SECOND-QUARTER FORECAST: THE PRESIDENCY, IRAQ AND THE WAITING GAME – PART ONE
April 03, 2006 21 45 GMT
Stratfor
April 4 2006
Two issues will dominate the international system in the second
quarter of 2006.
The first is the political strength and stability of the Bush
administration. For months, the administration has been plagued by
internal problems. What with devastating hurricanes, chaos in Iraq,
the fall of the administration’s chief congressional ally Tom DeLay,
the Jack Abramoff scandal, Vice President Dick Cheney’s shooting
accident, ongoing investigations involving key White House staff
members and — above all — a fracturing of the Republican Party due
to an odd Supreme Court nomination and the Dubai ports debate, George
W. Bush is teetering on the edge of a failed presidency. During the
first quarter, his public approval ratings slipped into the mid-30
percent range; should they fall much further, it will mean that Bush
has lost his core base of support. No president in modern history
has recovered from such an event.
The strength of the U.S. presidency is a crucial issue for the world’s
secondary powers. So long as the United States remains the center of
gravity of the international system, other countries must consider it
as a primary factor in their own strategic thinking. For some, such as
the Central European states, the weakening of the Bush presidency poses
a problem, as these states depend upon American security guarantees
to shield them from a resurging Russia. For others, such as Venezuela,
it represents opportunity; a U.S. administration distracted by
internal problems, and with fewer political tools at its disposal,
increases Caracas’ options for action.
In all cases, however, a sudden weakening of the American president
is actually problematic. Whether the power in question hates or loves
Washington, moving too fast to take advantage of, or compensate for,
presidential weakness means risking American reprisals if the situation
should reverse. World leaders need to know whether Bush is truly down
for the count before they shift course; counting the Americans out is a
dangerous move — and a potentially a lethal one, if they guess wrong.
Most leaders, therefore, will be waiting with bated breath throughout
much of the second quarter to see whether Bush’s ratings move
decisively one way or another. Consequently, the pressure is on
for the administration to make things happen; every day that passes
with political paralysis only encourages other countries to go their
own way.
The question, of course, is how long will they wait? We expect the
holding pattern to continue for most until the midterm congressional
elections in November, when it will be clear whether U.S. voters
have damned their leader. If Bush can reverse his political slide,
the second quarter will be his best chance to make a move; as the
elections draw nearer, his window of opportunity will narrow and close.
While most countries will be able to wait for U.S. election outcomes
to choose their courses, a desperate few, lacking other options,
will be forced to deal with the United States in the meantime as
though nothing has changed.
And that will be the case for Iraq — the second issue that will
dominate the quarter.
Ultimately, all of the players in Iraq — the Kurds, the Shia and
the Sunni — need an accurate assessment of the U.S. wherewithal
in order to negotiate effectively. That wherewithal is intimately
bound up in the political standing of Bush himself. In other words,
Bush’s problems impact the “stability” of Iraq perhaps more than any
other single factor. The Iraqis — unlike the Russians, the Indians,
the French or a host of others — do not have the luxury of being able
to wait for clear signs as to how much strength Bush has (or lacks).
They are actively involved in the struggle for their own villages,
towns and nation — and, because of this, are adjusting tactics
according to daily events in Washington as well as in Baghdad.
That simple reality will make Baghdad — both politically and
militarily — an incredibly busy place during the next three months.
Significantly, there is one middle power that also is mixed up in
Iraq — and, like the Iraqis, does not have the option of sitting
back and waiting for history to unfold. That middle power is Iran.
Ultimately, outcomes in Iraq will be determined by the ability of
the United States and Iran to come to terms with each other. Tehran
wants to ensure that its western border is secure; Washington wants to
re-establish the traditional balance of power in the region in order
to keep Tehran in check. That sounds like an intractable situation —
and in many ways it is — but the Americans and Iranians do share one
interest: Both are concerned with containing the Arabs. Therein lies
the common ground necessary for reaching an agreement.
Within the past month, all of the power brokers that matter in both
the United States and Iran — up to and including Iranian President
Mahmoud Ahmadinejad, who has yet to come across a condemnation of
Americans that he could not spice up — have agreed to the idea of
direct talks on the subject of Iraq.
Thus, outside of Washington, the single most important development
in the second quarter will concern Iraq. We do not expect to see
the endgame there this quarter — there is still too far to go —
but rather the development of a U.S.-Iranian relationship that will
allow that endgame to be shaped. By the end of the quarter, it should
be obvious whether the United States and Iran can collectively grope
their way out.
MIDDLE EAST
Events in the Middle East in the first quarter of 2006 mostly kept
with Stratfor’s forecast of political accommodations and negotiations
among the region’s emerging political forces, incumbents and the
United States, and that violence would drop back to pre-Sept. 11
levels. This can be seen not only in Iraq, where all three major
ethno-sectarian groups, Washington and now Tehran are negotiating to
stabilize Baghdad, but also in the U.S.-Iranian back-channel talks on
Iraq and the public diplomacy on the nuclear issue. Such negotiations
are also happening in the Israeli-Palestinian conflict. In the second
quarter, Iraq, Iran and the Israeli-Palestinian conflict will remain
the key drivers of events in the region.
Stratfor’s annual forecast for 2006 said that a new full-term Iraqi
regime will move to stabilize the country and progress will be made
toward a significant reduction in U.S. and coalition forces toward
the end of the year. Currently, Iraq’s various political groups —
the Shia, Sunnis and Kurds — are engaged in intense talks aimed at
political stability, and there is movement toward drawing down the
foreign troop presence. While the government is being formed, the
transitional government, cooperating with certain Sunni political
forces, is going after jihadists and the other rejectionist Sunni
elements. The insurgency is beginning to show initial signs of waning
now that Sunnis are included in the political process. A new type
of violence — along sectarian lines — has erupted, but it has not
offset the negotiating process. In fact, the sectarian clashes likely
accelerated efforts toward forming a coalition government because each
side knows that civil strife will hurt its political interests and
that the United States is trying to significantly reduce its forces
in the country.
Pressured by internal dynamics and Washington, the Iraqis likely will
form a full-term government, but this will not lead to any dramatic
improvements in stability and security. The public negotiations
between the United States and Iran could result in a preliminary
understanding between Washington and Tehran regarding the future
balance of power in Baghdad. However, Iran’s public entry into the
negotiations over Iraq will complicate talks with the Sunnis, and the
Bush administration will be engaged in a balancing game to achieve
some semblance of equilibrium between the two sides.
The jihadists will spend the quarter trying to sabotage the
U.S.-Iranian-Iraqi negotiations. Al Qaeda in Iraq will continue to
attempt attacks designed to start a civil war to slow the pace of
Sunnis’ turning away from insurgency, but these efforts will not
succeed. Another major event like the Golden Mosque bombing will not
derail the political process, but someone — either jihadist or Sunni
nationalist — will surely make an attempt. The next quarter will
see offensives in Anbar province, Baghdad and the Sunni Triangle,
with Iraqi units participating more than they did in 2005. Pressure
will increase on the jihadists, and they might begin relocating to
other theaters, such as the Arabian Peninsula, the Horn of Africa,
the Levant, North Africa, Central Asia and West Africa. Meanwhile, the
United States will continue on its course of scaling back its presence.
Sensing that the Bush administration’s domestic position has been
weakened and could slide even further, the various political actors
with interests in Iraq will drive a hard bargain. The sectarian
violence is not expected to alter the dynamics of the negotiating
process. The Shia will try to hold on to as much power as possible,
and the Sunnis will try to gain greater say in matters having to
do with security, the constitution and oil revenues. The Kurds will
try to exploit the Shia-Sunni tensions to advance their agenda for
greater autonomy for their northern Kurdistan region.
Developments regarding Iran also keep with Stratfor’s assessment
that the real issue is not the nuclear crisis; it is U.S.-Iranian
engagement, which has moved from back channels into the public arena.
Based on the progress of talks with Washington on Iraq, Tehran
will move toward de-escalating tensions on the nuclear issue by
agreeing to some sort of arrangement that will give it enough room
to reignite the matter when it needs to. Iran will try to exploit
Russia and China’s entry into the diplomatic process. More important,
it will try to use Moscow’s proposal to enrich uranium on behalf of
Tehran to push ahead for its demand to have the right to engage in
nuclear fuel activities on its own soil. As per Stratfor’s forecast,
Iran also will use the leverage it has on the Iraqi issue to extract
concessions on the nuclear issue.
The U.N. Security Council (UNSC) on March 29 approved a first response
to Iran’s defying International Atomic Energy Agency (IAEA) calls
to suspend uranium enrichment activity. A presidential statement
— a nonbinding document — gives Iran 30 days to heed the IAEA’s
demand to end all nuclear fuel cycle work, after which IAEA head
Mohamed ElBaradei will submit a report on Tehran’s compliance or lack
thereof. Talks between Iran and the P-5 — permanent UNSC members
Russia, the United States, the United Kingdom, France and China —
plus Germany will continue to get Iran to back down throughout the
quarter. Considering that the P-5 had a hard time agreeing to the text
of the presidential statement, it will be some time before the UNSC
will move toward creating some form of a resolution, which will also
be a preliminary warning as opposed to a final threat of sanctions
if Tehran remains in noncompliance.
In the Israeli-Palestinian theater, although Stratfor forecast
that Hamas would become a major player in the wake of the Jan. 25
legislative elections, we did not expect it to replace Fatah as the
dominant Palestinian political force. That said — and as expected
— Hamas is in the throes of balancing its political vision for a
Palestinian state with the need to consolidate its electoral gains.
It has yet to accept a compromise but there could be movement in
that direction in the second quarter. The radical Islamist group’s
political rise has led to a situation in which it can contain attacks
inside Israel. Considering that Hamas can deliver on any deal, Israel,
the United States and the European Union will seek accommodation with a
Hamas-led Palestinian National Authority (PNA) while sustaining their
pressure on the radical Islamist movement to moderate its position
on Israel and the “roadmap” process.
In the annual forecast for 2006, Stratfor also underestimated
Israel’s Kadima party’s ability to sustain itself as the country’s
largest political group. Despite the incapacitation of Kadima
leader and Israeli Prime Minister Ariel Sharon, the pragmatic
conservative-centrist party managed to retain its leadership in
parliament after the March 28 early parliamentary elections and
will form a coalition government. This event will set the stage
for a new phase of Israeli-Palestinian relations, but before the
Israeli government forms, Hamas will try to come to an agreement
with Fatah and other Palestinian factions regarding the status of the
Palestine Liberation Organization (PLO) and a power-sharing arrangement
involving the PLO and the PNA. Considering that the Kadima government
will move toward unilateral action to establish the Jewish state’s
final borders, and that Hamas’ control of the PNA can pose a security
threat to Israel, both sides will work toward establishing some sort
of understanding and unwritten rules of engagement.
Elsewhere in the Middle East, Saudi Arabia and Egypt will try to
advance their geopolitical positions in the region, especially given
the threat from a rising Iran. The Saudis and Egyptians will move
to act as power-brokers in the disputes between Syria and Lebanon,
in the Israeli-Palestinian theater and in Iraq by using a mix of
direct and indirect involvement in negotiations.
Regarding the region’s economy, specifically the energy sector, oil
prices will not drop because of the strong demands from the United
States and China and the incremental volumes of oil coming online in
the Middle East.
Al Qaeda jihadists are expected to try and stage additional strikes
against oil-related targets in the Arabian Peninsula and Persian
Gulf region. There is also the possibility of attacks in the Levant
as Abu Musab al-Zarqawi continues his efforts to expand his reach
beyond Iraq. Attacks in Europe and possibly the continental United
States are also expected in the next quarter as the annual cycle
of jihadist operations in the West comes to a close. Since 2004, al
Qaeda has staged two significant attacks in Europe — the bombings
of trains in Madrid in March 2004 and the attacks against London’s
Underground and bus systems in July 2005.
Al-Zarqawi also will work to revive the Saudi branch of al Qaeda and
enhance his regional leadership position in the jihadist movement. As
the homegrown jihadist movement has declined in Saudi Arabia,
cooperation between the Saudi and Iraqi branches of al Qaeda has
grown. The Saudi regime’s support of the insurgency in Iraq is bound
to have a boomerang effect as Saudi Islamist militants return home
and try to rejuvenate the movement in the kingdom, especially with
additional attempts on oil-related targets.
SOUTH ASIA
Stratfor’s forecast that India would work to enhance its global
influence through arms deals, economic pacts and alliances in 2006 was
correct. Stratfor also forecast that toward the end of 2006 Pakistani
President Gen. Pervez Musharraf’s regime will face domestic problems
stemming from instability from Islamabad’s civil-military hybrid
system and moves by the opposition to weaken Musharraf.
Musharraf has already begun losing momentum in the face of a mix of
international and domestic factors.
The major geopolitical drivers in South Asia next quarter will be
efforts by Afghan President Hamid Karzai’s government to consolidate
and enhance its power, Musharraf’s moves to counter internal threats to
his hold on power and shape a jihadist-free foreign policy toward India
and Afghanistan, and India’s push toward regional/global-player status.
Afghanistan is expected to continue pressuring Pakistan on the issue
of the Taliban and al Qaeda’s launching attacks on Afghanistan from
Pakistani soil. This will not only increase tensions between Kabul and
Islamabad but will adversely affect the Musharraf government’s domestic
position. A growing, Taliban-led insurgency, which is expected to get
worse as warmer weather sets in, will force U.S. and NATO forces to
engage in countermilitancy operations.
NATO will take over command in Afghanistan as planned in the summer,
with the United Kingdom as commander and the United States as deputy.
Of 16,000 U.S. troops in country, only 6,000 will be subordinate to
the NATO force. Kandahar province and other provinces in the east
and south with majority Pashtun populations will be active as the
transition takes place. Local forces will be testing the Canadian
troops replacing U.S. troops in the country. The Taliban spring
offensive in Kandahar province will be the Canadians’ first major test,
and they will do well.
The simultaneous emergence of many problems plaguing the Musharraf
regime has accelerated the country’s drift toward a political
impasse. With talk of the 2007 parliamentary elections being postponed
by as much as a year, and sensing that Musharraf is weak both at home
and abroad, opposition forces are expected to begin whipping up an
anti-government campaign in the second quarter. In the coming three
months, at least, Musharraf will not be in a deal-striking mood and
thus will try to undercut his political opponents by sustaining his
divide-and-weaken approach. The conditions affecting the Musharraf
government’s ability to govern will worsen, but the regime is not
expected to lose control in the coming quarter.
As for India, state assembly elections in the key states of West
Bengal, Kerala and Tamil Nadu will leave India’s left-wing parties
weakened. Since the left-wing parties support the Congress-led United
Progressive Alliance in parliament, Prime Minister Manmohan Singh’s
administration will use this weakening to demand concessions from the
left-wing parties. The administration will demand greater flexibility
in foreign policy matters concerning the pending civilian nuclear deal
with the United States and the Iranian nuclear affair. New Delhi also
will move ahead to forge deals to satisfy its energy needs.
China has joined India in getting involved in Nepal’s domestic
political fray. This will allow the monarchy room to maneuver as it
seeks to contain the Maoist insurrection and the opposition, which
is trying to contain King Gyanendra’s efforts to enhance his power.
Recent events such as the Prophet Mohammed cartoon controversy, the
collapse of the Dubai ports deal and the Afghan Christian convert
gaining asylum in Italy will further exacerbate anger in the region,
which could lead to rising security threats.
The global jihadist movement is expected to stage medium-scale attacks
involving multiple simultaneous suicide bombers striking at Western
and government targets in the coming quarter within both the Middle
East and South Asia, in addition to the routine operations under way
in Afghanistan and Iraq.
FORMER SOVIET UNION
As the first quarter of 2006 ends, Stratfor’s annual forecast for the
former Soviet Union (FSU) is right on the mark. The basic premise of
Russia’s defense of its perimeter has held true and become even more
evident. In the second quarter of 2006, this policy will again be put
to the test in Russia’s buffer zones. Stratfor correctly forecast
Russia’s overtures toward the Middle East, where it will continue
to play a part in the negotiations over Iran’s nuclear program and
Hamas’ government of the Palestinian National Authority. The Kremlin,
as expected, has also continued to consolidate its control of key
industry sectors such as energy, and its efforts will persist in the
second quarter of 2006.
Russia has recently pursued the policy of placing national integrity
above all other considerations and faces challenges on several
fronts. As Uzbekistan inches toward Russia and the rest of Central Asia
remains relatively stable, Moscow will focus its efforts on Georgia
and Ukraine, which are attempting to pull further out of its orbit.
In the tug-of-war between Washington and Moscow, Ukraine can be
expected to continue teetering back and forth. The unexpected events
of the last three months in the FSU were both related to Ukraine
— the Jan. 10 parliamentary vote of no confidence in the Ukrainian
Cabinet and the March 3 enforcement of customs regulations on Ukraine’s
Transdniestrian border. The Transdniestria blockade continues to be
a point of contention between Moscow and Kiev, but the issue became
less pressing after Ukraine’s parliamentary elections.
In line with Stratfor’s assessment that Russia is seeking to strengthen
its periphery, Moscow played a less obvious, but equally significant,
role in Ukraine’s March 26 parliamentary elections than in the
presidential election of 2004. Viktor Yanukovich’s pro-Russian Party
of Regions won the most seats but did not gain an outright majority. A
reincarnated Orange coalition — should President Viktor Yushchenko’s
Our Ukraine party, the Bloc of Yulia Timoshenko and the Socialist
Party agree on a platform — looks likely to gain the upper hand and
name the next prime minister. Negotiations between Yushchenko and
Yanukovich remain a possibility, albeit more remote than an Orange
coalition reunion. Prime Minister Yuri Yekhanurov will remain in
power until the top three finishers in the parliamentary elections
can agree on who will join whom in a coalition.
The nationalist Yushchenko, whose powers were somewhat reduced by
recent constitutional changes, will still formulate foreign policy.
He has had to work with a deeply divided parliament, and that
will not change after the election. However, even a hostile prime
minister probably would be unable to stall the legislative process
significantly, as Yushchenko’s party likely will be part of a majority
government.
The parliamentary election outcome factors into Ukraine’s further
course regarding NATO membership and eventual EU accession. The
Orange coalition, should it come to power, will be tempered by the
obvious disaffection of most Ukrainian voters for the Yushchenko
government. Even if the ostensibly pro-Western Timoshenko becomes
prime minister, she and the president will feel their ambitions
tempered by the knowledge that their support has slipped.
The Transdniestrian blockade could have jeopardized Russia’s
influence in Ukraine at a sensitive time before the parliamentary
elections. Moscow has been cautious not to break Ukrainian law by
bypassing the customs regulations and has limited its involvement
in the Moldovan breakaway republic to humanitarian aid supplied
by political parties and Russia’s regions. Russia has supported
the Transdniestrian regime, which derives most of its income
from smuggling. Now that the Ukrainian elections have occurred,
Moscow will feel freer to assert its support for Transdniestria
with the governments of Moldova and Ukraine. Implications from the
eventual outcome of this situation will serve as precedent for other
Russian-supported secessionist regions, such as South Ossetia and
Abkhazia in Georgia and Nagorno-Karabakh in Azerbaijan.
The most radical change in the Russian periphery will take place
in the Caucasus. The Baku-Tbilisi-Ceyhan pipeline is to start
exporting oil by the end of the second quarter. The Azerbaijani and,
to a lesser extent, Georgian governments will fill their coffers
at an unprecedented rate, funding military spending among other
expenditures. The pipeline’s launch marks an inflection point in the
region’s power balances. Azerbaijan now will be ascendant relative
to Nagorno-Karabakh and Armenia, just as Georgia will be ascendant
relative to South Ossetia and Abkhazia. However, greater capabilities
will not immediately lead Baku or Tbilisi to launch hostilities. This
is the quarter in which the equation will begin to change, not the
quarter in which the war will begin. Georgia and Azerbaijan are
still too weak to take part in any serious operations, although —
just like Russia — when Georgia and Azerbaijan get money, one of
their first priorities will be security.
Georgian President Mikhail Saakashvili is also gathering international
support for replacing the Russian command of the international
peacekeeping force stationed in the Russian-supported secessionist
region of South Ossetia. Saakashvili probably will not attempt
to reincorporate South Ossetia or the more volatile Abkhazia, but
small groups operating without government consent (but with implicit
government support) could cause regional skirmishes.
Insurgents in both Abkhazia and South Ossetia continuously clash
with Georgian groups, furthering their cause without implicating the
Russian government in outright aggression. However, Russia is not too
eager to fully step into the conflict. Biding its time and stealthily
supporting insurgent initiatives, Moscow will refrain from taking any
drastic steps, such as incorporating South Ossetia into its territory.
Elsewhere in the Caucasus, the Russians will continue to prevail over
the Chechens, with occasional raids and skirmishes taking place.
Militants will still be able to stage attacks, and Muslim unrest will
continue to spread across the North Caucasus.
Uzbekistan, as the central and most influential republic in Central
Asia, will take further steps toward securing its position. Having
finally quit GUAM (the cooperation organization of Georgia, Ukraine,
Azerbaijan and Moldova, known as GUUAM until Uzbekistan withdrew),
but not yet having joined the Commonwealth of Independent States’
Collective Security Treaty Organization, a Russian-dominated
security grouping, Uzbekistan is attempting to retain a semblance
of neutrality. However, expanding its relationship with the Russian
state-controlled natural gas monopoly Gazprom by selling exploratory
and development rights to major natural gas fields will serve to
strengthen ties between Tashkent and Moscow. Aside from economic
cooperation with Russia, Uzbekistan is shunning additional organization
memberships in order to avoid tying its future to other countries
and conforming to foreign standards. President Islam Karimov does
not wish to justify his crackdowns on opposition and his continuing
consolidation of power to international organizations.
The U.S. military will continue to lose momentum in Central Asia. As
this happens, assets and operations will be transferred to Afghanistan,
which is secure enough. Washington paid the $200 million fee for
the use of Manas Air Base in Kyrgyzstan, so the U.S. military will
maintain a presence there for at least another year.
As the U.S. presence fades from its periphery, Russia will continue to
expand its military presence in Central Asia with the aim of securing
friendly regimes. Moscow will continue with its military expansion,
as it finally has enough money to produce weapons for its military
rather than for export.
Russia will further advance its goals in the Middle East by continuing
to play a part in negotiations with Iran and extending a hand to Hamas,
challenging Western powers in both cases. As relations with both
Iran and Hamas are likely to continue in the same tone next quarter,
Russia will come out confident of its mediation efforts. It is playing
the part of the alternative, the go-between, with the U.S.
and European side and the Middle East. Further inroads into the Middle
East — starting with the recent cooperation agreement with Algeria
on joint ventures in natural gas technologies — will follow.
Russia’s interaction with Europe is epitomized in one word: energy.
In recent informal talks with EU Commission President Jose Manuel
Durao Barroso, Russian President Vladimir Putin discussed this issue,
which will occupy both parties for the foreseeable future. A proposed
agreement that would allow European access to Russian natural gas
infrastructure and reserves in exchange for Gazprom’s access to EU
markets will go nowhere, as Russia’s nationalistic and protectionist
stance toward its energy sector will not be overcome by a mutually
beneficial business proposition.
The Sino-Russian relationship has recently benefited from U.S.
President George W. Bush’s relative weakening. Since the drop in his
approval rating, Bush is being continuously challenged by both Putin
and Chinese President Hu Jintao in the international arena. The
U.S.-China-Russia triangle has slightly shifted its balance, but
the relationship between the Eastern partners is merely tactical,
not amiable. The Russia-China summit March 21-22 led to the signing
of several bilateral agreements, many on the ever-pressing question
of Chinese energy needs. Although these projects are unlikely to ever
come to fruition, they contribute to the positive image of Sino-Russian
camaraderie. Beijing and Moscow will continue in the second quarter
to present an allied front when it suits their purposes, while the
heart of the relationship remains cold.
Russian domestic policy will progress toward consolidation of
the energy sector. As Russia continues raising natural gas prices,
Gazprom will increase its involvement in domestic industry and foreign
contracts. The state-owned oil company Rosneft is also seeking to
expand its scope; it will attempt to take over other companies,
such as Surgutneftgaz.
The former Soviet Union will continue to follow the path Stratfor’s
2006 annual forecast projected. Significant shifts will occur on the
Russian periphery, but Moscow will stick to its current policy and
take the entire region along with it.
EAST ASIA
As Stratfor forecast at the beginning of the first quarter of 2006,
China is addressing the rural-urban income gap by pouring money into
infrastructure development in the countryside. The National People’s
Congress met in the first quarter to approve the next five-year plan,
which focuses on transferring wealth from coastal to rural areas.
This plan was necessary for the Chinese government, which saw a
potential political and economic crisis brewing.
Although Beijing had to address the income gap or face eventual
collapse, the government’s actions could prove to be its downfall.
Beijing now is walking a fine line between the needs of the
countryside and those of the coastal region, which is the engine for
the economy. The new five-year plan addressing the need to develop
the countryside is not the first such measure to be tried. All other
attempts were quickly set aside to continue feeding the growth engines
of the coast. If China cannot keep its economy ticking, unemployment
will soar and create new tensions. China’s economy is heading for a
downturn that will have significant political ramifications.
Evidence of this downturn will appear in the second quarter, but it
will not fully manifest until the end of 2006 or beginning of 2007.
The second quarter will see growing tensions between local officials
and the central government as Beijing tries to take back the
economic control that was given to lower-level governments in an
effort to liberalize the economy. Decentralization provided economic
incentives for liberalization, and it worked so well that the central
government lost much of its ability to shape the economy. The desire
to recentralize will manifest in crackdowns on corrupt local officials.
Criminal cases against local officials will be highly publicized and
will become more frequent in the second quarter.
The next three months will also see more public protests directed at
local officials as the central government harnesses public opinion
and sways it toward Beijing’s new policies.
It is a dangerous game, and in the long run the government could lose
control of this strategy, as happened during the Cultural Revolution.
However, the government will approve and even foment protests targeting
local officials during the second quarter. The Chinese government also
will work to convince local and regional governments to get on board
with the new five-year plan, even though the structural change will
hurt many local interests. Beijing will float incentives with coercive
undertones but there will be no major clashes in the next quarter.
In the second quarter, the United States will continue its tough
rhetoric on yuan revaluation, but no specific moves will be made. A
trade measure proposed by U.S. Sens. Charles Grassley and Max Baucus,
which will allow the United States to impose restrictions on China,
will be debated and might pass toward the end of the second quarter.
Regardless, its loose wording will give the Bush administration
considerable leeway in implementing the legislation. There will be
no decisive action against China in the second quarter. The mid-April
meeting between Chinese President Hu Jintao and U.S. President George
W. Bush, which once had potential to lead to a showdown over the yuan
revaluation, will generate tough rhetoric at the most.
Beyond Sino-U.S. relations, Sino-Japanese relations will continue
deteriorating in the second quarter as China continues its posturing
and vitriol against Japan. Picking fights internationally quells
domestic battles and spurs nationalism, and taking this tack with Japan
is a strategy that has worked, and continues to work, for Beijing.
Japan, China and the United States might meet again on different turf
if six-party talks over North Korea continue. If they do not resume by
the end of the second quarter, the United States will wash its hands
of the North Korean issue. The recent threats emanating from North
Korea — such as statements that Pyongyang has a nuclear first-strike
capability — are signals that North Korea is trying to get the United
States back to the table. If they do not have anything concrete to
offer, Washington will give up on Kim Jong Il. However, the United
States will not give up on its security arrangements in East Asia;
Washington will just shift the burden of dialogue with North Korea
to China. This will throw South Korea, which is depending on bigger
players to resolve the North Korea issue, into a frenzy and further
deteriorate Sino-U.S. relations.
Elsewhere in Asia, the second quarter will see other noteworthy
changes. Indonesia will continue to battle threats to multinational
corporations (MNCs) operating in country. Foreign investors are keeping
a close eye on Jakarta before weighing the feasibility of starting or
continuing operations in Indonesia. Despite more upsurges in violence
in the next quarter, Jakarta will remain firm in its protection of
foreign investment. The government will talk tough to appease its
domestic constituency, but backroom deals with MNCs will ensure the
multinationals’ safety and progress in Indonesia.
The Association of Southeast Asian Nations (ASEAN) will capture
attention in the next quarter as it gets tough on Myanmar, altering the
association’s typical stance of noninterference. The United Nations,
the United States and the European Union will bolster ASEAN’s move
to pressure Myanmar’s military regime to reform.
Thailand’s political troubles will continue, albeit somewhat abated, in
the next quarter. Prime Minister Thaksin Shinawatra’s troubles aside,
the Thais have to address flaws in their democracy. The intensity
of the street protests seen in this quarter will disappear, but the
political parties will have a hard time compromising on constitutional
reform. The Thai Rak Thai party will remain in power, and so will
Thaksin — in one form or another — which will increase discord with
the opposition. Opposition groups will not respect the Thai Rak Thai’s
majority and will boycott the April snap elections, which will enable
them to claim that Thai Rak Thai’s mandate is a sham. The standoff
in parliament between Thai Rak Thai and the opposition will continue,
shackling all political decisions until the constitution is revised and
there is a compromise between the parties. Under these circumstances
Thaksin’s own Thai Rak Thai party will ask him to resign to avoid a
parliamentary impasse, but Thaksin will still be able to influence
any political outcome. These troubles will just be starting in the
second quarter of 2006.
Tensions are likely to flare up again in the Philippines. The military
will become more politicized — despite recent efforts to depoliticize
the military by ceasing to use soldiers as bodyguards for VIPs and
politicians — as recently appointed Armed Forces Chief of Staff
Gen. Generoso Senga makes appointments to bolster his authority, and
President Gloria Macapagal Arroyo consents. Senga wants more troops to
combat the Moro Islamic Liberation Front (MILF), and if his request
is approved, negotiations between the government and MILF will not
be resolved in the next quarter.
The second quarter of 2006 will be marked by rising tensions throughout
Southeast and East Asia. Even where some conflicts seem to be resolved
— Thailand and the Philippines — there will be ongoing discord that
will continue throughhout the year.
The second-quarter 2006 forecast continues in Part Two.
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