Obama’s First Priority Should Be Economy

CFR President Richard N. Haass, who worked on previous presidential transitions, says that given the current world situation, he believes the first priority for President-elect Barack Obama lies in "the financial and economic side," and that "the near-term foreign policy challenges are probably Iran, Afghanistan, Pakistan, [and] a little bit of Iraq." He says that ironically, the sharp drop in the price of oil has created "significant economic problems for the Iranian government. It means the financial sanctions are having a lot more traction, and it’s possible that this will create an environment in which a new diplomatic initiative could have some promise."

In the aftermath of Barack Obama’s striking victory, there’s been a large swelling of expectations around the world expecting great changes in the United States and marveling at how the United States could elect a president from a minority group. What kind of advice would you give the president-elect on how do how to handle all this anticipation?

First of all, you’re right about the outpouring of positive reactions, and you’re right about why it’s happening. It’s in part that people in many places are glad to see the end of the Bush presidency, but also there’s a sense of marvel at American society. A lot of people around the world realize that the equivalent couldn’t happen in their own countries and they are impressed that something like this could happen here. The danger for Barack Obama, as your question also suggests, is the phenomenon of high expectations. There will not be an agreement on climate change by February 1; there will not be a Palestinian state by February 2; and Afghanistan will not be solved by February 3. Inevitably, he will have to deal with these expectations abroad and here at home, and one of the best ways is by communicating, which is his strength. He should have a dialogue or a fireside chat, not just something with the American people but with the world as well. I also think he can buy himself some time by using his senior staff to do some listening, to send his secretary of state or others around the world to talk to people. He’ll obviously have a succession of visitors to Washington as well, so there are various ways to manage the expectations.

First he has to pick a staff. Obama seems to have an organized system going, having asked John Podesta, a former Bill Clinton aide, to set up a transition office even before the election. How difficult is it when you are in a transition? You’ve been involved in a couple of transitions yourself.

He’s likely to move fast, because it’s not simply that you have only seventy-six days but that the moment calls for dispatch, particularly on the financial side, but also on the foreign policy side. You do not want to have a long transition. The world is not going to declare a time out and give Obama several months. The most important thing is to get the senior people named so that they can start the process of figuring out who are the deputies and the "unders" and the "assistants" and the rest. They need time to staff up so they can hit the ground as close to running as possible on January 20. There’s no shortage of foreign policy advisers that have played some role around the campaign; plus Obama and the people around him are familiar with the potential universe of choices, so it’ll be an early example of an ability or willingness to make big decisions. My own sense is that it’s going to move quickly.

He has some questions he has to answer right away. Does he want to participate in this so-called second Bretton Woods conference that begins on November 15? Does he want to get involved with this Status of Forces Agreement with Iraq, which has been held up by wrangling, to send some message to the Iraqis?

In my experience, it’s important to keep in mind that the United States can only have one president at a time, and for the next two and a half months President Bush is the president. My recommendation would not be to get in the middle of negotiations. Something, though, like the so-called Bretton Woods II meeting in mid-November is really just the beginning of a process, and there may be a role for Obama because these issues are going to be front and center and they will endure. The purpose of November 15 is not to redesign the architecture of international economic management in twenty-four or forty-eight hours. It’s in some way to agree on a term of reference and a process for addressing some of those issues. So there’s a case, if not necessarily for the president-elect’s involvement, at least for the involvement of someone whom he deputizes.

Would it be useful for him to have a senior economic adviser sitting on the sidelines?

Again, so long as it’s understood that Treasury Secretary Henry Paulson and others essentially have to carry the water. But because what’s going to happen in mid-November will simply be the beginning of a concerted international effort to come up with reforms of the International Monetary Fund or new rules about regulatory policy, it would be good, particularly when it comes to the terms of reference of the effort, to have the incoming administration informally involved in the process.

And on issues like, say, the Middle East, there’s great expectations from all sides. Do you sort of sit back a bit and digest what the situation is and invite leaders to come to Washington?

I don’t know why there are great expectations on the Middle East. Years ago I wrote a book around the theme of ripeness, and it’s hard to see where the Middle East is poised or ripe for progress, much less a breakthrough. You’ve got a divided Palestinian leadership and you’ve got an Israeli polity that’s moving toward elections in early 2009. I would actually not recommend this as an early area of major focus. I just don’t see the pieces there to work with. What I believe ultimately the next administration needs to do is to come up with a policy that would, hopefully over months or years, develop that ripeness and that would set in motion a process where hopefully Israelis and Palestinians could get leadership that is willing and able to make compromises for peace.

The area in the Middle East where potential exists for some ripeness is on the Israeli-Syrian front. It’s something certainly worth exploring early on in 2009. And obviously there will be a lot of attention paid to the Iran situation given the Iranian advances in uranium enrichment. There’s a piece of interesting hope, which is, ironically enough, the silver lining in the recession cloud: The halving of oil prices has clearly created significant economic problems for the Iranian government. It means the financial sanctions are having a lot more traction, and it’s possible that this will create an environment in which a new diplomatic initiative could have some promise.

There was talk that after the election the United States would go ahead and try to set up an interests section in Tehran. I don’t know where that stands or even if the Iranians would welcome it.

It’s been bandied about. To me it’s secondary in the sense that what matters more is the context in which things go forward, and that, again, will depend upon the international economy, on Iran’s economic situation and internal politics. Iran itself has a presidential election in spring 2009, so all of this has to play out. But if the current administration wants to establish an interests section, it would in some ways potentially be doing a favor for the new administration. The parallel historically is when the Reagan administration was in its lame-duck phase, it established a relationship and a dialogue with the PLO [Palestine Liberation Organization]. Then when the George H.W. Bush administration came in, it didn’t have to expend political capital to start talking with the PLO because they inherited the dialogue. So the establishment of an interests section now would make it somewhat easier for a new administration to simply start from there.

I want to come back to Iraq. How important is it to get this Status of Forces Agreement settled, or can he wait until he’s president and then deal with it?

Ideally, it would be settled, but there are other alternatives. There’s still the alternative of a new UN Security Council agreement authorizing U.S. troops beyond December 31, or there could be a bridging agreement, where the Iraqis and the Americans could conceivably agree to a three- or six-month temporary extension given the transition taking place in U.S. politics, simply to buy time. So I don’t feel that this is a do-or-die-type situation.

Now he’s going to have, of course, overwhelming majorities in the Congress. But could this paradoxically put a crimp in his foreign policy objectives like foreign aid?

The short answer is, quite likely, in those aspects of foreign policy that are resource dependent. And foreign aid is one such area; defense spending is another. So it’s quite possible those will be two areas where Congress may decide they need to find some cuts because there’s lots of other areas Congress will either be unable or unwilling to cut the budget-interest on the debt, entitlement, and so forth. It could well be that the national security area offers one of the few pots that Congress decides to cut. Another factor for the president’s agenda could be constraints that Congress might introduce, say, in the trade area. And I would think that it might be difficult to get some of the pending foreign trade agreements through this Congress. More important is the question of whether the new president can regain trade promotion authority, the so-called fast track. I would think the argument for it is stronger than ever. There’s all sorts of academic work that suggests that a new trade agreement would contribute as much as 1 percent to U.S. and global economic growth, and it would do so in a way that’s non-inflationary. So here we are looking for stimulus; I can’t think of any better stimulus package than a trade agreement.

You are referring to the world trade negotiations, the so-called Doha round?

Exactly. Coming back to something you asked about, this would also be a way to compensate for the possible decline in foreign aid. Trade is a much better development tool, say, for poorer countries in Africa that could then expand their agricultural and basic manufactured exports to the United States. So that would be a good way to compensate for falling off on aid dollars.

And on the environmental issues, obviously there will be a change from the Bush administration’s beginnings.

The environment is another area where there will be high expectations. And yes, the new administration, I expect, will lean toward an environmental negotiation rather than away from it, as the Bush administration tended to do. But particularly in this economic context, it’s not going to be easy. No one’s going to be excited about carbon taxes, even cap-and-trade systems that could add some cost or force societies to make trade-offs between economic growth and environmental constraints. This is not an environment-no pun intended-in which it will be easy to do that, particularly when you also add in the reality that countries like India and China are going to be particularly reluctant to accept limits at a time when their rates of economic growth are falling. So while the disposition to do something in this area is doubtlessly greater, the ability to translate that into meaningful international agreements is an open question.

And on the personalities he wants to choose, again there was some talk that he might ask Secretary of Defense Robert Gates to stay on, or Treasury Secretary Paulson to stay on, but I can’t imagine either one wanting to do so.

The short answer is, I don’t know. Let me put it this way: I think both of them have distinguished themselves in their jobs, and when people are looking at the Bush presidency, two of the bright spots will clearly be the performances of Bob Gates and Hank Paulson. Whether that translates into them being asked and then agreeing to stay on, I have no idea. But what they also represent are people of competence and experience, and also people who would not really be classified as either partisan or ideological. So to me the bigger question is not necessarily whether these two individuals are asked to stay on and whether they agree, but whether people like them are then brought into government. Because again, to me they are both refreshing and almost old-fashioned examples of public service and public servants. People who come in, roll their sleeves up, and get the job done.

Would you advise Obama to make an early trip to Europe, to a NATO meeting or something like that? I remember President John F. Kennedy did that in his first days.

It wouldn’t be my first priority if I were him. I would think the priority should be more on the financial and economic side, and I don’t see particularly in Europe right now any crisis or challenge of equal proportion. So I would say the near-term foreign policy challenges are probably Iran, Afghanistan, Pakistan, still a little bit of Iraq. You then have longer-term foreign policy challenges of how to deal with the gap between the challenges of globalization and the existing institutional architecture. But I would think the first priority for the new president has got to be the economy. He’s going to inherit an economy in recession. We’re talking about significant negative growth, and turning that around, I would think, is the necessary and right focus for our new president.