Fareed’s MHI Global Briefing ;

Fareed: The American Left’s Isolationism

Venezuela is a test for the Trump administration—but also for the Democratic Party, which needs to find its voice on foreign policy, Fareed writes in his latest Washington Post column. It must pursue a foreign policy that helps usher out the odious regime of President Nicolás Maduro without triggering a backlash against perceived U.S. “imperialism.” It must support a political transition that doesn’t threaten the old guard so much that it fights to the end. And the United States must join other nations to help a country that has virtually been destroyed over the past decade. All this requires careful diplomacy, multilateralism and quiet pressure, not bombast. Venezuela’s crisis has revealed “worrying signs that the new Democratic foreign policy could turn out to be a reflexive isolationism that is not so different from President Trump’s own ‘America First’ instincts,”Rep. Tulsi Gabbard (D-Hawaii) said, “The United States needs to stay out of Venezuela. Let the Venezuelan people determine their future.” Rep. Ilhan Omar (D-Minn.) said, “We cannot hand pick leaders for other countries on behalf of multinational corporate interests.” Sen. Bernie Sanders (I-Vt.) noted, “We must learn the lessons of the past and not be in the business of regime change or supporting coups.” Leftist hero Noam Chomsky and several dozen other academics and activists have signed a letter largely blaming the crisis in Venezuela on U.S. actions. Fareed writes. Liberal voices have called for America not to meddle in Venezuela’s affairs and to let Venezuelans determine their futures, but “[d]oes one really have to explain that Venezuela’s problems have been primarily caused by its own nasty government? That the Venezuelan people have not been allowed to determine their own future or pick their own leaders for years, going back to Hugo Chávez’s rule?” Fareed asks, The current government has clung to power by rigging elections, crushing opposition parties, muzzling the media and using lethal force against protesters. During a single week in January, pro-Maduro forces allegedly killed at least 30 people and arrested at least 850, according to the United Nations. The Chávez-Maduro regime has destroyed what was once Latin America’s richest nation, producing an almost unimaginable inflation rate of 1 million percent. (Prices double approximately every 19 days.) The simplest, bleakest indicator of how bad things are in Venezuela is that since 2015, an estimated 3 million Venezuelans have fled the country. That’s about 10 percent of the country, equivalent to an exodus of 33 million Americans. But millions more Venezuelans are staying and fighting. They have come out in droves to vote against this government, almost driving Maduro out in 2013 despite an unfair election, and successfully bringing an opposition parliament to power in 2015. For the past few years, Venezuelans have organized massive protests against the regime, enduring tear gas, arrests and killings. They have rallied behind an opposition leader, Juan Guaidó, and are using a constitutional process to shift control of the government from the regime to the elected parliament.

Will the US Ask China for a Loan, Amid Its Trade War?

The US Treasury needs to borrow more money—a stunning $12 trillion over the next decade, by one estimate—and it’s not getting as much help from China as it used to, The Financial Times’ Gillian Tett writes. China has been a reliable buyer of US Treasury bonds, but its holdings have quietly dropped. Last year, US deficits hit their highest mark since 2013, and Bloomberg reported in October that Treasury planned to borrow more, in part, to finance Trump’s tax cuts, which have cut revenue. The U.S. Treasury Department said government borrowing this year will more than double from 2017 to $1.34 trillion as the Trump administration finances a rising budget deficit. Specifically, the department expects to issue $425 billionin net marketable debt from October through December, lower than the $440 billion estimated in July, according to a statement released Monday in Washington. The Treasury sees an end-of-December cash balance of $410 billion, compared with its previous forecast of $390 billion. Treasury could offer bonds more attractive to US buyers, but a question remains: From whom will the US borrow? The situation raises an uncomfortable prospect, if one that’s unlikely to succeed, of Treasury Secretary Steve Mnuchin asking China for a loan, whilst squaring off over trade—a distinctly un-Trumpian move. The uncomfortable truth for the bill’s supporters is that the tax cuts are substantially contributing to a widening federal budget deficit, which now appears on track to top $1 trillion this year. If growth fades in the coming years — as many economists believe it will — the cuts could exacerbate the deficit even more. The best-case scenario for proponents is that the cuts spur a sustained increase in productivity and growth, which in turn produces increasingly higher revenues several years down the road — enough to reduce the “cost” of the bill to the budget deficit. The 2018 results are, oddly enough, what a lot of economists predicted would happen with Mr. Trump’s cuts, including ones who generally favor tax cuts. Total federal revenues in 2018 came in roughly where the Tax Foundation, a Washington think tank that typically projects large growth boosts from tax cuts, had forecast — which is to say, well below the budget office’s baseline. Just because the new law helped to increase economic growth, said Kyle Pomerleau, an economist with the Tax Foundation, “it doesn’t mean that it is going to pay for itself.” Mr. Pomerleau said additional growth from the law “will continue to be modest over the next couple of years.” “That will offset some of the initial cost,” he continued, “but it will still be nowhere near enough to make the tax cut self-financing.” In December 2017, as Republicans sped the tax cuts through Congress, the Tax Foundation released a projection that the cuts would add about $450 billion to federal deficits over 10 years, after accounting for the additional economic growth it would spur. The group has since redone the analysis, with what Mr. Pomerleau called improvements to its methodology. It now predicts deficits will increase by $900 billion — double its original forecast.

A Bad Sign for Climate Change: The World Wants More Oil

The Economist points to a stark reality: Oil demand is rising, and major producers intend on pumping more, not less—a development that will not help the world meet emissions-reduction and warming targets.The world’s largest economy and its second biggest polluter, climate change is becoming hard to ignore. Extreme weather has grown more frequent. In November wildfires scorched California; last week Chicago was colder than parts of Mars. Scientists are sounding the alarm more urgently and people have noticed—73% of Americans polled by Yale University late last year said that climate change is real. The left of the Democratic Party wants to put a “Green New Deal” at the heart of the election in 2020. As expectations shift, the private sector is showing signs of adapting. Last year around 20 coal mines shut. Fund managers are prodding firms to become greener. Warren Buffett, no sucker for fads, is staking $30bn on clean energy and Elon Musk plans to fill America’s highways with electric cars. Yet amid the clamour is a single, jarring truth. Demand for oil is rising and the energy industry, in America and globally, is planning multi-trillion-dollar investments to satisfy it. No firm embodies this strategy better than ExxonMobil, the giant that rivals admire and green activists love to hate. As our briefing explains, it plans to pump 25% more oil and gas in 2025 than in 2017. If the rest of the industry pursues even modest growth, the consequence for the climate could be disastrous. Rising emissions would be the biggest obstacle to mitigating climate change, but other problems loom against that larger one: The world isn’t getting any leadership from the US, The Washington Post writes, and a better funding mechanism may be needed to help countries implement climate plans, Sagatom Saha writes in the World Politics Review.

Trusting the Taliban

America shouldn’t, Hudson Institute Director for South and Central Asia Hussain Haqqani writes in Foreign Policy, arguing that the framework under discussion—withdrawal, in exchange for peace and denial of terrorist safe haven—looks a lot like the Soviet withdrawal conditions of 1988. Cracks have already appeared in US/Taliban negotiations, as the State Department denied a Taliban claim that the US had promised to withdraw half its troops by April. The Pentagon and the White House did not immediately respond to the Taliban official’s comments. In December, a U.S. official said Trump was planning to pull out more than 5,000 troops, or about a third of the total 14,000 U.S. personnel in Afghanistan. Last week, the top U.S. commander in Afghanistan, Gen. Scott Miller, told ABC News that he was always looking for ways to reduce the U.S. footprint there where possible but said there was no order to drawn down. “I want the right capabilities here, not necessarily specific numbers, so I’m always looking to reduce where I’m able to, and be as efficient as possible,” he said.” In Moscow the Taliban delegation reiterated the group’s demand that all U.S. forces withdraw from Afghanistan. The group’s representatives have been taking part at the highly unusual meeting with key Afghan powerbrokers, among them Afghanistan’s former president, Hamid Karzai, who have said they hope the event can build trust and lay a foundation for a possible political settlement in the future. Afghanistan’s government though has refused to attend the talks in Moscow, criticizing them as undermining its legitimacy. The government, led by president Ashraf Ghani, is already uneasy that it has been sidelined from the U.S.-Taliban talks and faces the challenge of other powerful political figures in Afghanistan seeking to take leading roles in the burgeoning peace efforts with the Taliban. Afghanistan’s government is anxious that a sudden U.S. exit could see it rapidly weakened and there are worries the country could fall further into violent chaos or renewed civil war as other warlords emerge to compete with the Taliban. On Tuesday, Secretary of State Mike Pompeo called Ghani to reassure him of the U.S. commitment to Afghanistan. Ghani in a tweet said that Pompeo had “stressed that there is no uncertainty and ambiguity about the U.S. commitment to Afghanistan” and that Pompeo had “underscored the central importance of ensuring the centrality of the Afghan government in the peace process.” A readout released by the State Department, however, said Pompeo had also emphasized the importance of an “intra-Afghan dialogue” and expressed the U.S. determination to find “the conditions for the Afghan government, other Afghan leaders and the Taliban to sit together and negotiate a political settlement.” Trump’s desire to withdraw points to a larger question about America’s role in the world: While Trump is right to reject the role of world policeman, Haqqani writes, America should accept the more-limited role of umpire. The Wall Street Journal, for its part, agrees, writing that Trump seems to misunderstand that keeping troops abroad can maintain stability and that he “shouldn’t mislead his supporters at home and upset friends abroad by suggesting that peace can be purchased by American retreat.” President Trump won applause in Tuesday night’s State of the Union address when he declared that “great nations do not fight endless wars.” It’s a resonant line in a country that has been fighting in parts of the Middle East for nearly two decades. And, in a literal sense, the statement is true.

Will the World Bank Take a Free-Market Turn?

President Trump’s nominee to run the World Bank, David Malpass, laid out his vision in a Financial Times op-ed, giving a nod to “freer markets … that have lower taxes, fewer regulatory burdens.” Those are long-held tenets of the so-called Washington Consensus on model governance, and Malpass appears poised to uphold them. While Malpass has criticized the bank, he won’t “look to burn [it] to the ground” if he’s installed as president, Ian Bremmer writes at Time, predicting instead Malpass will reform its bureaucracy while pushing developing countries to seek more private financing. If you look at congressional testimony Malpass gave last year, it seems he and the Trump administration have three main goals when it came to the administration’s dealings with the World Bank and IMF. The first is to get emerging markets to start relying more on international market-based financing rather than the below-market-rate financing the Bank offers; the second is to make sure that money is lent for projects that are more financially sustainable; and third is to seek more debt transparency from countries receiving the loans in order to keep better tabs on the financial diplomacy China is pursuing around the world. Expect Malpass to make progress towards these three goals rather than set about dismantling the organization completely.

Fareed’s MHI