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Thursday, October 30, 2003

Body Counts in the Bush II War - The Price of Freedom, of Anarchy, or of Bush I/ Clinton Inaction?

97.jpg_39522739_site-afp-203body.jpg Of course we in the press must resist the lurid temptation to count bodies. After all, as Thomas L. Friedman (NYT, 10/30/03 editorial) and many other defenders of this miserable venture now feel compelled to insist (see our related "Short Story"in the right column), after all, gentlemen, "This is not (I repeat, Not!) Vietnam!"
But the numbers do tell an interesting story.

As of November 6, 2003, the best estimate for the total number of Iraqi civilians killed since the commencement of the Second Iraq War on March 20, 2003, is 7832 to 9657, only about 4300 of whom died during the war's first month. The number of Iraqi civilians wounded exceeds 20,000, so the total number of civilian casualties is now approaching 30,000.

This still compares quite favorably with the estimated 35,000 to 100,000 Kurds and Shiite civilians who were slaughtered by Saddam's troops in the wake of the hasty Allied withdrawal after the First Iraq War in February 1991. But from another perspective all these civilian casualty numbers should really be added together, making the total cost of President George H.W. Bush's (e.g., Bush the Elder's) failurefig. 9.13. George W. Bush and George H.W. Bush.JPG
to complete the job and remove Saddam back in 1991 at least 65,000 Iraqi direct civilian casualties. In addition, there are also the hundreds of thousands of Iraqi infants who appear to have succumbed to the health effects of the otherwise-fruitless international embargo that the UN and the Clinton Adminstration imposed on Saddam's Iraq during the rest of the 1990s. clintonap.jpg At the time, this shameful story went almost completely untold by the mainstream US press -- in the finest Walter Duranty tradition. a>

Meanwhile, Iraqi combatant fatalities in the Second Bush War numbered at least 7700 to 10700 during the war's first month.. At least that many have been killed since then, and several times as many have been wounded, so the total number of Iraqi combatant casualties is fast approaching 40,000. While estimates vary widely, this is probably about the same number of combatant casualties as Iraqi suffered during the First Gulf War.

Lest we celebrate too quickly, most of these "combatant" casualties were not Saddam loyalists, but ordinary Iraqis who were either dragooned into military service or driven there by the country's failing economy -- a product, in turn, of international sanctions and, before those, of Iraq's $120 billion war debt and its costly war with Iran during the 1980s. Most of this debt is still owed to Kuwait and Saudi Arabia, despite the fact that Saddam successfully defended them against Khomeini's Iran during the 1980-88 War. As thanks for his efforts, these two oil sheikdoms conspired to cut oil prices from 1986 on, driving him into bankruptcy even while he was battling Khomeini to a bloody draw. So much for Arab solidarity.

In any case, given this horrific week, including Sunday's disastrous helicopter assault the total number of Allied killed to date is now at least441, and the total number of US wounded is at least 2195. The grand total of Allied killed or wounded is now at least 2900, -- an average of more than 13 per day, and already more than the direct casualties suffered by Allied forces during the First Gulf War.

This comparison ignores the more than 200,000 (out of 700,000) veterans of Operations Desert Storm and Desert Shield who have filed disability claims, including many thousands who claim to have the mysterious "Gulf War Syndrome." But who knows what ailments the 1,000,000+ veterans-to-be of the Second Bush War will bring home with them?

(c) James S. Henry, October 2003. Not for reproduction or other use without express consent of the author.

October 30, 2003 at 10:42 PM | Permalink | Comments (1) | TrackBack

Wednesday, October 29, 2003

Iraq: GW's First Vietnam, the Second Battle of Algiers, Chechnya, or Afghanistan?

Bush, Johnson, McNamara, the Wall, and Reality

George W. Bush may have dodged military service in Vietnam the first time around, but the bloody, badly mismanaged, not to say grossly illegal US invasion of Iraq is rapidly turning out to be a real baptism under fire -- by far his most important "faith-based initiative" to date.

Already President Bush has admitted that it was a bit premature to hoist the "Mission Accomplished" banner. According to the latest opinion polls, the American people are far ahead of him. Not only have almost half of adults (and a majority of women) now concluded that the Iraq War was "not worth it," but nearly forty percent now favor an immediate US troop withdrawal, with another significant share "undecided." Gradually American opinion is coming into alignment with world opinion, including that in the UK, Australia, Spain, and Italy, our leading official allies in this conflict.

Of course, as the neocon intellectuals who designed this sinking ship like to bluster, the US is not trying to win some global popularity contest here. But since we are supposed to be championing democracy, in Iraq in particular, presumably public opinion still counts for something. Moreover, the almost unanimous international rejection of this policy, even by our long-standing friends and allies, should give the rest of us pause. Certainly it is not making it any easier to find others to help fund and staff this costly endeavor.

For the time being, however, the Bush Administration seems determined to stay the course, assuring us that victory is just around the corner. This is beginning to sound like the Johnson Administration in the mid-1960s. Indeed, those of us who are old enough to recall the Vietnam War are already detecting many of the same disturbing signs -- (#1) the stage-managed pretext for US intervention in the first place, which later turned out to be concocted; (#2) the serious underestimation of necessary US troop commitments; (#3) the thin multilateral support, with intervention undertaken without a UN mandate; (#4) a Secretary of Defense who oscillates between being in denial and growing doubts; (#5) increasingly desperate ground-shifting attempts by senior Administration officials to defend the policy "as is," and to assert that progress really is being made, even as the headlines deny this day after day; (#6) misplaced reliance on local allies (Thieu, Chalabi, etc.) who turn out to be, by turns, inconstant, incompetent, and corrupt; (#7) a steady drip-drip-drip of US and UK troop casualties, with more than 1200 now dead or wounded, and no positive trends in sight; (#8) a growing number of civilian casualties, with at least 7000-11,000 combants and 3500-4000 civilians killed during the first month of the war, another 4-5000 civilians killed since then, 20,000 Iraqi civilians wounded, and the local population trapped in the middle of escalating violence, with US troops forced to make agonizing choices about the use of their awesome firepower; (#9) war-weary veterans with low morale, already pleading to come home after less than six months of active duty; (#10) a national security establishment that has been stripped of its independence, in thrall to a set of "pre-baked" policy choices dictated from on high; (#11) the war's huge unexpected costs, to be born almost entirely by the US, forcing domestic spending priorities to be put on hold just as Lyndon Johnson's plans for a "Great Society" had to be tabled in the mid-1960s; (#12) the simple-minded characterization of all our enemies as "terrorists," "Baathists, and "dead-enders," (or in Vietnam's case, as "Communists"), denying the role of nationalism in the opposition to US intervention -- as if Americans have not themselves waged long hard fights against foreign occupants in the interests of nationalism; and (#13) the complete absence of a clear "exit" strategy other than to simply hunker down.

Of course no one should have any regrets over Saddam Hussein's demise -- though it would be easier to celebrate if we could actually find him. But we have so mishandled his removal that we have actually managed to encourage many ordinary Iraqis to oppose our intervention. It is very hard to make all this look like an achievement. And there is also the strong possibility that (#14) decades from now, we will hear the same kind of begrudging admission from the architects of this war that Henry Kissinger Photos/fig. 8.8. Henry Kissinger
finally made just last year about the Vietnam War -- that it would have made"little difference" after all to world events if we had never intervened in the first place. Of course aging war planners like Vice President Richard Cheney and Secretary of Defense Donald Rumsfeld may not last the three decades that were required for that stunning concession.

We can always hope that the many glaring differences between Iraq and Vietnam will save us. But it is not necessarily clear which way these cut. Militarily, there are no neighboring sanctuaries like North Vietnam Cambodia, or Laos, no protected supply lines from superpowers like Russia and China, and no dense jungles. We also supposedly have a vastly superior professional army -- though it appears that without the reservists, we would be in very deep trouble.

On the other hand, Iraq's borders are porous, there are so many abandoned arms dumps and hidden stockpiles of weapons and explosives that our opponents' lack of external supply lines may not be a key disadvantage, and the enemy so far appears to have ample hiding places, despite the missing jungles. Furthermore, the region is not exactly devoid of hostile volunteers -- "terrorists," in the Administration's vernacular. In fact they are probably delighted to have thousands of green US troops, civilian aid workers and (in their view) Iraqi "Quislings" within reach, available to shoot at like fish in a barrel. Furthermore, there are still all those missing WMDs. If the Adminstration is ever proved right and they do exist, one hopes that they are not discovered first by the wrong people.

In this sense the right analogy may not be Vietnam, but the Russian Army's painful experiences with guerilla war in Chechnya, the bloody French colonial war in Algeria during the 1950s and early 1960s, and the Soviet Army's costly adventure in Afghanistan during the 1980s. Of course "we are not colonialists. We are there for the good of the people," unlike the French or the Russians. Perhaps so. But a similar story line did little for us in Vietnam...

The only good news in all this is that, compared with the Vietnam Quagmire, US public opinion is moving much more quickly. Just six months into the conflict, we already have several popular anti-war candidates. This is true, despite the fact that the median American voter is now 35 years old, and was only just being born in 1968. Perhaps there is a collective memory. Or, as President Bush himself said yesterday, "As a matter of fact, the American people — the electorate — is (sic) a heck of a lot smarter than most politicians..."


(c) James S. Henry, October 29, 2003. Not for reproduction or other use without express consent from the author.

October 29, 2003 at 10:46 AM | Permalink | Comments (0) | TrackBack

Monday, October 27, 2003

Russia's Illiberal Recovery, Oligarch Arrests and All: "Buy on Weakness!"


Putin and Khodorkovsky and Yukos

Evidently this is not the best moment to be the richest oil barron in Russia. Just ask Mikhail B. Khodorkovsky, the 40-year old Chairman and largest shareholder of Yukos/Sibneft Oil, Russia's largest oil company, and the fourth largest oil company in the world. On Saturday October 25, his private plane was surrounded by armed agents for Russia's Federal Security Bureau, after it landed in Novisibersk, Siberia, and he was unceremoniously hauled off to a five-person Moscow jail cell at gunpoint, charged by the Federal Prosecutor with a litany of white collar crimes, including embezzlement, tax evasion, fraud, and forgery of public documents.

This latest move was not entirely unexpected. The confrontation between Yukos and President Vladimir Putin's government has been building for months, with Yukos' chief financier, Platon Lebedev, already in jail awaiting trial on charges of defrauding a state company in 1994, and Vastly Sharkhnovsky, Yukos' chief auditor, arrested just this month on tax evasion charges. But apparently most investors expected that Khodorkovsky's $8-$15 billion in wealth (15-20% less now) would protect him, and that, in any case, a pending ExxonMobil investment in Yukos was just too juicy for Russia to pass up. So the arrest surprised many investors -- Russia's stock market fell 10 percent on Monday October 27th. Its currency also declined slightly, as traders anticpated a surge in capital flight from other nervous "'garchs."

The USG was quick to condemn the arrest as an assault on fair play and the hallowed veritudes of free markets -- Alex Vershbow, US Ambassador to Moscow, warned that such a "selective" prosecution could "negatively affect" foreign investment. And President Yeltsin's former economic czar Anatoly Chubais, now head of the country's leading electricity company -- and, as one Russian critic recently noted, perhaps the "real" US Ambassador to Moscow -- had even harsher things to say.

Curious. After all, it is not as if the USG and its local comrades in arms ever voiced such vociferous objections when a handful of less than two dozen oligarchs, including Khodorkovsky, Boris Berezovsky, Vladimir Gusinsky, Roman Abramovich, Vladimir Potanin, Mikhail Fridman, and a few others, managed to seize control over 60-70 percent of the Russian economy in the early 1990s, in that period's world-record setting series of scandalous "pirate privatizations." Nor did they voice any objections when these asset ripoffs, on top of the wide-open capital markets introduced by Chubais' "reforms" and a fifty percent real decline in Russia's domestic economy from 1992-98, helped to kick off a massive exodus of capital flight from Russia. This averaged at least $20 billion a year from 1993 on, with almost all of it winding up in private bank accounts and other foreign investments belonging to these magnates and their criminal associates, in First World banking centers like New York, London, Cyprus, Israel, and Switzerland. So much for the salutory effects of free markets on foreign investment in Russia.

Nor did the neoliberals voice concern when Yukos' top managers stubbornly pressed ahead with the sale of a large portion of the company's energy reserves to global oil giants like ChevronTexaco and ExxonMobil, over the objections of Putin's senior economic advisors. Not only were they miffed at ExxonMobil's rather high-handed behavior, but as economic nationalists, they would also prefer to see a larger share of Russia's oil reserves remain in the ground, permitting the country to follow a developmental path that is less dependent on the sale of basic commodities like crude oil and natural gas, which encourages the "Dutch/Venezuelan" disease -- overvalued currencies and weak industrial exports.

Of course, if we really compare the economic track records compiled by neoliberals like Chubais, Yeltsin, and their "not too free market" garchs with the record of Putin's administration, it becomes even harder to see any merit in the USG/Chubais critique. Since abandoning the neoliberal agenda in late 1998, Russia's economic growth has surged by nearly 25 percent, making up half of its 1990s losses. It will grow this year at 5-6%, and it is likely to continue to grow at even higher rates through this decade -- perhaps even realizing Putin's objective of doubling GDP by 2010 (compared with 2000).

True, part of this growth is due to favorable conditions in world energy markets. But as this author correctly predicted in 1998, the progress is also due to the abandonment of the neoliberals' simple-minded, "strong ruble/" anti-inflation obsession. This path, chosen by Putin's government as much out of desperation as insight, has led to a sharp improvement in the growth and competitiveness of basic industry, and to a more balanced, controlled strategy with respect to Russia's foreign debt.

Together, these illiberal policy changes, and the economic recovery they've produced, have already done far more to boost foreign investment in Russia from its lows of the mid-1990s than anything that Chubais and most of the oligarchs ever did. Indeed, one key reason why Putin can well-afford this crackdown on the oligarchs right now is that the economy is in such good shape. Just this month, even in the midst of the swelling Yukos controversy, Russian securities received an "investment grade" rating from Moody's.

Of course Putin has political as well as economic motives for his moves against Khodorkovsky. He faces a Duma election in December and a Presidential election next year, and Khodorkovsky was rather unique among the garchs in openly sponsoring some of Putin's political opponents. And in a country where more than 10 percent of the population remains underemployed, and expected lifespans for most Russians have fallen by a decade since 1990, taking on the 'garchs is overwhelmingly popular, with 75 percent of Russian adults favoring the complete reversal of the corrupt 1990s privatizations.

Putin is not likely to go that far -- after all, he is an ex-KGB pragmatist, not some radical socialist, and a few of his former friends in St. Petersburg are rumored to be members of the "semi-garch" classes themselves. He is also eager to demonstrate to world opinion that, indeed, the rule of law does prevail in Russia, and that the Chairman of Yukos was just one bad apple; indeed, rather than rail-roading him to jail with a show trial, the smooth move for Putin would be to bend over backwards to give him a fair trial, and, indeed, goes free!

Still, investors should be for prepared for a bit of choppiness in this market. But this can be a good thing -- a perfect opportunity to trade against the wind and snatch up those shares and bonds that nervous 'garchs and faint-hearted neoliberals will be shedding, as they head for the exits.

(c) James S. Henry, October 2003. Not for reproduction or other use without express consent of the author.

October 27, 2003 at 06:27 AM | Permalink | Comments (1) | TrackBack

Thursday, October 23, 2003

Microsoft's Getting FLOSSED - The Growing Spector of Open Source Software in the Third World

lulamicrosoft.jpg LulaYoung.GIFbill-gates.jpg

What do the following events have in common? First, Microsoft's shares traded down sharply this week, despite the fact that its quarterly earnings report, released after the bell on October 23, generally exceeded analysts' expectations.

Second, Lula (Luis Ignacio da Silva), Brazil's feisty left-leaning President, suddenly got invited this month by Bill Gates to visit him in Seattle. And on October 10, 2003, the Government of Brazil released a letter of intent that it had recently signed with IBM, declaring "a common interest in concentrating their efforts and resources to develop technology based on open standards, such as Linux."

The fact is that a new spector is stalking Microsoft. This is not some Halloween ghoul, or even First World antitrust laws, though these continue to provide a few scary moments and hefty legal bills for Redmond. Rather, it is "FLOSS" -- the European Commission's acronym for for "Free/Libre Open Source Software," especially the freeware operating system Linux -- that has lately been giving Microsoft nightmares. (See the EC-sponsored report on FLOSS. See also the June 2003 study of the benefits of FLOSS for developing countries published by the Foreign Ministry of Finland, the original home of Linux kernal developer Linus Torvalds.).

Indeed, as Microsoft's top managers admitted this week - spooking investors, and causing a sell-off in the whole US technology sector -- they face a growing markeplace threat from such "Open Source" alternatives, especially Linux.

Of course Linux was originally the 1990s invention of independent, not-for-private-profit software developers like Torwalds and MIT's Richard Stallings, plus a global army of unpaid coders around the globe. But in the last five years it has gained momentum in the "real business" world, winning support from First World IT vendors like IBM, HP, and (begrudgingly) Sun Microsystems, and also making inroads among First World business and government customers. For them, the value proposition was not just cost but security. Microsoft's proprietary operating systems like Windows 98, NT, and XP, developed behind closed doors with no public access to the "source code," have all turned out to be full of glaring security bugs, as anyone who uses them and is inundated with MS "security fix updates" can testify. Indeed, several US government agencies that are most concerned about security, like the National Security Agency, have adopted Linux as their de facto standard. And many financially-strapped states, like Massachusetts, California, Texas, and Oregon, have lately also been debating whether or not FLOSS software might not only enhance security but save them money.

However, the real news is in the developing world, especially in leading "mid-level" like South Korea, Taiwan, and Malaysia, and emerging "markets of the future" (knock wood) like Brazil, China, South Africa, and India, and more troubled markets like Peru, Colombia, and Argentina. Here there is a growing movement, not only to adopt Linux for government applications, but also to use it for commercial services as well, and even to develop home-grown software applications that run on top of Linux and substitute for Microsoft's suite of Office applications.

Of course, as this post indicates, Bill Gates is not taking this lying down. Indeed, one of his many tactics has apparently to use his foundations to offer donations to schools projects in countries like Peru and South Africa, on the condition -- of course -- that they play ball. This is not a story that we expect to see covered in Slate Magazine , but we will continue to follow it here with great interest.

(c) James S. Henry, 2003. Not for reproduction or other use with express consent of the author.

October 23, 2003 at 01:35 AM | Permalink | Comments (0) | TrackBack

Saturday, October 18, 2003

Uzbekistan -- Our Own Little Cuba, Minus the Mambo and the Beaches

uzbekmap.jpgkarimov-bush-ap.jpg Karimov and Bush, 2002

The UK's courageous, outspoken Ambassador to the Central Asian "Republic" of Uzbekistan, Craig Murray, has raised quite a ruckus over his complaints about that country's repressive dictatorship. More to the point, he appears to have offended the USG by inconveniently reminding a few too many people in public that President Islam Karimov, (see for a glowing official bio), the former Soviet Politburo member who has ruled Uzbekistan with an iron fist and innumerable offshore banking relationships since 1989, has recently received more than $160 million a year of US economic and military aid, apparently without many scruples attached. All told, this has made the US by far the largest bilateral aid donor to Uzbekistan, althought the ADB, the EBRD, and the World Bank have also been very generous. Wherever that aid is going, evidently not much of it is reaching Uzbekistan's 7-10,000 political prisoners. (For more about their plight, including torture and murder, see Many of them are probably in much greater need of health care than Ambassador Murray, when and if they emerge from Karimov's jails, but he has now been recalled to the UK on "sick leave." The beleagured Blair Government has been compelled to reject nasty insinuations that the recall might have anything to do with Washington's pique. (See the following report:,6903,1066291,00.html)

Meanwhile, US Secretary of State Colin Powell has twice certified that Uzbekistan is making "substantial and continuing progress" toward meeting its human rights obligations -- thereby permitting the aid dollars to continue flowing. Compare that with the Bush Administration's October 2003 decision to tighten the screws again on Castro's evil dictatorship in Cuba. (See english&y=2003&m=October&x=20031010181621relhcie0.3876459&t=usinfo/wf-latest.html)

This neatly puts in play the question of precisely which traditional American values, if any, are influencing our foreign policy priorities these days.

Obviously it would have helped if Cuba had anything like Uzbekistan's strategic location, or at least its natural gas reserves, which are at least 10 times the size of Cuba's. Clearly our tilt toward Karimov has nothing to do with comparative rates of political and religious repression, net rates of out-migration (Uzbekis are fleeing their country at a rate almost twice that of Cuba's), the degree to which the regime's top leader has "paid his dues" in Soviet service, or even the degree of state ownership in the economy. Perhaps it made a slight difference that there are some 500,000 Cuban emigres living in south Florida -- probably a few more than their Uzbeki refugee neighbors. For the interested reader, the following table provides a convenient side-by-side summary of these two submerging markets, and invites you to explain these contrasting US attitudes -- and also see which place you'd prefer to visit! (As a diver, I have to admit a slight bias -- Uzbekistan's Aral Sea, once the world's fourth largest lake, and one of the planet's worst environmental disasters, is well on its way to becoming the world's eighth largest lake, basically an undivable, dessicated flatland. But at least the Soviet Union dominated cotton exports! ( See Download file.)

(c) James S. Henry, October 2003. All rights reserved. No reproduction or other use without express consent from the author.

October 18, 2003 at 10:17 PM | Permalink | Comments (1) | TrackBack

Wednesday, October 15, 2003

Bush the Younger -- The "Thrilla in Manila"

Printable PDF Version BushinManila102003BB.gif BushinManila2.jpg George and Gloria in Manila The latest grim news from Manila is not very comforting to those who once celebrated the fall of the Marcos dictatorship in 1986 and hoped that its replacement would eventually become a vigorous democracy. The entire 130,000-person Philippine military was placed on 24-hour alert, three days before the arrival of President George W. Bush for an 8-hour (actually it turned out to be a 4-hour) visit on October 18. (See how the visit turned out:,1280,-3280686,00.html.) Bush, on his way to a conference of the 21-member, hopelessly-ineffective Asia-Pacific Economic Cooperation (APEC) forum in Bangkok next week, decided to pay a call on President Gloria Macapagal-Arroyo, because she has been one of the staunchest supporters of his global war on terrorism, and -- not coincidently -- one of the largest recipients of US military aid and training in the region. (See Anticipating the possibility that Bush's visit would trigger huge anti-American protests in Manila, where many people still recall the pro-Marcos stand of his father ("We love your adherence to democratic principles and democratic process," Bush the Elder toasted the dictator in Manila in March 1981), her government also decided to confine such protests to so-called "freedom parks" far from the Bush entourage, and to have the police enforce a strict "no permit, no rally" rule. In light of the visit, New Zealand also warned its own citizens that "terrorists" might try to stage attacks to embarrass Ms. Macapagal-Arroyo's government. (The freedom parks concept may actually have been a US export, since the US Secret Service has actually been implementing something very similar here.)

The concern about embarrassment might not be so serious, since M-A's government seems eminently capable of embarrassing itself. In the run-up to Bush's visit, for example, the authorities proudly announced on Sunday that they had killed an Indonesian terrorist, Fathur Rohman Al-Ghozi, on the southern island of Mindanao, after a fierce gun battle. Al_Ghozi, ostensibly an Indonesian bomb-maker for the "al Qaeda-linked" Jemaah Islamiyah, had been convicted of a December 2000 bombing in Manila that killed 22 people.

Some doubted the official account of his death, however, suspecting that he might have simply been murdered well after capture, since the timing seemed so perfect and the authorities told conflicting stories about how much resistance al-Ghazi had really offered. The killing also erased the embarassing fact that only last July, al_Ghazi had easily escaped from a maximum security police prison in Manila, where he was supposed to be serving a 17-year sentence.

In any case, the killing certainly awarded Madame M-A a convenient and timely victory in the "war on terrorism." But the suspect behavior by her own police -- even escaped terrorists presumably have some legal rights -- on top of all the precautions against public demonstrations, in a country that is supposed to be a democracy, not in a state of Marcos-like martial law -- is very disturbing. It is, however, consistent with the new "post 9/11" theory of constitutional rights, according to which constitutional rights may be freely dispensed with, any time some senior official imagines a "terrorist threat."

Meanwhile, a nationwide survey of 1200 heads of households that was conducted in September 2003 in the Philippines found that 62 percent rated their family condition as "mahirap," or poor. And 45 percent of them expected their living conditions to deteriorate in the next year. If we thought that President Bush might actually have some direct discourse with such people, rather than enlisting the entire nation's military in his own defense to keep them at a safe distance, his visit might seem more worthwhile.

But Bush went to Asia primarily to meet with sycophants like Gloria and to "jawbone" the Chinese into floating their exchange rate -- even though they've managed the most successful developing economy in the region for more than a decade (knock wood.) He wanted to badger them into revaluing the yuan, hoping that this would cut their $110 billion trade surplus with the US. His latest undistinguished Treasury Secretary, John Snow, tried to do this summer. That kind of rhetoric may be useful for domestic political purposes, but the Chinese are too busy watching their economy grow at 9 percent and lofting astronauts into space to respond -- unlike the hapless Filipinos. Rather, the Chinese may be tempted to point to the Philippines itself as an example of the severe damage that fifty years of wide-open capital markets, freely-floating exchange rates, and one-sided "free" trade can do to a country's welfare.

Bush went out of his way during his remarks to cite the Philippines as a role model for the US occupation of Iraq -- conveniently skippling over the fact the US seized control of the islands after its 1898 trumped-up war with Spain, did not cede them formal independence until 1946, continuously supported puppet regimes and dictators like Marcos from 1946 until 1986, and then has been a rather diffident observer of Philippines democracy since then.

Today, after a century of apprenticehip and tutelage to the US economy and international banks, the fact is the Philippines remains one of Asia's most troubled economies, and a wobbly, corruption-ridden militarized semi-democracy," with several rebel armies still in the bush. The Philippines' foreign debt now exceeds $52 billion, more than twice the level when Marcos left, and a rather high 70 percent of national income (compared with China's 15 percent). Its per capita income, adjusted for purchasing power parity, has actually fallen 10 percent below China's ($4021 vs. $4475, 2002 -- according to the latest World Bank WDI data, 10/2003). Its largest export is still maids, more than sixty percent of its population still depends on coconuts for a living, and the country still boasts one of the highest per capita debts and least equal distributions of wealth and land in Asia.

The shocking notion that such conditions might actually have something to do with the fact that the Philippines is also the only country in Asia still fighting an active Communist insurgency -- as well as two other long-standing rebel armies, who've been fighting for decades, years before al-Qaeda was a gleam in bin Laden's eye -- is a thought that China's leaders, albeit nominal Communists themselves, might usefully explain to Gloria and our own Fearless Leader.

(c) James S. Henry, October 2003. Not for reproduction or other use without express consent from the author.

October 15, 2003 at 02:14 AM | Permalink | Comments (0) | TrackBack

Tuesday, October 14, 2003

Bolivia's Neoliberal Reckoning - Another Submerging Market

EvoMorales2.jpg SanchezdeLozadaGonzalo.jpg Evo and Goni

For those who have followed Bolivia's sorely troubled development path over the last thirty years, this week's sharp escalation of political violence is a tragic, but by no means surprising, conclusion to this tiny country's many failed experiments with both state-led development and neoliberal dogmatism. (For the recent conflict, which has already claimed at least 53 lives, see Unfortunately, the US and several other Latin American countries bear a heavy responsibility for this fiasco. And Bolivia's failed policy experiments go a long way to explain why its citizens now have the lowest per capita incomes in South America, with 70 percent of the population living below the poverty line -- despite the fact that Bolivians are extraordinarily resourceful, and that their country is so rich in resources, like natural gas, zinc, gold, tin, spectacular scenery, culture, and history.

Bolivia has long suffered from exploitation at the hands of foreign and domestic elites. But the proximate cause of the current crisis is much more recent. In the 1960s and 1970s, desperate to prevent the country from moving to the left, the US and its "Condor Project" partners in the juntas of Brazil, Argentina, and Chile sponsored several coups in Bolivia that installed a series of military dictatorships and civilian governments that were "democratic" in name only.

The resulting rulers not only turned out to be corrupt, murderous thugs, but also fairly talented drug lords and arms merchants. For example, in the 1980s, the Bolivian Air Force was allowed to buy ten C-130 cargo planes from the US military, more than any other Latin American country. At the height of the cocaine trade, these planes made a great many unregistered flights to Miami, not only providing illicit arms for the Nicaraguan contras, but also laying the foundation for the direct supply routes around Colombian and Peruvian drug lords that the US has recently been complaining about so vociferously.

Another consequence of this development path was an extraordinary increase in corruption and inequality. Often these were directly subsidized by the Bolivian elites' foreign sponsors. To cite one notorious example -- the lavish four-lane, 6.2 mile, $140 million highway that connects downtown La Paz to its international airport. Funded by the InterAmerican Development Bank, a proxy for US support, this became one of the world’s most expensive roads per mile. As usual, most of the funds quickly disappeared into the pockets of well-connected "blancos."

Fast forward to the 1980s, by which time Bolivia had accumulated one of Latin America's heaviest foreign debt burdens -- again, with the encouragement of the USG, multilateral banks, and a bevy of foreign banks. So much of this debt was wasted that the country completely lost track of just how much debt it owed. In June 1979, Lloyds Bank estimated Bolivia's foreign debt at $1.9 billion. But in November 1982, Bolivia's new Finance Minister summoned a UN debt expert and a New York investment banker to measure it again. These experts spent a month pouring through reams of loan agreements at Bolivia's Central Bank that no one had bothered to tally, and located $3.6 billion. A year later, a more complete survey raised this to $3.8 billion, nearly twice the initial estimates -- all told, the highest per capita foreign debt in Latin America, owed by a country with just 8 million people. One of the UN auditors joked that he had singlehandedly doubled Bolivia's debt! But he was still not sure that all the debt had been found -- he only located $168 million of “ deuda reservado,” a proxy for the military's debts, including the funding for the C-130s. Other than the C-130s and the the IADB highway, there was little to show for all the debt, which was of course owed by the public. As in many other Latin American countries, the "cream" had long since been siphoned off to private bank accounts in Miami and New York.

By the mid-1980s, because of this debt overhang, Bolivia was flat broke, reduced to minting more and more of its own depreciating currency to pay its bills. That kicked off a Weimar-like hyperinflation. It also led the local elite and foreign bankers to seek outside help. One might have thought that they would have at least turned to someone familiar with the country's economy, region, industries, or at least a local languages. But instead they turned to Harvard's Prof. Richard Musgrave, who had worked on their tax system. He was by then a bit too old to leave Cambridge, so he introduced them to the youthful Prof. Jeffrey Sachs, by all accounts a brilliant young macroeconomist. Unfortunately, at that point he had no background whatsoever in any of these arenas, much less developing countries. What he did have was a strong conviction in the orthodox neoclassical economist's prescriptions about free markets, deregulation, and disinflation -- with an added twist of Ivy League presumption and noblesse oblige.

For Jeffrey, Bolivia (1985-86) turned out to be a bonanza, the first in a series of advisory roles for some of the world's most important submerging markets. From Bolivia he proceeded directly to Poland -- which, like Bolivia, also appeared to need anti-inflation shock therapy. From there he moved on to the rest of eastern European, and finally to Yeltsin's Russia in the early 1990s. Unfortunately, Russia proved to be a bit more complicated than these smaller countries, and he and his colleagues at Harvard's (since-abolished) "Institute for International Development," emerged from the experience with something less than an unblemished reputation. To this day, however, they remain more or less unapologetic about their role in Russia's "primitive accumulation," blaming most shortcomings on indigenous corruption, the lack of funds from the US government, and other anomalies.

In any case, for the hapless Bolivians, Sachsian liberalization proved to be the first in a series of very costly neoliberal experiments with their very lives. There is not enough space to tell the full story here, but the gist is that this neoliberal path and its political side-effects-- combined with a hefty dose of countervailing influence from the profoundly illiberal drug wars --- led almost inexorably, step by step, to the recent crisis.

Fortunately, we now have every reason to expect that thecorrupt, neoliberal, US-backed regime of President/ multimillionaire Gonzalo Sanchez de Lozada Bustamante, is on its last legs, and that this failed route to development has seen its last hurrah, at least in Bolivia. Senior Sanchez de Lozada became President in a dubious, heavily sedated vote by the Bolivian Congress, after he and the populist leader Evo Morales deadlocked in the June 2002 Presidential elections. Then Sanchez de Lozada sailed completely out of control, trying to privatize the country's natural gas reserves, which he offered on inexplicably favorable terms to former business cronies in Chile and the US. He also supported a dubious US-backed scheme to train a 1500-person paramilitary force to eradicate the country's coca crops by force. Even before this month's disturbances, that group had already been implicated in numerous acts of repression against campesinos and union leaders. By October 2003, most of Sr. Sanchez de Lozada's supporters had abandoned him -- his approval rating fell to 8 percent, and even his own hand-picked Vice President deserted when Sanchez called out the military to suppress popular demonstrations, at a cost of more than fifty lives.

So let us now take a moment of silence to honor these victims -- ultimately, of the neoliberal pipedream. And take note as well of the latest notch on the handle of the once-bright-eyed, bushy-tailed neoliberal policy advisors, now increasingly long in the tooth and short of success stories, and yet another "submerging market" that now seeths with animosity toward gringos, as all its political, social, legal, cultural, and economic institutions crumble into the dust. We can add Bolivia to the growing list of Latin America countries that are seeking another way -- Venezuela, Argentina, Ecuador, Nicaragua, Peru, Brazil. No wonder there are so many inter-South trade pacts and so many treaties with far-away places in Europe, China, and Russia under discussion; so many illegal immigrants streaming northward towards our border. Oh, by the way -- Bolivia's foreign debt now stands at $6.6 billion, about the same "real" per capita level as at the peak of the "1980s Third World debt crisis." Evidently that "crisis" was a rather prolonged one. Evidently there is more to economic development than controlling hyperinflation.

But Bolivia, the rest of Latin America, and Russia be damned! Who needs them? The neoliberal experts have decamped for Iraq, where they are busy preaching the same old nostrums about liberalization, privatization, and unfettered free markets -- except perhaps for drugs and arms. Perhaps fast therapy will work this time! See the enemy, Pogo? He's that well-meaning fellow over there in the corner, working quietly behind closed doors, outsmarting himself again.........

(c) James S. Henry October 2003. Not for reproduction or other use without express consent from the author.

October 14, 2003 at 06:42 PM | Permalink | Comments (0)

Foreign Aid - In Iraq's Shadow

Saddamsmiling.jpg Why is This Man Smiling?

Cf. the following perceptive analysis from Forbes Magazine, which puts the Administration's recent request for $87 billion in future Iraq war/ reconstruction costs in sharp relief. A bit unexpected, perhaps, coming from this source. The neocons appear to be fighting among themselves, always a welcome sign of ruling-class ferment. (As Trotsky said, class structures split apart from the top down. Certainly Trotsky split apart from the top down...) But this article is infinitely more perceptive than the critique of the President's budget proposal that has been offered by most conventional liberals, whose main point has been to observe that $87 billion is a very large number. We do need to note that this August 2003 proposal was a rough estimate at best, which could well turn out to be too low -- given the Administration's inability to predict anything else in this benighted situation, and its inability to raise more than a few billion in aid for Iraq from other countries. Worldwide spending on foreign aid by all developed countries is also now on the order of just $60 billion, the lowest level, in real terms, in over a decade -- and even lower than it fell under the penurious Mr. Clinton, who could "feel their pain" by the hundreds of millions. Letting the entire Third World slip farther back into immiseration, while we rebuild just one country with its 25 million inhabitants, hardly seems like a strategy calculated to insure world peace. At least a third of all this foreign aid also goes to "special cases" like Egypt, Pakistan and Israel, leaving even less for the truly poor. There is also the discomforting, un-Forbesian point that the Bush tax cuts for our hard-pressed dividend clippers, on top of all this unforeseen nation building, may well crack the Imperium's piggy bank, or at least raise long-term real interest rates back to where they were in the early 1990s, before the spendthrift Democrats won the Presidency from Bush the Elder. But there's no price too high for freedom. We await the long-term financial consequences for hegemony of the invasions of Iran, Syria and North Korea with great anticipation.

(c) James S. Henry, October 2003. Not for reproduction or other use without express consent of the author.

October 14, 2003 at 03:09 AM | Permalink | Comments (0) | TrackBack

Wednesday, October 08, 2003

First Post - "Welcome!"

James S. Henry Pic2 Sept 17 2003.GIF James S. Henry, Managing Editor
Greetings! This post marks the launch of this new "Submerging Markets" weblog, devoted to tracking the continuing development crisis that afflicts so many Third World countries. But of course this crisis is not just about "them" -- it is also having numerous nasty side effects on those of us who happen to be citizens of the First World. These include increased concerns about terrorism and national security, environmental damage, job losses, illegal immigration and global epidemics. They also include more subtle psychological concerns, like the depressing reality that even now, at the dawn of the Millenium, after decades of development efforts, more than 90% of humanity remains locked in a daily battle for survival on less than $2 per day. That continuing immiseration, we will argue, that is the real and most threatening "weapon of mass destruction."

Why is this grotesque Dickensian situation still prevalent in the 21st century? It it the product of unpredictable misfortunes, or of conniving self-interests? Why does it get so little attention from the press and politicians? And what should be done about it now? These are sorts of the questions that we hope to tackle here. Of course these are complex issues -- but, as usual, some things can be said.

This launch accompanies the upcoming publication of my new book on the history of the global development crisis, The Blood Bankers. (New York: Four Walls, Eight Windows, December 2003). That book deals at length with the history of "dirty debt" and irresponsible Third World lending over the past thirty years, for a dozen key developing countries. But since the saga continues to unfold, this site will focus on some of the most important "news from the frontlines" - and also just try to present a few good investigative stories about the "global underground economy." Well-reasoned comments from readers are more than welcome. We also hope to seduce a few interesting "guest authors" into writng for the site. We apologize for the necessarily somewhat serious subject matter -- As Bertrand Russell once said, "What is wanted is not the will to believe, but the will to find out."

(c) James S. Henry, October 2003. Not for reproduction or other use without express consent from the author. All rights reserved.

October 8, 2003 at 09:44 PM | Permalink | Comments (1) | TrackBack