to anticipate the global risks now roiling markets: a crisis in China and its contagion to emerging markets already shaken by lower commodity prices, capital outflows, and weak global demand. But it will be graded on how it responds. Latin America should be a particular concern for the IMF. Three of the largest countries in the region—Argentina, Brazil, and Venezuela—face significant economic challenges in the year ahead, and a crisis in any of these three countries could have profound spillover effects. None of these countries is close to asking the IMF for its financial support. But if that were to happen, the odds that the IMF will be asked to intervene with sizeable resources on multiple fronts is higher now than in many years. Beyond the challenges in the year ahead, two interlinked problems stand out in particular. China and the Rising Power Question One of the central challenges for the Fund going forward is its shifting relationship with China and the other emerging powers. Following the move by the Group of Twenty (G20) to meet at the leaders’ level in 2008, and the successful effort to bolster Fund resources to deal with the crisis, the IMF faced a double-edged challenge. It had to create a role for these countries and incentivize their fuller participation in the leadership of the international financial institutions, while at the same time strengthening its policy dialogue with these economies. On both counts, the Fund has struggled. On the representation side, it was hamstrung by the failure, until recently, of the U.S. government to approve a package of reform measures agreed to in 2010, though it did address one Chinese ambition with its support for inclusion of the renminbi (RMB) in the Fund’s currency basket, the special drawing rights (SDR). Still, the creation of the Asian Infrastructure Investment Bank (AIIB), the New Development Bank (formerly BRICs Bank), and talk of enhanced regional swap lines raises questions about the coherence and consistency of the global crisis architecture that places the Fund at the center.  In a recent speech, Lagarde highlighted two roles for the Fund going forward: providing a better framework for capital flows and strengthening the global financial safety net. For the Fund, that means a role at the center of a strengthened set of swap lines between central banks in advanced and emerging economies. That may be a bridge too far for leading central banks and governments. But absent concerted action, the temptation exists to continue the regionalization of rescue efforts, including in Asia through an expansion of the Chiang Mai Initiative, a currency-swap network in the region.  The Fund’s failure to come to terms with China’s macroeconomic imbalances that persisted through the past few years was a larger concern. Certainly, a careful reading of the Fund’s annual reports on the Chinese economy can find warnings concerning the imbalances that have roiled markets since last summer. However, it does seem that deference to the Chinese authorities muted those warnings and the Fund’s voice was not an effective signal to markets or the public more generally. To the IMF’s credit, the reports urged a cautious response to financial deregulation, stressing the importance of careful sequencing and hard budget constraints on firms before markets were opened. That said, the public perception now seems to be that the Fund was a cheerleader for the market reforms that led to the current crisis, which cannot help but damage the IMF’s credibility on this issue. Related to its relationship with the rising powers, the Fund needs to decide how it interacts with European economies, clarifying the proper relationship with Europe's currency union and regional relationships. “Grexit” could reemerge as a challenge for markets, if agreement is not reached on economic reforms and debt relief in coming months. Even if agreement is reached, the IMF will be expected to lend to Greece in a highly risky environment. More broadly, the right lessons need to be drawn about the best role for the IMF to play when countries, without an independent monetary policy and with significant pan-European constraints on fiscal policy, have a crisis meriting IMF support. The Fund’s Role as Fire Department There is a broader issue at play here. Looking back to at least the Mexico and Asian crisis packages of the 1990s, we have seen a Fund that is struggling to come to terms with increasingly large demands on its resources. This period has also witnessed rapid growth in financial markets and the expansion and greater integration of major emerging markets into the global financial system. This means that the financial requirements of a rescue package for one of these countries have grown much faster than the Fund’s resources. In other words, the world is getting bigger more quickly than the Fund’s resources have grown (see figure 1). The IMF was never intended to be a lender of last resort, though at times it benefited from markets believing that it was. At the same time, despite its de facto senior status, it has grown increasingly concerned about the demands on its balance sheet from increasingly large financing programs. It is becoming clearer that Fund money alone is not going to be enough and that the timing and scale of debt restructurings will be a function of the adequacy of financing rather than whether debt is above an arbitrary threshold. FIGURE 1. IMF RESOURCES VERSUS NEEDS  Sources: IMF; World Bank International Debt Statistics. Last month, the IMF agreed to new rules guiding lending for large-scale, difficult programs. It now has embraced a greater reliance on “reprofiling”—restructurings aimed at keeping creditors in the game through an extension of maturities with little loss in market value—and wants its lending in risky, high-profile cases to be limited to situations where there is significant burden sharing with other official creditors. This solution, designed with Greece (and Europe more generally) in mind, does little to address a possible crisis in Latin America (or other places where there isn’t a group of official creditors willing to provide junior financing). Hopefully, this will trigger a broader debate about how to allocate the burden of financing these packages. The answer to that question will determine whether the Fund is an effective leader of the global effort to prevent and resolve crises. Stay tuned. Looking Ahead: Kahn's take on the news on the horizon Venezuela Time could be running short for a Venezuelan government facing a deep recession, severe shortages, and hyperinflation—a debt default could come this year. China The risk of a maxi-devaluation continues to weigh on Chinese markets. Central banks Negative interest rates have become more common in the industrial world, raising questions over whether central banks have the capacity to lift growth. 1 This newsletter draws on a longer analysis of the Fund’s record and future challenges. 
  • G20 (Group of Twenty)
    G20 Hopes for a Cure
    Five things we learned from this weekend’s G20 meeting of finance ministers and central bankers.           A desire for better. The communiqué candidly acknowledges growing threats to the global economy, and signals a desire for stronger growth at a time when “downside risks and vulnerabilities have risen.” There also was recognition that monetary policy has carried most of the load in recent years, and going forward more responsibility rests on governments to accelerate long-promised fiscal and structural reforms.             Other people’s money. The problem with a full-throated call for growth is that there is no evidence that any major country leaves the meeting with different policies than they entered the weekend with. The U.S. government would like to see more demand, but Congress is unlikely to go along with new spending proposals. German finance minister Schauble threw cold water on the idea of new debt financed spending ahead of the meeting, and Japan remains committed (for now) to future fiscal consolidation. Only China seems focused on fiscal expansion, though its unclear the extent to which the boost to demand from the budget goes beyond allowing the automatic adjustment of spending to the slowdown. One area of coordination was on infrastructure, where the G20 again called for more spending by the World Bank and other international financial institutions, but the amounts involved are likely to be small.             China gets the benefit of the doubt. One question prior to the meeting was whether there would be an effort, led by the United States, to press the Chinese for stronger and more explicit commitments to support demand and avoid further depreciation. While Chinese officials did embrace these objectives and reportedly made strong statements in the meeting that they did not intend further devaluation, the communiqué largely avoided the type of specific commitments markets were hoping for. With China continuing to lose $100 billion in reserves each month, some will see this as opening the door for further depreciation against the dollar.                 The Plaza is still just a hotel. Prior to the meeting, there were a surprising number of analysts talking about the prospect of an agreement on currencies similar to the Plaza Accord of 1985. Such ideas were always fantastical. The G20 called for countries to refrain from cheapening their currencies to gain a competitive edge. They reaffirmed their policy that exchange rates should be market determined, and that governments should adopt policies aimed at domestic macro balance and not intervene in foreign instruments. This formulation has been in place since the yen weakened in the spring of 2013 following the introduction of Abenomics. There was a mild hint at future possible action in their commitment to consult closely on exchange markets and their reminder that markets can get it wrong, but no binding commitments. A possible new sovereign debt initiative. Among the issues for further action (buried at number 12) is to explore “market-based ways to speed up” the strengthening of existing sovereign debt contracts. Recall that last year, in the wake of Argentina litigation and concerns about holdouts in the Greek debt restructuring, the G20 endorsed the inclusion of new clauses in debt contracts that would make it easier to get broad participation in debt deals. That was a significant step, but there was always a question about what to do with the nearly $1 trillion in existing bonds that didn’t have the new clauses. In a paper I did with Greg Makoff, we argued that the G20 should take the lead in encouraging market-based transactions to swap old debt for new debt, and it now seems the G20 is open to going in this direction. This could be a meaningful step toward a better functioning debt market (but it wouldn’t help Venezuela).   In sum, the communiqué is about as much as can be expected in the current environment—a commitment to stay the course, combined with a recognition of the risks and a promise to do more if needed. Tomorrow, we will see if markets take confidence from such commitments, or were hoping for something a bit bolder.  
  • Budget, Debt, and Deficits
    Venezuela on the Edge
    The Venezuelan government has a $2.3 billion debt payment due this Friday. Most believe the government has the resources to make the payment, though it is hard to see a coherent economic reason to do so. The economy is descending into a deep and profound crisis—reflected in severe shortages, hyperinflation, and a collapse in economic activity. It faces a widening financing gap, and has imposed highly distortive foreign exchange controls. Debt service far outstrips dwindling international reserves. Recent policy measures by the government, including a rise in gasoline prices, fail to meaningfully address the imbalances. A default increasingly appears to be a question not of “if,” but “when.” But whether through a stubborn unwillingness to accept this reality, fear of litigation and asset seizures, or simply an effort to kick the can in the face of powerful political and economic pressures, the government has shown a strong commitment to pay as long as they can. The current regime will refuse cooperation with Western governments, but it is not too early to begin planning for a time when a future Venezuelan government is willing to take the hard measures that warrant strong and broad international support. The Numbers Are Daunting There is no doubt that the dramatic decline in oil prices has hit Venezuela hard. At $30 per barrel, oil exports will be around $26 billion this year, down about three-quarters from 2012. Subtract around $8 billion for oil-related imports, and you have export revenue woefully inadequate to meet debt service this year of nearly $20 billion on $125 billion of debt (that includes substantial oil payments due on assistance provided by China in recent years). Altogether, market commenters have estimated a financing gap of around $30 billion. Meanwhile, reported reserves are only $15 billion, and there are serious questions as to whether all of those reserves (especially the gold) are freely useable. In sum, it will take extraordinary measures to make it through the year without a default. And if the government responds by further compressing imports, popular support for the government could collapse. Change could come quickly, not because of a debt payment due but rather because of domestic conditions. Meanwhile, the economy likely declined by around 10 percent last year, and according to the International Monetary Fund (IMF) is expected to decline by an additional 8 percent this year. Inflation was officially 180 percent in 2015, though the actual number was probably closer to 250 percent, and accelerating rapidly this year. Following years of mismanagement and low investment, the state oil company Petroleos de Venezuela, S.A. (PDVSA) has seen a sharp decline in production, and while reserves in the ground are substantial, there would be material hurdles to a significant increase in production. In response, the government has invoked emergency powers through mid-March, devalued the primary official exchange rate by 37 percent, and adjusted some domestic prices—but this has done little to address widening imbalances and shortages. After this Friday’s payment, the government does not have a major international bond maturing until 2018.  But payments of around $6 billion are due later this year on debt owed by PDVSA. While the government does not explicitly guarantee PDVSA debt, the companies’ creditors have substantial remedies which provide protection (and a degree of effective seniority) in times of distress. There are assets in the United States that could be seized (e.g., Citgo), efforts could be made to disrupt if not to seize oil tankers and the oil in transit, and there will likely be litigation as to whether the government exercises explicit control over the company (which could expand the range of assets that could be attached by creditors to include sovereign assets). Any debt restructuring would be made more difficult by the large amount of bonds, in excess of $40 billion (mostly PDVSA debt but also some sovereign bonds), that do not have the collective action clauses now common in international bonds to bring in holdout creditors. In sum, the legal environment is complex, the interest of creditors may diverge sharply, and there are strong reasons to expect that a default on debt would be hugely disruptive. It is hard to imagine international support for a restructuring of debt by the existing government. The strong frictions between the Maduro administration and the opposition-led National Assembly pose additional political risks. The new economic czar, Miguel Pérez Abad, reportedly was named to the job when his predecessor advocated default. He may have a mandate to sell energy stakes and try for market deals that buy some breathing space for the country by pushing back debt payments. It is difficult to assess whether it is in the interest of creditors to do so when a more difficult restructuring likely lays ahead with a different government that may be quite critical of today’s deals. In any event, given the fundamental downward trajectory of the country, maturity extensions are unlikely to catalyze new private money. The China Factor China has been the primary provider of financing to the government in recent years, and while there is low transparency to these deals, it is thought that net claims are on the order of $30 billion. Many of the contracts require payment in oil, and currently Venezuela uses about one-third of its daily crude oil export to China to repay the debt. But the decline in the price of oil has dramatically increased the quantity that needs to be provided. By some estimates, full payment of the Chinese claims could consume 80 percent of the country’s daily oil export to China. Venezuela needs continuing relief from that amount, but at the same time it is not in China’s interest to be seen as providing loans under the guise of commerce that serve solely to extend the life of the current government. Even today, China’s message needs to be that it will be a critical player in a rescue package, and to that end cannot be too closely associated with the current government or policies. What International Policymakers Can Do Now For now, there is not much that international policymakers can do.  The current government is unlikely to seek help from the international financial institutions. Indeed, the IMF is operating largely in the dark. The last IMF review of the economy was in 2004, and Venezuela ceased all cooperation with the Fund in 2007. In any crisis scenario, they would be scrambling to catch up and—if past post-crisis programs are any guide—an IMF program team putting together a rescue package is likely to find that the economic crisis, the financing gap, and the damage to the financial sector are much worse than we now understand. Reserves also will need to be replenished. There does need to be a close watch for contagion to its neighbors. In recent years, trade and financial links between Venezuela and its neighbors have dropped sharply, and so one could hope that there would be limited spillovers. But the risk of domestic political and social unrest affecting its neighbors is a concern, as is the broader fear that a crisis in Venezuela would weaken market confidence in other oil-exporting countries such as Nigeria that will need to be watched. When conditions warrant, international policymakers should move fast rather than let the crisis fester. Short-term bridge financing, perhaps linked to oil, may be needed once agreement is reached on a comprehensive adjustment program. Given the likely financing needs, any future IMF package will need to include at a minimum a debt reprofiling (an extension of maturities with limited net present value loss) to provide breathing space. Whether the IMF goes further, and demands a deep restructuring because the debt is unsustainable, is hard to know given the current uncertainties. Certainly, extraordinary high debt as a share of exports suggests the need for restructuring, as would the ratio of debt to GDP (the Fund’s preferred metric) if a unified exchange rate settles near the black market rate. Further, because Venezuela’s quota is low (around $3.5 billion), the Fund’s program will require exceptional access, which under its rules calls for a high degree of confidence that the debt is sustainable if a restructuring or reprofiling is to be avoided. That seems unlikely. But any restructuring will present the difficult challenge (even more difficult than Ukraine in 2015) of deciding on the relative treatment of bilateral creditors, bonds and other creditors. China will need to contribute, through transparency about its claims on the government and a willingness to provide relief through a negotiation that leaves other official and private creditors with a sense that there is fair burden sharing.  That will be a change in how China has been operating in emerging markets, but would go a long way toward becoming a responsible part of the global rescue architecture.
  • Sub-Saharan Africa
    Sitting on Tied Hands: The African Union & Burundi
    Tyler Falish is an intern for the Council on Foreign Relations Africa Studies program, and a student in Fordham University’s Graduate Program in International Political Economy & Development. On February 6, four people—including a child—were killed and twelve injured in a coordinated grenade attack in Burundi’s capital, Bujumbura. Republican Forces of Burundi (FOREBU), an armed group opposed to President Pierre Nkurunziza’s third term bid, claimed involvement in separate attacks on February 5. The recent violence continues a trend that began nine months ago, when Nkurunziza first announced his intention to seek a third term. On February 4, the African Union (AU) announced the appointment of five African heads of state to a panel tasked with convincing Nkurunziza to accept a proposed AU peacekeeping mission, called the African Prevention and Protection Mission in Burundi (MAPROBU). Nkurunziza has vehemently expressed his opposition to the proposal—discussion around which did not until recently directly include him—and there’s little reason to believe that the panel will change his mind. Further, there is no timeline yet associated with the panel’s charge. Despite the recent release of compelling evidence that Burundi’s security forces extrajudicially killed dozens of people on December 11, the AU has backpedaled since the December approval to send five thousand troops to Burundi under MAPROBU. Why the change of heart? In the AU’s Constitutive Act, Article 4(h) grants the AU the right to intervene in a member state, given an Assembly decision “in respect of grave circumstances, namely: war crimes, genocide, and crimes against humanity.” The Peace and Security Council (PSC), which, unlike the United Nations Security Council (UNSC), is composed of members elected to three- or five-year terms, invoked Article 4(h) when it initially approved MAPROBU. So one can assume that the AU’s December fact-finding mission found evidence of “grave circumstances.” But the authorization requires an affirmative Assembly decision—as well as the explicit backing of the UNSC—and driven by the Burundi government’s opposition, the AU failed to authorize the proposal at the recently concluded summit in Addis Ababa. This could indicate the PSC has little sense of the AU membership’s collective pulse. Meanwhile, Burundi won reelection to its PSC seat, running unopposed in the East Africa region. After the failed vote, PSC Commissioner Smail Chergui said, “There is will neither to occupy nor to attack,” but one could question the will of member states to participate in MAPROBU at all, especially without Burundi’s permission, as Nkurunziza has stated he would consider MAPROBU an invading force. If executed, the mission would likely be staffed by soldiers from Burundi’s immediate neighbors via the Eastern Africa Standby Force (EASF). Questions remain as to the capacity of the EASF, but Director Ismail Chanfi announced in December that EASF “forces are ready for engagement to maintain the peace process in the region, anytime.” While the AU spins its diplomatic wheels, and the UNSC encourages “inclusive dialogue,” violence and unrest continue in Burundi. A leaked UN report suggests Rwanda is providing military training to Burundian rebels, which, whether true or not, will only strengthen Nkurunziza’s cries against “invasion.” In the “African Year of Human Rights,” the way the AU handles the situation in Burundi— with kid gloves or a firm hand—will stand testament to the strength of the Union and its resolve to pursue “African Solutions for African Problems.”
  • Sub-Saharan Africa
    Nigerian President Buhari’s Sysyphean Efforts
    Nigerian President Muhammadu Buhari’s anticorruption campaign continues to gain credibility. Over the weekend, the Economic and Financial Crimes Commission (EFCC) searched the Abuja residence of former Vice President Namadi Sambo and found documents that it described as “helpful.” The EFCC is the point institution for Buhari’s anticorruption campaign. Its search of Sambo’s residence likely implies that he had some sort of connection with other investigations. The anticorruption campaign may be leading to behavior change, or at least diminished consumption. There are anecdotal reports that the luxury housing market in Abuja is at a standstill. There are now EFCC or other anticorruption processes under way with respect to former President Goodluck Jonathan’s vice president, his national security advisor (Sambo Dasuki), and his oil minister (Diezani Alison-Madueke), among numerous others. News on the security front is much less positive. There were major Boko Haram attacks in the northeast over the weekend, with an ineffectual initial military response. In the Niger Delta oil patch, which has historically been the source of more than 70 percent of the government’s revenue and more than 90 percent of its foreign exchange, unrest is growing, with attacks on the oil infrastructure and high profile kidnappings. Among some of the Igbo people, there is renewed interest in Biafra, the erstwhile territory that seceded from Nigeria in 1967, precipitating the Nigerian Civil War, which ended in 1970 with Biafra’s reabsorption. With oil prices continuing to fall, government revenue shrinking, and the Nigerian Stock Exchange incurring big losses, the Buhari administration is seeking billions of dollars in loans from international financial institutions. It will probably succeed. However, the cost may be devaluation of the naira, the national currency, a step President Buhari has rejected. Like Sisyphus, President Buhari pushes the rock uphill with respect to corruption, only to have it roll back down with respect to economic and state security.