Wednesday, December 24, 2008

Croatia's border disputes

Javno has an article about border conflicts in former Yugoslavia. If you thought that the see borders between Croatia and Slovenia and the border between Kosovo and Macedonia are the only problems you are wrong. There are many more problems:
- Croatia with Montenegro: teh sea border and the Prevlaka peninsula
- Croatia with Slovenia: the Piran Bay, the border on the Mura river and Sveta Gera.
- Croatia with Bosnia: the border on the Una river near Kostajica, the border near Zeljave (Bihac), and near Martin Brod.
- Croatia with Serbia: the disputed points on the Danube river, and near Principovac near Ilok.

These are only Croatia's problems. Other borders won't be much better. The problem is that natural borders and the different registries do not always match.

As the article notes: first Italy blocked Slovenia over the border, now Slovenia is passing the same treatment to Croatia. If - as can be expected - Croatia will pass the favor on when it becomes an EU member we can expect a lot of political mayhem. I am puzzled why the EU still hasn't forced the ex-Yugo countries to sign an agreement that they won't block each others access to the EU.

Tuesday, December 23, 2008

Escalation in Bosnia

With the Republika Srpska suing 9 people including US representative Raffi Gregorian for “conspiring against Republika Srpska” Bosnia seems to face a new crisis. Lajcak, Bosnia's top international envoy, immediately chose the old international strategy of parrying Serb actions with threats, saying "We don’t have to go back too far into the history to see how defying the international community usually ends up".

I think mr. Lajcak is missing the point here. This is not about ethnic conflicts - at least it should be. This is about the borders between a criminal investigation and a political abuse of judicial powers. The rude reaction of mr. Lajcak suggests that he may very well be on the wrong side of the fine line between those two positions:
- If anything, the Federation in Bosnia is considered more rather than less corrupt than the RS. This raises the question why we hear only about such investigations regarding the RS.
- Parliamentary democracies generally know legal immunity for top politicians. Now, in the rather unsettled situation of Bosnia Dodik is not officially on the top level but he is the leader of one of the main political currents in the country, so some judicial restraint is justified. Specially from foreigners.

That doesn't mean that corruption shouldn't be addressed. But it does imply that care should be taken not to confuse the fight against corruption with politics. There are many ways to achieve that.

Will this restraint harm the fight against corruption? I don't think so. On the contrary, it prevents the fight against corruption from becoming politicized. Such politization only increases corruption as the focus comes on a few high-profile cases and politicians start to see the fight as a political tool rather than as a good cause.

As for Dodik, the main goal should be to have him behave more honest, not on getting him behind bars or out of office. He is a politician for a part of Bosnia's Serbs. They should decide when he has to give up his position. The international community should instead focus on the monetary aspect. They have given money to Bosnia and if Dodik is wasting some of that they should insist that transactions are turned back or money is paid back.

Friday, December 19, 2008

The mysteries of the financial 40 pct profit share in the economy

One of the aspects of the financial crisis that still gets little attention is how big the financial sector has become. According to this lecture (See the pdf for graphs)from Kemal Dervis:

In the early 1980s the share of the financial sector in both, corporate value-added and profits in the American economy, was about 5 to 6 percent. The share of financials in value added has steadily increased and has reached about 8 percent in 2006-2007. The share of profits, however, climbed to reach an extraordinary 40 percent and more!

If you see the graph (page 9 in the pdf) you will see that historically that share of the profits has been about 15% and that it has been growing for decades, but in a very irregular way. The big question is:
how can a sector that is not really productive produce 40% of the profits?

Some ideas:

  • The financial boom started with the Reagan-Thatcher financial deregulation. In a time when it was difficult to find venture capital it seemed like an obvious solution. The same argument is still repeated nowadays allthough the problem is no longer there. Easy credit helps also good ideas.
  • The financial sector is protected. Financial loses are often covered by government. See LCTM in 1998 and the present bailouts. See also the way in which the IMF pressures countries to extreme savings when they default on loans.
  • Bubbles have created a casino mentality with investors. They may have lost with the Dot-Com bust but that they know that many others who stepped out in time make a lot of money. Just like gamblers investors tend to think that they are able to beat the average.
  • More and more sectors of the industry become target of the financial "wizards". Two of their tactics are the Leveraged Buy Out and the deregulation of traditional sectors of the economy, like energy. As these sectors are usually too important too fail they have considerable leeway to extort money from other parties (labor consessions, higher tarifs, government support, etc). The high leverage of these investments makes it possible to score enormous profits when things goes well. For the investors it is no problem to take irresponsible risks: what counts for them is only the chance for big gains.
  • The consumer is the victim. Easy credit may sound very attractive. But in the end the effect was that the prices rose and it was nearly impossible to buy a house without taking a huge mortgage.
  • The money gives the financial sector power as a presure group. We see ever more pressure for the creation of new "investment opportunities". One of the targets at the moment is financial deregulation in developping countries. In this demand in the context of the GATS free trade negotiations the Western countries ask for deregulation of the financial sectors over there. They wouldn't even be allowed to ask that foreign banks keep local reserves.

My expectation is that the present crisis will not enough bleed the financials to stop them. After things get back to normal they just will go on to create the next bubble. Until we have finally a crisis that is too big...

Thursday, December 18, 2008

The harmful effects of America's Iran boycot

Boycotting other countries is a popular policy in the US, where politicians can score with fomenting hatred towards other countries. Remember the "freedom fries" or the recent anti-Russian fever when a Georgia's US-sponsored raid went wrong? However, the sanctions against Iran stand out among those boycotts because they have got some international support. Unjustified support.

An important factor in the Iran sanctions has been lobbying by AIPAC.

The sanctions started right after the 1979 revolution. And have since repeatedly been sharpened. By 1987 the import of Iranian goods into the United States had been banned. In 1995, President Clinton issued Executive Order 12957, banning U.S. investment in Iran's energy sector, followed a few weeks later by Executive Order 12959 of May 6, 2000, eliminating all trade and investment and virtually all interaction between the United States and Iran. The most recent move was in 2007. Under the pretext of harming Iran's regime a boycott of its financial sector was anounced.

We know from Serbia that the boycott brought the country financial ruin, while the environment of Milosevic enriched itself. Something similar is happening in Iran, where the mafia around the leaders is enriching itself while the private sector withers. The possesion of oil and the fact that most of the world has not follow the lead of the US means that the effects are not as strong as in Serbia. But they are still considerable. Much more than many people think:
- under US pressure many international banks have broken their connections with Iran
- High tech is out of reach for the Iranians. No European firm will work together with them as they might loose access to US technology and patents.
- Iranian academics are not allowed to publish in US academic journals. As US journals dominate in many fields this cuts them off from the scientific community.

The effect is that the economic power that Iran's rulers have because of the oil is even more increased because nearly all businesses are dependent on the rulers for permits and allocations. Many alternative routes to achieve economic goals have been cut off.

Those attacks against the Iranian population are defended with the argument that it might turn the population against the regime. In fact no international sanctions have worked this way. It didn't work in South Africa, Birma, Iraq or Serbia. The effect is usually the opposite: the sanctions give the regime an excuse for their failures and they position the opposition as traitors. And the whole country knows that they are in a double bind: if the regime worsens the sanctions worsen. But if the regime shows improvement it is claimed that it has now been shown that the sanctions work and the sanctions will worsen too.

Instead of relying on independent forces (that it destroys instead) the US promotes its own people as opposition. Their ideal is the way change was brought to Serbia, Georgia and the Ukraine in the US financed "color revolutions". Problem is that nowadays countries like Iran are well aware of what happened on those occasions and that they will make sure that it doesn't happen to them.

The main factor in the end of the Apartheid regime in South Africa was the international public opinion. In a world of affirmative action Apartheid simply was no longer salonfähig. As the human rights violations of the Iranian regime are not considered aceptable by many too it would be a much better policy to keep our channels with Iran open:
- remove every sanction that hinders the development of an independent business community in Iran. Independent businesses will diminish the grip of the regime on the country.
- keep trade contacts open. They are personal contacts that tell the Iranians how the rest of the world thinks.
- remove sanctions that promote massive smuggling. The smuggling enriches and strengthens the regime.

Saturday, December 13, 2008

Georgia's forgotten Ossetian exiles

Many newspapers have mentioned that Georgia still has some 200,000 refugees from the 1992-1995 conflict in Abkhazia. However, those same newspapers nearly always forget to mention the 55,000 Ossetians who were driven out of Georgia in 1991.

Before 1990 Georgia contained about 170,000 Ossetians. 70,000 lived in the South Ossetia and the remaining 100,000 lived in cities like Gori and Tblisi and in an area south of Gori. There Ossetians south of Gori had gone there in the 19th century. When Georgia passed from the Turkish and Persian to the Russian sphere of influence around 1800 the Persian emperor evacuated Georgia's Muslims. This left many areas empty that were filled by immigrants: the Ossetians were part of a broader immigration wave. The Ossetains in South Ossetia have lived there for many centuries.

at the end of the 1980s Georgia saw a fierce nationalism. The fact that Georgians formed only 70% of the population and that the Georgians themselves are divided between four different nations with different languages (Georgian, Mingrelian, Svan and Laz) would have suggested a federal state, but instead they took a centralized government. The first president, Gamsachurdia, campaigned under the slogan "Georgia for the Georgians" and one of his acts was to abolish the autonomy of South Ossetia - under the pretext that it hadn't had autonomy in the short time that Georgia was independent (1918-1920). The Ossetians didn't accept this and instead declared independence. Next the Georgians occupied Tskhinvali. A war followed and although there was no fighting in the Georgian cities or the area south of Gori the Georgians took the opportunity to cleanse many of the Ossetians who lived there. Since then it has been impossible for them to return as they cannot get their properties back. Those properties have been usurped by Georgians and the Ossetians are required to go to the court of law to get it back. This results in never ending procedures.

Many of the exiled Ossetians have been resettled in the Vladikavkaz region in North Ossetia.

The 1991 war was ended with an armistice that gave an important role to Russian peacekeepers. But when Saakashvili came to power in 2004 he promised to bring South Ossetia (and Abkhazia) back under Georgian control. This resulted in a flurry of actions that polarized the conflict. Georgia installed rivaling government for both Abkhazia and South Ossetia and increased harassment. There were some distracting actions, like a Georgian property restitution law for which no money was set aside, so it looked like the West was supposed to pay off the cleansed Ossetians. A few Ossetians were set up in a kind of Potemkin village by the Georgian government.

However, real refugee returns never got from the ground. I think that alone should be enough reason for the West not to support Georgian efforts to take control of South Ossetia and Abkhazia. Otherwise we support ethnic cleansing.

It should be noted that the cleansing of the Ossetians happened before the Georgians were cleansed from Abkhazia. I think a proper solution for those Ossetian refugees will be crucial in establishing a climate of trust in which the Abkhazian conflict can be solved.

Tuesday, December 09, 2008

The Mumbay attacks and Pakistans army

One organisation that is hardly discussed regarding the Mumbay attacks is Pakistan's army. It is a parasitic state within the state that owns lots of land and other wealth. The main reason the Pakistani state is so weak is exactly because it doesn't have effective control over the army.

As the ISI is a part of the army establishment the Pakistani army is very much responsible for the Mumbay attack. Not that the army is a monolithic organization that stands as a whole behind the attack. It is rather a divided organization that is united by common army interests. From that point of view any conflict is welcome - as it will bring more money and power to the army.

The challenge to both the US and India is that it is in their interest to make Pakistan a normal country with a less prominent role for the army. Yet their actions risk to have the opposite effect. An indiscriminate Indian attack might unite Pakistan behind its army. US military aid may bring some action against the Taliban. But at the same time it strengthens the army as a whole. And as a whole the army has no interest in seeing the Taliban or the Kashmiri and Islamic terrorist organisations disappear.

Tuesday, December 02, 2008

Old hawks wrong for US foreign policy

As many have noted already, Obama seems to have adopted with Hillary the aggressive foreign policy of the Clinton administration. Mary Ellen O'Connell - an international law professor at the University of Notre Dame - wrote an article against this trend. It shows that Hillary is not the only hawk in the new administration, but one of many. It looks like little will change in US foreign policy when Bush leaves.

See also the following articles: Barack Obama criticised for failure to signal change in foreign policy and Obama's Uninspiring National Security Team.