Week of October 18th; 2013

A Weekly Report of U.S. Think Tank Community Activities
10/18/2013

Executive Summary

The focus was on the US budget and debt battles this. However, there were several important pieces put out by Washington think tanks that ranged geographically from Morocco to Afghanistan.

The Monitor Analysis looks at the budget battle in terms of next year’s mid-term elections. Clearly, both the Democrats and Republicans are maneuvering to gain advantage in the elections and control of the US Senate. We show how what happened in the last few weeks was partially a result of this battle to control the Senate and how just a few seats could mean a big difference.

As the US and other nations negotiate with Iran on its nuclear policy, the Carnegie Endowment advocates a more realistic US nuclear policy regarding the use of nuclear technology by other nations. They suggest, “realistic appreciation of the particular circumstances of each country with which it negotiates a civil nuclear cooperation agreement. In some cases, such as with countries in areas of political instability or of high proliferation risk, this may prompt the U.S. to negotiate new agreements containing legal commitments to abstain from enrichment and reprocessing. But in some instances the United States will not be able to persuade countries to forgo or forswear future nuclear fuel cycle options…In other cases, countries may be more willing to abstain from ENR if the United States works with them to lease or take back their spent nuclear fuel, or if the United States effectively promotes the establishment of multilateral fuel cycle enterprises.”

Think Tanks Activity Summary

The Carnegie Endowment looks at the quandary of Saudi foreign policy as American foreign policy drifts. The paper suggests, “If history is any guide, Saudi Arabia, and the Gulf more generally, will continue to pursue policies that align with the broad contours of U.S. strategy—but with a creeping preference for hedging and unilateralism that will, in some cases, clash with U.S. interests. It is in the Gulf’s domestic landscape that the sharpest breaks between Saudi and U.S. views are emerging: regional tensions have enabled a harsh security campaign against a wide range of dissidents, the rise of sectarianism, and the troubling use of censorship.”

The CSIS looks at the Jihadi-Salafism movement in North Africa that is attracting a younger generation of activists. In warning about this new movement, the CSIS notes, “Al Qaeda attracted young men to take up arms against Western-backed governments and fight an international jihad, but it failed to inspire a large mass of adherents. This new extremism uses social activism and outreach as its primary tactics, and it threatens to undermine fragile governments and radicalize publics in divided societies. While the governmental response to al Qaeda focused on counterterrorism tactics, the antidote to this emerging extremism will have to be more complex and navigate local socioeconomic, religious, and political divisions. Ultimately, this mainstream or popular jihadi-salafism is less dramatic than al Qaeda’s version, but it will have a far greater impact on the region’s future.”

The Washington Institute looks at the cut off of foreign aid to Egypt. They warn in their conclusion, “But if the U.S. proceeds with an inflexible and impractical interpretation of its latest well-intentioned effort to spread the blessings of democracy abroad, the results are likely to be very bad for Egypt, for the region, and especially for American interests therein. Those with memories a bit longer than the current administration have seen this movie before. The starring role was played by Egypt’s military leader of the time, Col. Gamal Abdel Nasser, who famously told President Eisenhower to take any conditional U.S. aid and “go jump in the lake.” It took a generation of wars, Russian dominance in Egypt, desperate poverty, and increasingly repressive rule to get past that disaster. This historical analogy is of course imperfect, as all analogies are by definition. Yet it serves as an important cautionary tale to help guide the next fragile steps in the long, crucial and complex U.S.-Egyptian relationship.”

The Foreign Policy Research Center looks at the new Egyptian leader General Abdel-Fattah al-Sisi. They note, “A quiet man known for saying little and keeping his own counsel, in his year of study at the U.S. Army War College in 2006, al-Sisi produced a research paper or brief thesis on his views of Islam and the state. In it, al-Sisi declares, “There is hope for democracy in the Middle East over the long term; however, it may not be a model that follows a Western Template” (sic). By that, al-Sisi makes plain, he means that Middle Eastern democracy must be based not on secularism, but on Islam.”

The German Marshall Fund looks at Afghanistan’s presidential elections. They note, “The frantic realignment of political figures over the last few days has in some cases led to the creation of mismatched tickets, where not only old foes joined hands but even decentralization advocates coalesced with backers of a strong central government. It will require a great deal of work for several contenders and their running mates to tie together their visions that are largely incompatible, solidify new alignments, form platforms, and eventually manage a campaign, all in short order.”

The CSIS looks back at the Arab Oil Embargo of 40 years ago, its roots, and its impact. In measuring its long term impact, they conclude, “Yet, even as we remember the embargo and the turbulent times of the 1970s, we would do well to take note of the significant changes that both domestic and global energy markets have undergone. At this writing, the United States is poised to become the world’s number one producer of oil and gas, and we are on our way to achieving more than 90 percent energy self-sufficiency. We have enormous coal resources and have made remarkable strides in promoting efficiency and renewables growth. The technological advances that helped promote the “unconventional” oil and gas revolution we are currently experiencing and our ability to explore and develop frontier resources are nothing short of astounding. Additionally, our energy usage per unit of GDP is less than half what it was back in the 1970s—all great advances.”

The Washington Institute looks at Morocco’s newest cabinet. They conclude, “The Islamists are ever weakened. While on the one hand one could argue that these latest developments seriously undermine prospects for Moroccan democratization, there is little consensus on what could serve as a viable alternative to the status quo. Morocco’s ability to remain stable, relatively secure, and a major non-NATO U.S. ally can be attributed, at least in part, to what many critics perceive as the monarch’s chess game. Beyond old guard incentives to weaken the Islamists, two more observations are worth mentioning. The first is that given the backlash against Islamists in the other parts of North Africa, PJD’s position as a minority participant may allow the party the silent exit it needs. Second, as Mezouar was an important figure in brokering the 2004 U.S.-Morocco Free Trade Agreement, he is likely to be seen as bolstering the ever-important U.S.-Morocco bilateral relationship.”

ANALYSIS

The (Domestic) Political Consequences of the Government Shutdown and Debt Crisis
A temporary deal has been reached to keep the US federal government working and paying its bills. The agreement would fund the government until January 15, extend the debt ceiling until February 7, and initiate a budget conference for fiscal negotiations later this year. The agreement would also keep sequestration intact.

As for Obamacare, which was a major sticking point in the continuing resolution, there was only one minor change. It requires individuals and families seeking subsidies to purchase coverage to verify their incomes before qualifying.

But, this doesn’t permanently solve the budget problem. Consider it a time-out in the political game. We will hear more about this in the upcoming months, especially as Republicans think that Obamacare will become more unpopular in the coming months, which will give them more political leverage. And, Americans still think the federal government is spending too much.

Despite the rhetoric, the big goal behind the intransigence by both the Democrats and Republicans in the current debt and continuing resolution fight is the outcome of the election in 2014. The election results hold the political leanings of the Senate and the House of Representatives in the balance and may herald a new beginning for the Obama Administration as he regains political clout in the Congress. Or, it may hasten his “lame duck” status as a Republican Senate and House ignore his initiatives.

Or, it could lead to a split decision and more gridlock.

This has been why the battle has been so fierce and both sides have not backed down much. Traditionally, the mid-term elections for the party holding the White House during the second four year term are disastrous. President Bush lost both the House and Senate in a landslide in 2006. And, Obama’s poll ratings are nearing those experienced by Bush before that disastrous election.

By holding the line against the Republicans, Obama hopes to energize his political base and improve the anemic fund-raising of the Democratic Party. By standing tough and blaming the Republicans, he hopes to convince the key independent voters that Republican politicians are the problem and that a smoother running federal government requires giving the House of Representatives back to the Democrats.

The Republicans are also trying to rally their grassroots, who are more conservative. They are also hoping to win the Senate in 2014, which would make it that much harder for Obama to push his agenda in the last two years of his administration.

While current polling shows that the public holds the Republicans more at fault for the government shutdown, it’s important to remember that these polls are of adults – not likely voters, who will actually decide the political balance of power in 2014.

So, when it comes to who is looking better at winning in 2014, who has the edge? The smart money is on the Republicans, who have election history and trends on their side. This is backed up by polling in critical races.

No wonder why the Republicans are standing fast.

The big battles will be in the Senate, where a shift of three seats would give the Republicans control of the Senate. And, recent polling shows that the Republicans may have those three seats in play already.

This is why the Senate did not vote on the measures passed by the House that would have kept some parts of the government fully funded. Senate Majority Leader Senator Reid ironically agrees with his Republican opposition that these measures are political dynamite and risk the Democrats control of the Senate as well as Obama’s policies. If he allows the bills to come to the Senate floor and he holds the Democrats together to defeat them, he may very well lose control of the Senate next year. If he allows the bills to come to the floor and the Republicans win with the critical votes of a few Democratic senators, he may keep control of the Senate, but Obama loses his key legislative victory – Obamacare.

That’s why the Senate refused to pass the House legislation. Reid must protect his very thin majority in the Senate, which relies on the fate of four senate seats that the Republicans think they can win in 2014. If three of these four go Republican, the Republicans gain control. All four of those seats are in states that voted for Romney in 2012 and dislike Obama.

First, let’s look at the seats with an incumbent Democratic senator.

The three top incumbent Democratic Senate seats being targeted by Republicans are in Alaska, Arkansas, and Louisiana. All three went for Romney in 2012 and the incumbent Democratic Senators are polling at below 50% – a danger point at this time of the election cycle.

First, Alaska, which is deeply Republican and elected Sarah Palin as governor. In Alaska, where Democrat Mark Begich is up for reelection in 2014, Republican candidate Mead Treadwell trails by one point, 43 percent to 42 percent, while likely GOP candidate Dan Sullivan trails Begich by two points, 43 percent to 41 percent. In the generic race, a Republican candidate leads the Democratic candidate by 45% to 35%. Senator Begichhas 39 percent job approval and 42 percent disapproval.

Another target state is Arkansas, home of President Clinton, but which has become more Republican since sending Clinton to the White House. There, the race between Democratic Senator Mark Pryor and his Republican challenger, Congressman Tom Cotton, remains close. The Harper poll only found Pryor with a three-point lead over Cotton, 45 percent to 42 percent (in a Hendrix College poll, Pryor led Cotton 42 percent to 41 percent). In the generic ballot, Arkansas voters say they would prefer to vote for the generic Republican over the generic Democrat for Senate 40 percent to 37 percent. The reason why Pryor remains ahead is that he is more popular in Arkansas than Obama.

Louisiana is another state with Democratic traditions that is leaning more Republican and threatening an incumbent Democratic Senator. Democrat Senator Mary Landrieu favorability rating is 47 percent, with 44 percent having an unfavorable opinion. That thin margin means leading Republican candidate, Congressman Bill Cassidy is only 2 points behind Landrieu, 44 percent to her 46 percent, in the Harper poll. However, the generic ballot shows the Republican ahead 40% to 37%.

There is also an open senate seat in West Virginia that is being vacated by Democratic Senator Rockefeller that could be a pick up for the Republicans. Obama’s approval rating is dramatically low in West Virginia, with just 25 percent of likely voters approving, and 65 percent disapproving. That, in turn benefits the Republicans as the generic ballot shows the Republicans with a sizable lead – 48% to 36%. Head to head, Representative Shelley Moore Capito, Republican, leads Natalie Tennant, Democrat, 51 percent to 34 percent.

The rule of thumb in politics is that a politician with less than 50% approval or less than 50% when paired up against a challenger is in trouble because undecideds tend to break for the challenger. Thus, a win in three of these four races could mean that the Republicans could take the Senate next year.

Meanwhile, the House remains relatively safe for the Republicans despite the recent news. Many of the House Republican seats are in safe districts and the Democrats are having problems recruiting top contenders who can raise the money and run the type of campaign that threatens an incumbent. And, although voters are upset with Congress as a whole, they are more satisfied with their specific congressman.

There are also several Democrats who are vulnerable in the House. The National Republican Congressional Committee has compiled a list of what they believe are the seven most vulnerable Democratic House members, who are in Republican districts. And in five of those seven races this past quarter, GOP challengers out-raised their opponents. This means that the Democrats have to protect some of their own members, rather than merely focus on beating Republican incumbents.

Remember also that mid-term elections are also used by voters to voice their opinion of the president. In this case, Obama is very unpopular and his favorable rating amongst likely voters is in the high 30’s – a rating Bush had before the disastrous 2006 elections that eviscerated the Republican Party nationally. This was evident in the special New Jersey senate election this week where Democrat Booker won by only half the margin Obama had won by in New Jersey last year. In fact, the vote tied the best performance for a GOP Senate candidate in the strongly Democratic state since 2000.

This is why the Republicans are standing up to Obama despite the recent compromise on the government shutdown – they are reading the polls that are showing them in a commanding position next year. It also explains why the Senate majority leader, Democratic Senator Reid did not allow Senate votes on the House bills. These measures are popular with the voters and would force his vulnerable Democratic Senators from Alaska, Arkansas, and Louisiana to either vote along with their constituent’s wishes, which would give the Republicans a victory in budget fight, but help their reelection next year, or vote in accordance with Obama’s wishes and risk losing next year and giving the Republicans control of the Senate.

As we said earlier, this is about much more than the budget or debt – it’s about who will win next year.

Changes at NSA

The Snowden leaks have finally taken their toll. NSA director Keith Alexander and his top deputy will depart soon, according to reports. John Inglis will retire at the end of the year, and Alexander will follow his deputy out the door by spring 2014. Although the reports say that the moves have nothing to do with the embarrassing situation the NSA has gotten itself into, the fact that both of the top NSA people are leaving within months of each other indicate some pressure for them to go. The NSA Director destroyed his own credibility and that of the agency after the leaks exposed his previous Congressional testimony as misleading.

Iranian Nuclear Talks

Iran, the permanent five members of the UN Security Council (the US, Russia, China, Britain, and France), and Germany finished talks in Geneva on the Iranian nuclear program. Although the tone of talk has improved, observers warned that the road to any agreement is down the road. They will meet again in November.

Iran laid out a new roadmap of what it was willing to do to permanently allay fears that its nuclear program is for more than peaceful purposes. The country also laid out what relief it expects in return from a US-engineered array of global sanctions.

The stated goal for the Iranians is to be able to enrich uranium for themselves for peaceful purposes, while removing fears of a bomb effort and lifting sanctions.

PUBLICATIONS


The Arab Oil Embargo—40 Years Later
By Frank A. Verrastro and Guy Caruso
Center for Strategic and International Studies
October 16, 2013

This week marks the 40th anniversary of the Arab Oil Embargo. And while certain (and selective) aspects of the event will undoubtedly be commemorated with policy fora and written reflections, it is useful to recall the contributory causes, significant impacts, and resultant policy- and market-induced outcomes in order to view the event in proper perspective. In truth, the seeds of the embargo were being put in place long before October 1973. The Organization of Petroleum Exporting Countries (OPEC) was formed in 1960, in no small part to allow producer nations greater control of the pricing and production of their indigenous oil resources. In 1968, several of the Arab members of OPEC formed the Organization of Arab Petroleum Exporting Countries (OAPEC), essentially putting in place the organizational vehicle for executing the 1973 supply disruption. But it was a combination of economic and military/political actions and circumstances that teed the action up.
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Jihadi-Salafism’s Next Generation
By Haim Malka andWilliam Lawrence
Center for Strategic and International Studies
October 11, 2013

Popular uprisings across North Africa unleashed a new wave of jihadi-salafism that is increasingly mainstream and appeals to a younger generation of activists. Al Qaeda attracted young men to take up arms against Western-backed governments and fight an international jihad, but it failed to inspire a large mass of adherents. This new extremism uses social activism and outreach as its primary tactics, and it threatens to undermine fragile governments and radicalize publics in divided societies. While the governmental response to al Qaeda focused on counterterrorism tactics, the antidote to this emerging extremism will have to be more complex and navigate local socioeconomic, religious, and political divisions. Ultimately, this mainstream or popular jihadi-salafism is less dramatic than al Qaeda’s version, but it will have a far greater impact on the region’s future.
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What to Make of Saudi Hand-Wringing
By Frederic Wehrey
Carnegie Endowment
October 15, 2013

These are troubling and uncertain times for Saudi diplomacy. A string of regional upsets and friction with the United States has cast the kingdom into rocky, uncharted waters. Washington’s support of the Islamist government in Egypt and its response to the use of chemical weapons in Syria elicited outrage and accusations of U.S. unreliability and even betrayal from Riyadh. Then came the slight warming in U.S.-Iranian relations—highlighted by the unprecedented phone call between U.S. President Barack Obama and Iranian President Hassan Rouhani. That mild rapprochement brought to the fore an old specter: an U.S.-Iranian breakthrough that marginalizes the Gulf states and erodes their long-standing position as beneficiaries of U.S.-Iranian hostility.
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A Realistic and Effective Policy on Sensitive Nuclear Activities
By Mark Hibbs and Fred McGoldrick
Carnegie Endowment
October 15, 2013

The U.S. government will very soon set a new policy course on the nonproliferation terms it wants to incorporate into new bilateral peaceful nuclear cooperation agreements with foreign countries. It is likely that the administration will instruct diplomats to persuade the foreign countries with which it intends to cooperate in the future to refrain from engaging in enrichment of uranium or the reprocessing of spent nuclear fuel (ENR) on their territories if they do not already possess such capabilities. Enrichment and reprocessing are sensitive nuclear activities because they can produce nuclear materials directly usable in nuclear weapons.
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Islamist or Nationalist: Who is Egypt’s Mysterious New Pharaoh?
By Raymond Stock
Foreign Policy Research Institute
October 2013
E-note

Egypt’s new de facto pharaoh, General Abdel-Fattah al-Sisi, is a man of mystery. Is he an Islamist, or a nationalist? Is he a person of high principle, or a lowly opportunist? And in a land which has known five thousand years of mainly centralized, one-man rule, with limited experience of democracy, when have we seen his type before, and where will he lead the troubled, ancient nation now? These questions are crucial to knowing how the U.S. should react to al-Sisi’s removal of Egypt’s first “freely elected” president, Mohamed Morsi on July 3 in answer to overwhelmingly massive street protests demanding that he do so, and to the ongoing bloody crackdown on Morsi’s group, the Muslim Brotherhood (MB), that began on August 14.
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Afghanistan’s crowded electoral roster
By Javid Ahmad
German Marshall Fund
October 11, 2013
Foreign Policy

The frenzied phase of registration for the 2014 presidential election in Afghanistan ended Sunday with more names on the roster than expected, more last-minute horse-trading than anticipated, and more questions than answers about what is already shaping up to be a hectic but vibrant process leading up to the critical ballot next April. Nominee registration began as a trickle and ended as a deluge of presidential hopefuls submitting their paperwork. Finally, 26 men and one woman — some known political figures, others untested — presented their running mates (consisting of 45 men and 9 women), and took advantage of the media glare to present their core campaign slogans to millions of enthused, but bewildered Afghans on live television.
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Assessing Morocco’s New Cabinet
By Vish Sakthivel
Washington Institute
October 16, 2013

Last Thursday, October 10, King Muhammad VI of Morocco signed off on the country’s new cabinet after months of protracted negotiations. In the new cabinet, known as “Benkirane II,” the secretary-general of the governing Islamist Justice and Development Party (PJD), Abdelilah Benkirane, for whom the coalition is named, retains the post of prime minister. The head of the centrist, pro-palace National Rally of Independents (RNI), Salah Eddine Mezouar, has secured the coveted foreign ministry portfolio from the PJD’s own Saad Eddine al-Othmani. The RNI ruled in several coalitions before the PJD joined in the wake of February 20 Movement (M20F) protests (a pro-democracy effort that burgeoned following the 2011 Arab uprisings). A former RNI member turned independent, Mohamed Boussaid, has assumed the finance minister post, which was originally intended for Mezouar until public protests over his ongoing corruption case threatened his candidacy. Other unaffiliated technocrats have assumed the Interior and Education Ministry portfolios.
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Next Steps with Egypt
By Adel El-Adawy and David Pollock
Washington Institute
October 15, 2013
The Hill

The decision by the Obama administration to suspend a large portion of U.S. military aid to Egypt is not productive, either for Egyptian democracy or for relations between the two countries. But since what’s done is done, the question today is how Cairo and the rest of the region will react to this decision, and how both Egypt and the U.S. can best recover from this self-inflicted wound. First, regarding Egypt, the Obama administration is either underestimating or miscalculating the response of its government, even more important, of the Egyptian people. Background briefings described General Sisi’s reaction as “friendly,” and the Egyptian foreign ministry’s reaction as “nonchalant.” Such self-serving comments not only obscure the deep disappointment of Egyptian officials, but also entirely ignore the Egyptian public — ironic for a U.S. administration that prides itself on promoting that public’s interest.
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Week of October 11th, 2013

A Weekly Report of U.S. Think Tank Community Activities
10/11/2013

Introduction

The talk around Washington is still the government shutdown. And, this issue remains in flux and may very well change between the time this is written and you read it.

Currently, it appears that Republicans are signaling that they are willing to increase the government debt ceiling for 6 weeks so both sides can sit down and discuss the budget and the government shutdown. Talk within the GOP indicates that this is a plan that can be agreed upon by most Republicans, including conservative ones.

This bill may be passed by the time you read this. However, this doesn’t end the government shutdown. It only mitigates its impact. And, the whole process may take place again in six weeks as it has in the past (read the Monitor analysis for more on the past history of debt ceiling negotiations).
One component under discussion is how the shutdown is impacting the world and American foreign relations. The Monitor analysis looks at this issue and tries to separate fact from political rhetoric. The analysis shows that the threatened default is only a threat and that holdings by China and Japan are only a fraction of US debt and their liquidation would hurt China more than the US.

SUMMARY, ANALYSIS, PUBLICATIONS, AND ARTICLES

Executive Summary

The talk around Washington is still the government shutdown. And, this issue remains in flux and may very well change between the time this is written and you read it.

Currently, it appears that Republicans are signaling that they are willing to increase the government debt ceiling for 6 weeks so both sides can sit down and discuss the budget and the government shutdown. Talk within the GOP indicates that this is a plan that can be agreed upon by most Republicans, including conservative ones.

This bill may be passed by the time you read this. However, this doesn’t end the government shutdown. It only mitigates its impact. And, the whole process may take place again in six weeks as it has in the past (read the Monitor analysis for more on the past history of debt ceiling negotiations).
One component under discussion is how the shutdown is impacting the world and American foreign relations. The Monitor analysis looks at this issue and tries to separate fact from political rhetoric. The analysis shows that the threatened default is only a threat and that holdings by China and Japan are only a fraction of US debt and their liquidation would hurt China more than the US.

Think Tanks Activity Summary

The Brookings Institution looks at the reported suspension of foreign aid to Egypt. They suggest that Obama was politically backed into a corner. “Having failed to suspend aid right after the coup, despite threatening to do exactly that, the administration was left with little choice but to define its least worst option. With this partial suspension, it hopes to make clear that there is some price (largely symbolic and perhaps temporary) for ignoring U.S. preferences. The administration hopes to show it they won’t be overly influenced on Egypt policy by Gulf and Israeli lobbying for total aid resumption. And it hopes to sustain a working relationship with the people who are running Egypt—an objective which has been perhaps the only consistent component of the U.S. approach toward Egypt since the 2011 revolution.”

The Wilson Center releases what are called the Avner Cohen Collection on the Israeli Nuclear Bomb. Cohen has spent decades documenting Israel’s nuclear program. In the introduction, Cohen states, “While this collection serves as a guide to the past, it may also enlighten our understanding of the present and help shape a more peaceful future. Historical scholarship on Israel’s nuclear program affects contemporary thinking on nuclear matters in the Middle East and globally. Moreover, historical transparency may help promote regional stability by reducing distrust between Israel and its neighbors.”

It was confirmed in the releases that during the 1973 war some Military leaders contemplate using nuclear weapon.

The Carnegie Endowment looks at Russia and its support of Syria and Assad. They note, “The Russians side with Mr Assad not because he is their man, but because his forces are killing Islamist extremists, whom Moscow now considers to be its most dangerous enemies. But for him, al-Qaeda’s allies would have turned Syria into a base for international terrorism. Russians play down the fact that Mr Assad’s Russian-made weapons are also killing innocent civilians, and thus breed more jihadis. While the Kremlin has long decided on its goals, the White House has so far demonstrated only two aims: it wants to see Mr Assad go and is reluctant to become involved militarily. Sensing this, Russia has sought to engage the US on Syria’s chemical disarmament and a wider political settlement of the crisis. These are less about Syria than about achieving Mr Putin’s most far-reaching, even improbable goal in foreign affairs: restoring equality to the US-Russia relationship.”

The Carnegie Endowment also looks at Russia and the Arab Spring and the perception of the phenomena with Russian Muslims. They conclude, “As Moscow works out the details of its new policy in the Middle East, it is also important for Moscow to take into account the Arab Spring’s impact on Russia’s Muslim community, which is only now starting to show its reaction to the upheavals in the Middle East. Russian Muslims are following with interest and even admiration the successes of their radically minded coreligionists in the Arab world, and many think that Russia should seek a rapprochement with the victors. Of course, Moscow cannot shape its foreign policy to suit the wishes of Muslims in the North Caucasus or the Volga Region. At the same time, the Kremlin must take into account the possibility of an increasingly radicalized Islam in Russia, especially in the context of the Russian leadership’s desire to maintain normal relations with the new elites in the Arab world.”

The Wilson Center looks at Russia’s history in the Middle East. In the interview with Paul du Quenoy, he speaks about Russia’s traditional interests in the region. “If you look at a lot of the Soviet era publications on imperial Russia in the Middle East – documentary collections or academic articles – they almost always bring out this idea that Russia had a long-standing relationship with the people of that part of the world as a benefactor, as a friend, as someone who could be relied on in a crisis, and I do think that informs how they think today. The people making policy are likely more engaged with immediate problems, but these are all people who were educated in the diplomatic academy and probably have a pretty pronounced sense of what the Russian Empire’s history was in the region.”

The CSIS looks at the US capture of Al-Libi and how it may impact the growing terrorism in Libya. Of interest to the US is, “information that al-Libi might possess regarding militant groups within Libya itself. After the fall of Gaddafi, Libya’s interim government has had great difficulty in asserting its authority beyond a few select areas. Islamist militant groups have recently grown in strength and influence within Libya, presenting a threat not only to the Libyan government but, as demonstrated by the killing of Ambassador Christopher Stevens and three other Americans at the U.S. Consulate in Benghazi in September 2012, to U.S. interests as well. Given al-Libi’s history with the LIFG, many of whose former members remain active within Libyan militant movements, his capture could prove a boon for those seeking to counter the rise of violent militancy within Libya.”

The CSIS looks at the Turkish decision to buy a Chinese air defense system and what it means about overall US/Turkish relations. They note, “There has undoubtedly been some deterioration in the previously close relationship between the Turkish Prime Minister and U.S. President Barack Obama since their two meetings at the White House on May 16 of this year. Erdogan’s disappointment at the continuing unwillingness of Obama to engage forcefully in the Syrian crisis has been deepened by his sanctioning of the Russia-brokered deal with the Assad regime on its chemical weapons instead of military action. The two sides have also publicly disagreed on the reaction to the military overthrow of the Muslim Brotherhood government in Egypt and the Turkish government’s reaction to the Gezi Park protests. The absence of a bilateral meeting between the two leaders at the recent St. Petersburg G-20 meeting testified to a possible chill in the relationship and it remains to be seen how Washington will choose to react to Ankara’s Chinese gambit.”

The Heritage Foundation asks what happens if the debt ceiling is not raised and the US government must pick who gets paid. Although the Constitution says government issued bonds must be paid, there is some flexibility given to the President as to what other government functions get funded. They conclude, “In brief, the President has broad authority to manage government payments to avoid defaulting on federal obligations. He can choose which payments to make and in which order and these choices will impact the effects on the average U.S. taxpayer and the economy.

The German Marshall Fund argues that the US government shutdown is hindering US foreign policy. They note, “The government shutdown sends a very negative message about the United States’ reliability as a partner in world affairs and reduces the authority with which it can carry out a leadership role. How can allies have confidence that the country’s attention will remain on developments in Syria or Iran’s nuclear ambitions when it cannot even keep its government’s doors open? President Barack Obama was forced to cut his planned visits to Southeast Asia, thereby postponing potential advances in bilateral and multilateral relations in the Asia-Pacific. The moral authority of the United States to guide other countries on a pathway to pluralistic democracy is further complicated when a minority faction is able to cause a shutdown of the U.S. government in an effort to press for its specific policy demands. As one U.S. diplomat recently put it, “How are we supposed to promote good government when we can’t even pass a budget?”

ANALYSIS

Will US Government Shutdown Have International Implications?

The US Federal government shutdown is heading into its second week with little movement. The biggest change in the situation is that next week the US runs up against its debt ceiling. This has the Republican congressmen talking about a temporary debt ceiling increase and Obama threatening a US default that will roil the international monetary markets.

Can that happen? Not likely. What is coming out of Washington is primarily rhetoric from both sides to make the opposition back down. The fact that the US financial markets have been relatively calm is indication that there is little economic threat despite the terrible prophecies.

In this analysis, we will look at two issues: What is the international impact of the US shutdown and how is it impacting US foreign policy?

Let’s look at the financial impact. Despite the stories of doom, the US will not default on its debts. Default means the inability of the U.S. government to service its debt, to make principal and interest payments on outstanding bills, notes, and bonds. This is not to be confused with payments due to others, whether contractors, vendors, or recipients of entitlement programs, each of whom would have a serious issue were cash flow to cease but none of which is the same as a true national default.

If the debt ceiling is not raised, it does not mean the government has defaulted, but rather than it must immediately balance its budget – a problem since the government borrows nearly 40 cents of every dollar it currently spends. But default isn’t an issue.

Here’s why. Monthly interest expense on Treasury debt is typically about $25 billion, with larger sums due (about $95 billion in 2012) in both June and December. Although revenue varies month to month, the Treasury should receive roughly $175 billion in October, slightly less in November, and about $250 billion in December based on current trends. In other words, the government takes in about seven times as much in revenue as it pays out in interest on the national debt. There is no possibility of real default. And, the government can still roll over its debt as long as it doesn’t exceed the debt ceiling.

There is also the Constitutional aspect. Obama can’t default as long as there is money in the treasury. Section 4 of the 14th Amendment of the US Constitution (The validity of the public debt of the United States, authorized by law…shall not be questioned. ) guarantees the payment of the Government’s debt and Obama ignoring this part of the US Constitution would be an impeachable offense.

The US does have entitlement obligations, including the politically sensitive Social Security payments due at the beginning of November. Obama could choose not to make those payments, but would likely run up against a court injunction if he did. This, in turn, would force deeper cuts in other parts of the government if no deal is reached.

Despite the horror stories, political battles over debt ceilings are a regular part of the brinksmanship of Washington. President Reagan fought Democrats in Congress over the debt limit as both sides sought to gain budget concessions. From 1985 to 1987, there were short-term debt limit increases passed, 11th-hour compromises, “extraordinary measures” used by the Treasury Department in order to extend the federal government’s borrowing power, veto threats, demands for clean hikes, and, eventually, grand budget bargains. Democrats wanted to use the impending debt limit to force tax hikes and military spending cuts.

In October 1985, Democrats refused to pass a long-term debt limit hike because they wanted to use the issue to force multiple showdowns over the budget in coming months. The threat of a filibuster was enough to stall a grand budget bargain, and the Reagan Treasury Department was able to enact emergency procedures – including raiding the Social Security “trust fund” – in order to extend the government’s ability to pay its bills.

The standoff lasted over a month. On November 14, 1985, Congress approved a temporary measure, buying enough time to pass a grand budget bargain – the bipartisan Gramm-Rudman-Hollings deficit reduction measure – which included a spending cut measure similar to last summer’s sequestration.

The same thing happened after the 1986 midterm elections gave the Senate back to Democrats, giving them complete control of Congress. Emboldened by the debt limit fights of the last two years, Congressional Democrats would use the debt limit to push their demands. The increases in tax revenue and cuts to defense spending would finally be theirs.

The reality is that when the Congress and the White House are under the control of different parties, the debt ceiling becomes a tool to pass measures that the White House doesn’t like. What we see today is really the norm.
Financial Markets
However, we can still ask the question: will the international financial markets understand the politics of Washington and not panic? Then, there is the question of continued buying and holding of US securities by the Chinese and the Japanese.

The evidence in the marketplace says yes. If there were a real concern, the markets would be reacting already.

However, the size of the Chinese and Japanese holdings forces us to look at potential ramifications. China is by far the largest foreign holder of U.S. Treasury securities. At the end of July (the last month for which official statistics are available) it had holdings of $1.2773 trillion in Treasuries. The holdings of autonomous Hong Kong add an additional $120.0 billion. That total is down $37.6 billion over the last two years, which means the Chinese have reduced their exposure to US Treasury securities.

Japanese holdings are $1.1354 trillion.

The holdings of the Chinese and Japanese sounds like a lot, but it is just a fraction of US debt. In 2011, the last year for which U.S. Treasury data is available, U.S. debt securities amounted to a staggering $33.7 trillion, 34.2% of the world’s total. In comparison, China’s foreign exchange reserves, which are thought to be mostly in Treasuries, totaled only $3.50 trillion at the end of this June.

Since the debt must be paid per the US Constitution, there is little reason to sell it. And, if they do, the damage to their own economy and reserves will be much greater. In fact, the damage to their economy would be the destruction of their export economy and the rebirth of the US export economy.

If China sold Treasury securities in massive quantities, it would cause a panic, but the world’s deep markets would quickly adjust. The Chinese would get back dollars. Then, they would have to either buy hard assets or convert the proceeds into other currencies. Those would be securities denominated in euros, pounds, francs, and yen.

As China buys these other currencies, the dollar would drip in relation to the euro, yen, pound, and franc. That would make American goods cheaper and the goods of Japan and Europe more expensive. China’s export market to America would be destroyed in one binge of US treasuries sales.

Since the Europeans and Japanese would not want more expensive currencies, they would buy dollars and dollar denominated securities to cheapen their currencies and make their exports more competitive. Then, America’s debt would be in the hands of more friendly Europeans, who bought them with their more valuable currencies.

The Chinese government is running too much of a deficit itself to allow such damage to its own economy.
So, what of all the talk about default and the resulting financial meltdown? It’s just that – talk.

Meanwhile, the American public isn’t voicing any concerns about raising the debt limit. Most voters don’t want to see the debt ceiling hiked yet again in a clean deal, according to a Fox News poll released Tuesday morning. Fifty-eight percent of voters would vote against hiking the debt-ceiling if they were lawmakers, while 37 percent would vote for it.

The public also wants cuts in government spending by combining a debt-ceiling hike with spending reductions. 62 percent of voters want any debt-ceiling hike combined with significant spending cuts in a deal. This may undercut the Senate Democrats and Obama because even 48 percent of Democrats would like to see a hike accompanied by cuts.

Is the Shutdown Hurting American Foreign Policy?

The issue of the shutdown’s impact on US foreign policy came up last week when Obama announced that he was cancelling the planned trip to Asia due to the government shutdown.

The White House was quick to paint the shutdown as impacting US foreign policy. Press Secretary Jay Carney said in a statement. “This completely avoidable shutdown is setting back our ability to create jobs through promotion of U.S. exports and advance U.S. leadership and interests in the largest emerging region in the world.”

Obama sees Asia as a fast-growing region where the United States is competing for influence with China. Chinese President Xi Jinping is visiting Indonesia, Malaysia and Brunei, and Russian President Vladi¬mir Putin also will attend APEC. There was some speculation that Obama and Putin had hoped to meet during that summit and work toward a resolution of Syria’s crisis.

However, the reality is that major world leaders don’t just meet to make agreements. Meetings like those between Xi Jinping and Putin are the result of months of negotiation at lower levels. The leaders only get together to ratify these previous negotiations. Interestingly, meeting with Putin didn’t seem so important when Obama purposely snubbed him in Scandinavia just a few months ago.

In this era of vast foreign policy bureaucracies and instant communications, the concept of international meetings of world leaders that lead to agreements that weren’t pre-arranged is long past. Presidential visits are more symbolic than substantial. Any agreements that were to be announced have already been made and agreed upon. They will likely be announced quietly in the next few weeks.

Conversely, the damage was done to Obama. No one, including the Republicans would have denied him the opportunity to go to Asia. He also had the chance to travel by announcing that he would agree to negotiate with the Republicans in order to make this critical trip. That means he has damaged his personal relations with Xi Jinping and Putin just to make a point of not travelling during the shutdown. And, this is the second time he has backed down with meeting Putin.

This is not the first time Obama has cancelled trips to Asia either. He has cancelled in 2010 for domestic reasons, which calls to question the seriousness of his repeated “pivot” to Asia.

PUBLICATIONS

The President’s Legal Authority at the Debt Limit
By Andrew Kloster
Heritage Foundation
October 9, 2013
Issue Brief 4067

Some time between the middle and the end of October, the federal government will reach a hard limit on the amount of debt it can issue, and its ability to finance governmental operations will be affected. Confusion about the debt limit abounds, and this Issue Brief will address some common questions. The United States debt limit, or debt ceiling, is the statutorily defined amount of debt the U.S. Treasury can issue, either by borrowing from the public or issuing an intragovernmental receipt to special accounts, such as the Social Security or Medicare trust funds. The Treasury Department has to have liquidity, or cash on hand, to disburse the funds necessary to meet its contractual obligations. The federal government maintains this liquidity by managing governmental receipts (such as income tax payments) and selling debt (such as Treasury bonds).

Read more

Turkey Looks to China on Air and Missile Defense?
By Bulent Aliriza and Samuel Brannen
Center for Strategic and International Studies
October 8, 2013

On October 1, Turkish Defense Minister Yilmaz explained that the decision was made because “the Chinese gave us the best price.” He added “We had asked for co-production and a technology transfer. If other countries cannot guarantee us that, then we will turn to ones that can.” The following day, Turkish Foreign Minister Ahmet Davutoglu echoed his colleague by saying that the Chinese offer had met Turkey’s primary demands of price and co-production and commented “If only the American and European system makers offered better conditions, we could choose them.” The long-serving Under Secretary for Defense Industry Murad Bayar followed up with a press conference on the same day in which he said that the three reasons behind the choice were satisfaction of operational needs, the opportunity for over 50 percent local co-production of missile parts and the overall cost. Bayar also noted that the agreement could be signed in six months and that the system would be delivered in four years.

Read more

The Capture of Abu Anas al-Libi
By Rob Wise
Center for Strategic and International Studies
October 7, 2013

Al-Libi, a 49-year old Libyan whose given name is Nazih Abdul-Hamed al- Ruqai, has a long history of involvement with Islamic militancy. Originally a member of the Libyan Islamic Fighting Group (LIFG), a violent Islamist movement that fought to oust Muammar Gaddafi, al-Libi appears to have become involved with al Qaeda in the early 1990s. He reportedly spent time in Sudan while al Qaeda – under the leadership of Osama bin Laden – was headquartered there. Al-Libi also allegedly lived for several years in Afghanistan before fleeing the country in late 2001. He appears to have spent much of the last decade in Iranian custody before returning home to Libya in the midst of the 2011 civil war. While al-Libi is believed to have served as a computer expert for al Qaeda, he is wanted by the United States primarily for his role in the 1998 bombings of the U.S. Embassies in Nairobi, Kenya and Dar es Salaam, Tanzania.

Read more

Russia Is Defending Its Own Interests With Its Stance on Syria
By Dmitri Trenin
Carnegie Endowment
October 2, 2013
Financial Times

When people in the west seek to explain Moscow’s approach to the crisis in Syria, they often refer to Damascus as Russia’s “last remaining ally in the Middle East”. They also frequently include Russia’s interest in the Syrian arms market and the Tartus naval facility. Finally, a seemingly powerful argument is made about the Syrian people’s fight for democracy – which sends shivers down the spine of authoritarians, including President Vladimir Putin. These explanations are generally misleading. True, Hafez al-Assad, Bashar’s father, was a Soviet ally, but Moscow de facto withdrew from geopolitical competition in the Middle East in 1990, when it joined Washington and many others to oppose its other nominal ally, Saddam Hussein’s Iraq. Bashar al-Assad, in calmer times, was a more frequent visitor to Paris and London than to Moscow. Mr Putin himself never visited Damascus.

Read more

Russia and the Arab Spring
By Alexey Malashenko
Carnegie Endowment
October 1, 2013

Russia has spent over a decade trying to recapture the influence the Soviet Union once enjoyed in the Middle East, but President Vladimir Putin’s attempts to position Moscow as a key regional player have come up short. With revolutions across the Arab world overturning old orders and ushering in Islamist governments, Russia’s chances for strengthening its position in the region look increasingly slim. The Kremlin must change course and ensure that its approach to the Middle East and Islamists reflects post–Arab Spring realities.

Read more

The United States Shuts Down Its Diplomacy
By Glenn Nye
German Marshall Fund
October 7, 2013

On October 1, the start of the United States’ new fiscal year, thousands of federal government workers awoke to the sad realization that they would not be going to work. Their paychecks and their duties were indefinitely on hold due to the failure of the U.S. Congress to reach a compromise on funding for agencies. The immediate result was the shuttering of several federal agencies responsible for carrying out a wide array of services, while members of Congress treated their country and the world to an unfortunate and troubling bit of political drama. However long the shutdown lasts, it will have serious repercussions not only for citizens at home but also for the United States’ global leadership role.

Read more

New Exclusive Interviews on the Israeli Nuclear Program
By Avner Cohen
Wilson Center
October 2013

More than sixty years have passed since Israel began its nuclear project and almost half a century has elapsed since Israel first crossed the nuclear weapons threshold. Yet Israel’s nuclear history has no voice of its own: no insiders have told the story from within.

(http://www.wilsoncenter.org/publication/avner-cohen-collection#_ftn1#_ftn1 ). Unlike all seven other nuclear weapons states, Israel’s nuclear policy is built upon non-acknowledgement. Israel believes that nuclear silence is golden, referring to this national conduct as amimut (opacity in Hebrew). Amimut is the public trademark of Israel’s relationship with the bomb. It involves secrecy, ambiguity and taboo. As such, researching Israel’s nuclear history poses serious challenges. I recall how Israel Dostrovsky and Shalheveth Freier—the second and the third heads of the Israeli Atomic Nuclear Commission—told me that the deeds of that history resisted the written record. When the 1973 Yom Kippur War down broke out, Freier ordered his subordinates to stop communicating with anyone in writing.

Read more

Russia’s Curious Relationship with the Middle East – from Imperial Times to the Present
Interview with Paul du Quenoy
Wilson Center
October 2013

What I found to be most significant was what the Russians were doing in places like Syria and Palestine, where they were building not just diplomatic ties but also cultural and educational ties through school systems and religious endowments. There was also a Russian ecclesiastical mission in Jerusalem, which was trying hard to create an atmosphere where Russian pilgrims could travel and also to get local Arab populations to be on their side geopolitically. I also found that in places like Egypt and Morocco, there were Russian diplomatic missions arriving for really no particular reason other than to create constituencies that believed in the disinterestedness of Russian power. The diplomats would receive instructions to meet the local ruler and try to impress upon him the majesty of Russian power, the breadth of Russia’s interest in the region and in Muslims, and convince him that Russia was a true friend.

Read more

Reported Suspension of U.S. Aid to Egypt a Short-Term Measure
By Tamara Cofman Wittes
Brookings Institution
October 9, 2013

The reported plan to suspend part of U.S. military aid to Egypt reflects exactly what President Barack Obama announced in his speech at the UN General Assembly two weeks ago—continued aid to support counterterrorism and border security efforts, but withholding “prestige” items, like tanks and F-16s. The president also mentioned resumption of economic aid to support education, but we have seen no further news on that front as yet. The Egyptian military is unlikely to overreact to this move—the Egyptian state paper has been spinning the president’s words as representing U.S. acquiescence in Egypt’s political trajectory and a resumption of aid—which is not inaccurate. So the announcement, when it finally comes, will present a half measure that will gain the U.S. little except closure on an awkward, months-long saga over Egypt aid—but given how telegraphed this move has been, I don’t expect it will have much negative impact in Egypt either.

Read more

Mounzer A. Sleiman Ph.D.
Center for American and Arab Studies
Think Tanks Monitor
National Security Affairs Analyst
C: 202 536 8984  C: 301 509 4144

Week of October 4th, 2013

A Weekly Report of U.S. Think Tank Community Activities
10/04/2013

Introduction

The talk around Washington is still the government shutdown. And, this issue remains in flux and may very well change between the time this is written and you read it.

Currently, it appears that Republicans are signaling that they are willing to increase the government debt ceiling for 6 weeks so both sides can sit down and discuss the budget and the government shutdown. Talk within the GOP indicates that this is a plan that can be agreed upon by most Republicans, including conservative ones.

This bill may be passed by the time you read this. However, this doesn’t end the government shutdown. It only mitigates its impact. And, the whole process may take place again in six weeks as it has in the past (read the Monitor analysis for more on the past history of debt ceiling negotiations).

One component under discussion is how the shutdown is impacting the world and American foreign relations. The Monitor analysis looks at this issue and tries to separate fact from political rhetoric. The analysis shows that the threatened default is only a threat and that holdings by China and Japan are only a fraction of US debt and their liquidation would hurt China more than the US.

Executive Summary

The talk around Washington is still the government shutdown. And, this issue remains in flux and may very well change between the time this is written and you read it.

Currently, it appears that Republicans are signaling that they are willing to increase the government debt ceiling for 6 weeks so both sides can sit down and discuss the budget and the government shutdown. Talk within the GOP indicates that this is a plan that can be agreed upon by most Republicans, including conservative ones.

This bill may be passed by the time you read this. However, this doesn’t end the government shutdown. It only mitigates its impact. And, the whole process may take place again in six weeks as it has in the past (read the Monitor analysis for more on the past history of debt ceiling negotiations).

One component under discussion is how the shutdown is impacting the world and American foreign relations. The Monitor analysis looks at this issue and tries to separate fact from political rhetoric. The analysis shows that the threatened default is only a threat and that holdings by China and Japan are only a fraction of US debt and their liquidation would hurt China more than the US.

Think Tanks Activity Summary

The Brookings Institution looks at the reported suspension of foreign aid to Egypt. They suggest that Obama was politically backed into a corner. “Having failed to suspend aid right after the coup, despite threatening to do exactly that, the administration was left with little choice but to define its least worst option. With this partial suspension, it hopes to make clear that there is some price (largely symbolic and perhaps temporary) for ignoring U.S. preferences. The administration hopes to show it they won’t be overly influenced on Egypt policy by Gulf and Israeli lobbying for total aid resumption. And it hopes to sustain a working relationship with the people who are running Egypt—an objective which has been perhaps the only consistent component of the U.S. approach toward Egypt since the 2011 revolution.”

The Wilson Center releases what are called the Avner Cohen Collection on the Israeli Nuclear Bomb. Cohen has spent decades documenting Israel’s nuclear program. In the introduction, Cohen states, “While this collection serves as a guide to the past, it may also enlighten our understanding of the present and help shape a more peaceful future. Historical scholarship on Israel’s nuclear program affects contemporary thinking on nuclear matters in the Middle East and globally. Moreover, historical transparency may help promote regional stability by reducing distrust between Israel and its neighbors.”

It was confirmed in the releases that during the 1973 war some Military leaders contemplate using nuclear weapon.
The Carnegie Endowment looks at Russia and its support of Syria and Assad. They note, “The Russians side with Mr Assad not because he is their man, but because his forces are killing Islamist extremists, whom Moscow now considers to be its most dangerous enemies. But for him, al-Qaeda’s allies would have turned Syria into a base for international terrorism. Russians play down the fact that Mr Assad’s Russian-made weapons are also killing innocent civilians, and thus breed more jihadis. While the Kremlin has long decided on its goals, the White House has so far demonstrated only two aims: it wants to see Mr Assad go and is reluctant to become involved militarily. Sensing this, Russia has sought to engage the US on Syria’s chemical disarmament and a wider political settlement of the crisis. These are less about Syria than about achieving Mr Putin’s most far-reaching, even improbable goal in foreign affairs: restoring equality to the US-Russia relationship.”

The Carnegie Endowment also looks at Russia and the Arab Spring and the perception of the phenomena with Russian Muslims. They conclude, “As Moscow works out the details of its new policy in the Middle East, it is also important for Moscow to take into account the Arab Spring’s impact on Russia’s Muslim community, which is only now starting to show its reaction to the upheavals in the Middle East. Russian Muslims are following with interest and even admiration the successes of their radically minded coreligionists in the Arab world, and many think that Russia should seek a rapprochement with the victors. Of course, Moscow cannot shape its foreign policy to suit the wishes of Muslims in the North Caucasus or the Volga Region. At the same time, the Kremlin must take into account the possibility of an increasingly radicalized Islam in Russia, especially in the context of the Russian leadership’s desire to maintain normal relations with the new elites in the Arab world.”

The Wilson Center looks at Russia’s history in the Middle East. In the interview with Paul du Quenoy, he speaks about Russia’s traditional interests in the region. “If you look at a lot of the Soviet era publications on imperial Russia in the Middle East – documentary collections or academic articles – they almost always bring out this idea that Russia had a long-standing relationship with the people of that part of the world as a benefactor, as a friend, as someone who could be relied on in a crisis, and I do think that informs how they think today. The people making policy are likely more engaged with immediate problems, but these are all people who were educated in the diplomatic academy and probably have a pretty pronounced sense of what the Russian Empire’s history was in the region.”

The CSIS looks at the US capture of Al-Libi and how it may impact the growing terrorism in Libya. Of interest to the US is, “information that al-Libi might possess regarding militant groups within Libya itself. After the fall of Gaddafi, Libya’s interim government has had great difficulty in asserting its authority beyond a few select areas. Islamist militant groups have recently grown in strength and influence within Libya, presenting a threat not only to the Libyan government but, as demonstrated by the killing of Ambassador Christopher Stevens and three other Americans at the U.S. Consulate in Benghazi in September 2012, to U.S. interests as well. Given al-Libi’s history with the LIFG, many of whose former members remain active within Libyan militant movements, his capture could prove a boon for those seeking to counter the rise of violent militancy within Libya.”

The CSIS looks at the Turkish decision to buy a Chinese air defense system and what it means about overall US/Turkish relations. They note, “There has undoubtedly been some deterioration in the previously close relationship between the Turkish Prime Minister and U.S. President Barack Obama since their two meetings at the White House on May 16 of this year. Erdogan’s disappointment at the continuing unwillingness of Obama to engage forcefully in the Syrian crisis has been deepened by his sanctioning of the Russia-brokered deal with the Assad regime on its chemical weapons instead of military action. The two sides have also publicly disagreed on the reaction to the military overthrow of the Muslim Brotherhood government in Egypt and the Turkish government’s reaction to the Gezi Park protests. The absence of a bilateral meeting between the two leaders at the recent St. Petersburg G-20 meeting testified to a possible chill in the relationship and it remains to be seen how Washington will choose to react to Ankara’s Chinese gambit.”

The Heritage Foundation asks what happens if the debt ceiling is not raised and the US government must pick who gets paid. Although the Constitution says government issued bonds must be paid, there is some flexibility given to the President as to what other government functions get funded. They conclude, “In brief, the President has broad authority to manage government payments to avoid defaulting on federal obligations. He can choose which payments to make and in which order and these choices will impact the effects on the average U.S. taxpayer and the economy.

The German Marshall Fund argues that the US government shutdown is hindering US foreign policy. They note, “The government shutdown sends a very negative message about the United States’ reliability as a partner in world affairs and reduces the authority with which it can carry out a leadership role. How can allies have confidence that the country’s attention will remain on developments in Syria or Iran’s nuclear ambitions when it cannot even keep its government’s doors open? President Barack Obama was forced to cut his planned visits to Southeast Asia, thereby postponing potential advances in bilateral and multilateral relations in the Asia-Pacific. The moral authority of the United States to guide other countries on a pathway to pluralistic democracy is further complicated when a minority faction is able to cause a shutdown of the U.S. government in an effort to press for its specific policy demands. As one U.S. diplomat recently put it, “How are we supposed to promote good government when we can’t even pass a budget?”

ANALYSIS

Will US Government Shutdown Have International Implications?

The US Federal government shutdown is heading into its second week with little movement. The biggest change in the situation is that next week the US runs up against its debt ceiling. This has the Republican congressmen talking about a temporary debt ceiling increase and Obama threatening a US default that will roil the international monetary markets.

Can that happen? Not likely. What is coming out of Washington is primarily rhetoric from both sides to make the opposition back down. The fact that the US financial markets have been relatively calm is indication that there is little economic threat despite the terrible prophecies.

In this analysis, we will look at two issues: What is the international impact of the US shutdown and how is it impacting US foreign policy?

Let’s look at the financial impact. Despite the stories of doom, the US will not default on its debts. Default means the inability of the U.S. government to service its debt, to make principal and interest payments on outstanding bills, notes, and bonds. This is not to be confused with payments due to others, whether contractors, vendors, or recipients of entitlement programs, each of whom would have a serious issue were cash flow to cease but none of which is the same as a true national default.

If the debt ceiling is not raised, it does not mean the government has defaulted, but rather than it must immediately balance its budget – a problem since the government borrows nearly 40 cents of every dollar it currently spends. But default isn’t an issue.

Here’s why. Monthly interest expense on Treasury debt is typically about $25 billion, with larger sums due (about $95 billion in 2012) in both June and December. Although revenue varies month to month, the Treasury should receive roughly $175 billion in October, slightly less in November, and about $250 billion in December based on current trends. In other words, the government takes in about seven times as much in revenue as it pays out in interest on the national debt. There is no possibility of real default. And, the government can still roll over its debt as long as it doesn’t exceed the debt ceiling.

There is also the Constitutional aspect. Obama can’t default as long as there is money in the treasury. Section 4 of the 14th Amendment of the US Constitution (The validity of the public debt of the United States, authorized by law…shall not be questioned. ) guarantees the payment of the Government’s debt and Obama ignoring this part of the US Constitution would be an impeachable offense.

The US does have entitlement obligations, including the politically sensitive Social Security payments due at the beginning of November. Obama could choose not to make those payments, but would likely run up against a court injunction if he did. This, in turn, would force deeper cuts in other parts of the government if no deal is reached.
Despite the horror stories, political battles over debt ceilings are a regular part of the brinksmanship of Washington. President Reagan fought Democrats in Congress over the debt limit as both sides sought to gain budget concessions. From 1985 to 1987, there were short-term debt limit increases passed, 11th-hour compromises, “extraordinary measures” used by the Treasury Department in order to extend the federal government’s borrowing power, veto threats, demands for clean hikes, and, eventually, grand budget bargains. Democrats wanted to use the impending debt limit to force tax hikes and military spending cuts.

In October 1985, Democrats refused to pass a long-term debt limit hike because they wanted to use the issue to force multiple showdowns over the budget in coming months. The threat of a filibuster was enough to stall a grand budget bargain, and the Reagan Treasury Department was able to enact emergency procedures – including raiding the Social Security “trust fund” – in order to extend the government’s ability to pay its bills.

The standoff lasted over a month. On November 14, 1985, Congress approved a temporary measure, buying enough time to pass a grand budget bargain – the bipartisan Gramm-Rudman-Hollings deficit reduction measure – which included a spending cut measure similar to last summer’s sequestration.

The same thing happened after the 1986 midterm elections gave the Senate back to Democrats, giving them complete control of Congress. Emboldened by the debt limit fights of the last two years, Congressional Democrats would use the debt limit to push their demands. The increases in tax revenue and cuts to defense spending would finally be theirs.

The reality is that when the Congress and the White House are under the control of different parties, the debt ceiling becomes a tool to pass measures that the White House doesn’t like. What we see today is really the norm.

Financial Markets

However, we can still ask the question: will the international financial markets understand the politics of Washington and not panic? Then, there is the question of continued buying and holding of US securities by the Chinese and the Japanese.

The evidence in the marketplace says yes. If there were a real concern, the markets would be reacting already.

However, the size of the Chinese and Japanese holdings forces us to look at potential ramifications. China is by far the largest foreign holder of U.S. Treasury securities. At the end of July (the last month for which official statistics are available) it had holdings of $1.2773 trillion in Treasuries. The holdings of autonomous Hong Kong add an additional $120.0 billion. That total is down $37.6 billion over the last two years, which means the Chinese have reduced their exposure to US Treasury securities.
Japanese holdings are $1.1354 trillion.

The holdings of the Chinese and Japanese sounds like a lot, but it is just a fraction of US debt. In 2011, the last year for which U.S. Treasury data is available, U.S. debt securities amounted to a staggering $33.7 trillion, 34.2% of the world’s total. In comparison, China’s foreign exchange reserves, which are thought to be mostly in Treasuries, totaled only $3.50 trillion at the end of this June.

Since the debt must be paid per the US Constitution, there is little reason to sell it. And, if they do, the damage to their own economy and reserves will be much greater. In fact, the damage to their economy would be the destruction of their export economy and the rebirth of the US export economy.

If China sold Treasury securities in massive quantities, it would cause a panic, but the world’s deep markets would quickly adjust. The Chinese would get back dollars. Then, they would have to either buy hard assets or convert the proceeds into other currencies. Those would be securities denominated in euros, pounds, francs, and yen.

As China buys these other currencies, the dollar would drip in relation to the euro, yen, pound, and franc. That would make American goods cheaper and the goods of Japan and Europe more expensive. China’s export market to America would be destroyed in one binge of US treasuries sales.

Since the Europeans and Japanese would not want more expensive currencies, they would buy dollars and dollar denominated securities to cheapen their currencies and make their exports more competitive. Then, America’s debt would be in the hands of more friendly Europeans, who bought them with their more valuable currencies.
The Chinese government is running too much of a deficit itself to allow such damage to its own economy.

So, what of all the talk about default and the resulting financial meltdown? It’s just that – talk.

Meanwhile, the American public isn’t voicing any concerns about raising the debt limit. Most voters don’t want to see the debt ceiling hiked yet again in a clean deal, according to a Fox News poll released Tuesday morning. Fifty-eight percent of voters would vote against hiking the debt-ceiling if they were lawmakers, while 37 percent would vote for it.
The public also wants cuts in government spending by combining a debt-ceiling hike with spending reductions. 62 percent of voters want any debt-ceiling hike combined with significant spending cuts in a deal. This may undercut the Senate Democrats and Obama because even 48 percent of Democrats would like to see a hike accompanied by cuts.

Is the Shutdown Hurting American Foreign Policy?

The issue of the shutdown’s impact on US foreign policy came up last week when Obama announced that he was cancelling the planned trip to Asia due to the government shutdown.

The White House was quick to paint the shutdown as impacting US foreign policy. Press Secretary Jay Carney said in a statement. “This completely avoidable shutdown is setting back our ability to create jobs through promotion of U.S. exports and advance U.S. leadership and interests in the largest emerging region in the world.”
Obama sees Asia as a fast-growing region where the United States is competing for influence with China. Chinese President Xi Jinping is visiting Indonesia, Malaysia and Brunei, and Russian President Vladi¬mir Putin also will attend APEC. There was some speculation that Obama and Putin had hoped to meet during that summit and work toward a resolution of Syria’s crisis.

However, the reality is that major world leaders don’t just meet to make agreements. Meetings like those between Xi Jinping and Putin are the result of months of negotiation at lower levels. The leaders only get together to ratify these previous negotiations. Interestingly, meeting with Putin didn’t seem so important when Obama purposely snubbed him in Scandinavia just a few months ago.

In this era of vast foreign policy bureaucracies and instant communications, the concept of international meetings of world leaders that lead to agreements that weren’t pre-arranged is long past. Presidential visits are more symbolic than substantial. Any agreements that were to be announced have already been made and agreed upon. They will likely be announced quietly in the next few weeks.

Conversely, the damage was done to Obama. No one, including the Republicans would have denied him the opportunity to go to Asia. He also had the chance to travel by announcing that he would agree to negotiate with the Republicans in order to make this critical trip. That means he has damaged his personal relations with Xi Jinping and Putin just to make a point of not travelling during the shutdown. And, this is the second time he has backed down with meeting Putin.
This is not the first time Obama has cancelled trips to Asia either. He has cancelled in 2010 for domestic reasons, which calls to question the seriousness of his repeated “pivot” to Asia.

PUBLICATIONS

The President’s Legal Authority at the Debt Limit
By Andrew Kloster
Heritage Foundation
October 9, 2013
Issue Brief 4067

Some time between the middle and the end of October, the federal government will reach a hard limit on the amount of debt it can issue, and its ability to finance governmental operations will be affected. Confusion about the debt limit abounds, and this Issue Brief will address some common questions. The United States debt limit, or debt ceiling, is the statutorily defined amount of debt the U.S. Treasury can issue, either by borrowing from the public or issuing an intragovernmental receipt to special accounts, such as the Social Security or Medicare trust funds. The Treasury Department has to have liquidity, or cash on hand, to disburse the funds necessary to meet its contractual obligations. The federal government maintains this liquidity by managing governmental receipts (such as income tax payments) and selling debt (such as Treasury bonds).

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Turkey Looks to China on Air and Missile Defense?
By Bulent Aliriza and Samuel Brannen
Center for Strategic and International Studies
October 8, 2013

On October 1, Turkish Defense Minister Yilmaz explained that the decision was made because “the Chinese gave us the best price.” He added “We had asked for co-production and a technology transfer. If other countries cannot guarantee us that, then we will turn to ones that can.” The following day, Turkish Foreign Minister Ahmet Davutoglu echoed his colleague by saying that the Chinese offer had met Turkey’s primary demands of price and co-production and commented “If only the American and European system makers offered better conditions, we could choose them.” The long-serving Under Secretary for Defense Industry Murad Bayar followed up with a press conference on the same day in which he said that the three reasons behind the choice were satisfaction of operational needs, the opportunity for over 50 percent local co-production of missile parts and the overall cost. Bayar also noted that the agreement could be signed in six months and that the system would be delivered in four years.

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The Capture of Abu Anas al-Libi
By Rob Wise
Center for Strategic and International Studies
October 7, 2013

Al-Libi, a 49-year old Libyan whose given name is Nazih Abdul-Hamed al- Ruqai, has a long history of involvement with Islamic militancy. Originally a member of the Libyan Islamic Fighting Group (LIFG), a violent Islamist movement that fought to oust Muammar Gaddafi, al-Libi appears to have become involved with al Qaeda in the early 1990s. He reportedly spent time in Sudan while al Qaeda – under the leadership of Osama bin Laden – was headquartered there. Al-Libi also allegedly lived for several years in Afghanistan before fleeing the country in late 2001. He appears to have spent much of the last decade in Iranian custody before returning home to Libya in the midst of the 2011 civil war. While al-Libi is believed to have served as a computer expert for al Qaeda, he is wanted by the United States primarily for his role in the 1998 bombings of the U.S. Embassies in Nairobi, Kenya and Dar es Salaam, Tanzania.

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Russia Is Defending Its Own Interests With Its Stance on Syria
By Dmitri Trenin
Carnegie Endowment
October 2, 2013

Financial Times
When people in the west seek to explain Moscow’s approach to the crisis in Syria, they often refer to Damascus as Russia’s “last remaining ally in the Middle East”. They also frequently include Russia’s interest in the Syrian arms market and the Tartus naval facility. Finally, a seemingly powerful argument is made about the Syrian people’s fight for democracy – which sends shivers down the spine of authoritarians, including President Vladimir Putin. These explanations are generally misleading. True, Hafez al-Assad, Bashar’s father, was a Soviet ally, but Moscow de facto withdrew from geopolitical competition in the Middle East in 1990, when it joined Washington and many others to oppose its other nominal ally, Saddam Hussein’s Iraq. Bashar al-Assad, in calmer times, was a more frequent visitor to Paris and London than to Moscow. Mr Putin himself never visited Damascus.

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Russia and the Arab Spring
By Alexey Malashenko
Carnegie Endowment
October 1, 2013

Russia has spent over a decade trying to recapture the influence the Soviet Union once enjoyed in the Middle East, but President Vladimir Putin’s attempts to position Moscow as a key regional player have come up short. With revolutions across the Arab world overturning old orders and ushering in Islamist governments, Russia’s chances for strengthening its position in the region look increasingly slim. The Kremlin must change course and ensure that its approach to the Middle East and Islamists reflects post–Arab Spring realities.

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The United States Shuts Down Its Diplomacy
By Glenn Nye
German Marshall Fund
October 7, 2013

On October 1, the start of the United States’ new fiscal year, thousands of federal government workers awoke to the sad realization that they would not be going to work. Their paychecks and their duties were indefinitely on hold due to the failure of the U.S. Congress to reach a compromise on funding for agencies. The immediate result was the shuttering of several federal agencies responsible for carrying out a wide array of services, while members of Congress treated their country and the world to an unfortunate and troubling bit of political drama. However long the shutdown lasts, it will have serious repercussions not only for citizens at home but also for the United States’ global leadership role.

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New Exclusive Interviews on the Israeli Nuclear Program
By Avner Cohen
Wilson Center
October 2013

More than sixty years have passed since Israel began its nuclear project and almost half a century has elapsed since Israel first crossed the nuclear weapons threshold. Yet Israel’s nuclear history has no voice of its own: no insiders have told the story from within. )http://www.wilsoncenter.org/publication/avner-cohen-collection#_ftn1#_ftn1 ( Unlike all seven other nuclear weapons states, Israel’s nuclear policy is built upon non-acknowledgement. Israel believes that nuclear silence is golden, referring to this national conduct as amimut (opacity in Hebrew). Amimut is the public trademark of Israel’s relationship with the bomb. It involves secrecy, ambiguity and taboo. As such, researching Israel’s nuclear history poses serious challenges. I recall how Israel Dostrovsky and Shalheveth Freier—the second and the third heads of the Israeli Atomic Nuclear Commission—told me that the deeds of that history resisted the written record. When the 1973 Yom Kippur War down broke out, Freier ordered his subordinates to stop communicating with anyone in writing.

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Russia’s Curious Relationship with the Middle East – from Imperial Times to the Present
Interview with Paul du Quenoy
Wilson Center
October 2013

What I found to be most significant was what the Russians were doing in places like Syria and Palestine, where they were building not just diplomatic ties but also cultural and educational ties through school systems and religious endowments. There was also a Russian ecclesiastical mission in Jerusalem, which was trying hard to create an atmosphere where Russian pilgrims could travel and also to get local Arab populations to be on their side geopolitically. I also found that in places like Egypt and Morocco, there were Russian diplomatic missions arriving for really no particular reason other than to create constituencies that believed in the disinterestedness of Russian power. The diplomats would receive instructions to meet the local ruler and try to impress upon him the majesty of Russian power, the breadth of Russia’s interest in the region and in Muslims, and convince him that Russia was a true friend.

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Reported Suspension of U.S. Aid to Egypt a Short-Term Measure
By Tamara Cofman Wittes
Brookings Institution
October 9, 2013

The reported plan to suspend part of U.S. military aid to Egypt reflects exactly what President Barack Obama announced in his speech at the UN General Assembly two weeks ago—continued aid to support counterterrorism and border security efforts, but withholding “prestige” items, like tanks and F-16s. The president also mentioned resumption of economic aid to support education, but we have seen no further news on that front as yet. The Egyptian military is unlikely to overreact to this move—the Egyptian state paper has been spinning the president’s words as representing U.S. acquiescence in Egypt’s political trajectory and a resumption of aid—which is not inaccurate. So the announcement, when it finally comes, will present a half measure that will gain the U.S. little except closure on an awkward, months-long saga over Egypt aid—but given how telegraphed this move has been, I don’t expect it will have much negative impact in Egypt either.

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