May 19, 2004

More Money is Staying at Home

Booming stock markets? Rapidly rising real estate prices? Major tourist influxes?

In the Middle East?

Read the whole thing. Call this one of the silver linings (at least for the Dubais and Beiruts) in the larger picture of worsening relations between the U.S. and the Arab world:

"Many Arab investors, meanwhile, are keeping part of the funds they usually invest abroad inside the region, fuelling a surge in stock markets and real estate prices.

They are also changing their travel habits, switching away from the US and Europe to countries such as Jordan, Lebanon and Dubai....

...before people thought the West and the US loved us and all that has changed. People feel their investments abroad are not as welcome and they want to keep some percentage of the money inside. That's why stock markets are doing well."

According to Mr Azzam, the Saudi stock exchange is up 36 per cent this year, despite a growing terrorist threat.

In Qatar, the stock market gained 46 per cent in the same period and Lebanon's exchange was up 22 per cent."

Still, the good news might be fleeting--much of it driven by momentum investing with myriad structural deficiencies left unaddressed:

"Stock markets and real estate markets are doing well but that's momentum investing. It is not a great new opportunity," says Mr Abed.

The need to create new opportunities is more crucial than ever. But governments are reluctant to embark on the needed structural changes, including reforming bloated public sectors. "Governments are so big and costly they cannot do much more even if they have the money. They have to downsize," says Mr Abed.

"Unless we tackle governance and accountability we're not addressing the real issue."

The dilemma facing Arab governments is not only that more than 4m young people come on to the job market every year, but that many of them are educated and have high expectations.

"Governments are stuck," says Mr Nabli, of the World Bank. "They're captured by vested interests that don't want change and labour markets are very tense, so governments are afraid of making moves for change, including privatisation, trade reform and public sector reform. They're afraid it will get out of hand [politically]."

But as time goes by, he says: "What you're doing is simply building up problems."


Time to Define Democratization Down

Given that it doesn't look like there will be a run on translated copies of the Federalist Papers in Iraq anytime soon--it might make sense for our democratization initiatives in the region to focus more on economic reforms.

Especially when a vast majority of Arabs in the region smell double standards in our application of democracy tenets.

Israel, our favored democratic ally in the region, has been (if mistakingly) lobbing missiles or tank shells into crowds of demonstrators in refugee camps.

And, if this was a wedding party (an inquiry is underway), you'll forgive some Arabs--in places like the Iraqi-Syrian border or the teeming slums of Rafah--for thinking that democracy means killing (when not torturing) Arabs.

So don't be surprised if they are not all rushing to sign on the dotted line...

Back to economic reforms. Think of focusing on such reforms as the flip side of the Russia model with glasnost allowing for conditions of a sustainable perestroika to take root, ie. the Chinese model with economic reforms occuring before implementation of political reforms.

Another reason for Washington to take a closer look at the "Barcelona Process"--a Euro-initiative that, despite Romano Prodi's involvement, might be worth more attention in the Beltway.

What Needs to be Done; But Won't Be

I'm clearly discomforted by where we are at in the Middle East right now. I'd like to see (but won't, sadly):

1) appointment of a high-level special envoy to shuttle between Israel and the Palestinians to a) get a ceasefire, b) resuscitate negotiations, c) revive Martin Indyk's 'trusteeship' idea so international forces would be made available to enforce a prospective settlement; and d) start thinking/talking about the contours/nature of a Palestinian state and compensation mechanism for pre-67 refugees so Palestinians can espy a real settlement (no pun intended);

2) more troops (and a better troop mix) in Iraq to help provide security rather than a chimerical peace with honour (pseudo-Iraqification)--by all means, Iraqify--but do it deliberately and right, ie. 2 years of force training and until then beef up U.S. presence;

3) appointment of a major U.S. expert on the Arab world (not Madison Avenue execs) to spearhead a reinvigorated public diplomacy effort in the region (no this doesn't mean piping in J. Lo or Madonna);

4) destroy Abu Ghraib rather than, risibly, rename it "Camp Redemption" (please spare me the E-mails about how what went on in Saddam-era Abu Ghraib was so much worse than Rumsfeld-era Abu Ghraib--remember that Saddam never represented that he was invading Iran or Kuwait to democratize said countries);


5) contemplate "Marshall Plan" style supplements to aforementioned Barcelona Process to aid economic liberalization in the region.

There's more, of course. But this would be an ambitious start. Kerry ( wallowing in meek non-statements) won't do it.

Bush, it appears, won't either.

But given this reality, I'll go with the stronger leader who moved U.S. strategic doctrine in the right direction post-9/11.

Of course, massive errors (mostly the result of misguided souls at the Pentagon and Cheney's shop) helped scuttle much of our policy in Iraq and elsewhere in the 'region.'

But the game is not yet over. Iraq can still prove a success (especially if, for instance, McCain replaced Rummy at the Pentagon).

But I'd be lying to myself if I didn't report I have very real misgivings and concerns at the present juncture.

You'd be giving Pangloss himself a run for the money if you didn't, really.

Posted by Gregory at May 19, 2004 10:17 PM
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