Valentina Pasquali

Virginia Beach, VA – Teya Kelley is twenty-five, and a volunteer for Barack Obama in Virginia Beach. Ms. Kelley came here from Washington D.C., where she works as an organizer for local union Unite Here – whose red t-shirt she wears proudly. “This is the undecided district of the undecided state,” she declares with some conviction. Since September, Ms. Kelley has been deployed, along with another 15 members, to this southeastern tip of Virginia to walk low-income and prevalently African-American neighborhoods and register new voters for the November 4^th elections. On weekends, Ms. Kelley volunteers with the Obama camp.

Perfecting Saints Worship Center

Known as the Hampton Roads, and nestled between the Atlantic Ocean and the Chesapeake Bay, this region of Virginia just above North Carolina is one of the most fiercely contested turfs in this year’s battle for the White House. It is here that the cities of Virginia Beach, Norfolk and Suffolk cluster together in one of the most populated metropolitan areas in the state, home to the largest naval base in the world. Virginia Beach, the heart of the local military complex, went for President George W. Bush in 2004 approximately sixty-to-forty percent. Neighboring Norfolk, where much of the workers servicing the Navy live, fared in precisely the opposite way, with over sixty-one percent of voters choosing Senator John Kerry. Suffolk was somewhere in between, with President Bush winning fifty-two to forty-seven percent.

“I came to Virginia because this is a swing state,” explains Lystra Campbell from Maryland. Also a Unite Here worker, Ms. Campbell has been registering voters in southern Virginia since September and, like Ms. Kelley, volunteers for Barack Obama on weekends.

Ms. Lystra Campbell

The reality is that Virginia has not been a swing state in decades — the last time it went for a democratic presidential candidate was 1968. Since then, the state has trended consistently republican, especially thanks to the conservative worldview of the military establishment along the coast and the small town values along the western edge. However, Ms. Campbell is correct, this year is a completely different story.

First of all, the demographics of the state have been changing to the advantage of the democrats; in the last few years, while the more rural and conservative regions of Virginia experienced a trend toward depopulation, the more liberal suburbs of Washington DC grew exponentially. Also, thanks to the excitement created by Barack Obama, the 2008 election should witness a higher than average turn-out by African Americans, who have a history of low participation because of the belief that the state would necessarily go for the GOP. Simultaneously, republicans disappointed by the job of President Bush might be more reluctant to go to the polls. As a result, Virginia is in play. Not coincidentally John McCain, Barack Obama, Sarah Palin and Joe Biden have all made separate stops to various parts of the state just in the last ten days.

News coming from the Commonwealth is very encouraging for the democrats. The latest Washington Post/ABC News poll suggests that Senator Obama is leading by eight percentage points over Senator McCain. According to almost all observers, this must be explained, at least partially, with the unprecedented ground operations assembled by the Obama campaign even in places, such as Virginia, where democratic candidates have not dared competing for a very long time. Over the course of the last several months, the Obama camp has opened over 50 field offices staffed with around 250 employees managing the work of thousands of volunteers. Virginia has the most field organizers to population than any state except for Florida. Staffer Christina Arrison, who is one of two field organizers for Virginia Beach, and volunteer Teya Kelley are examples of the dedication of the Obama foot soldiers: “I get about five hours of sleep per night,” says Ms. Arrison, “but I expect it to go down to zero from now on.”

Ms. Arrison Preps her Volunteers

Under overcast skies and in a cold misty wind, Mss. Arrison, Campbell and Kelley, together with Ethel James, a volunteer from New York City, are on their knees putting together yard signs. Ms. Arrison and her volunteers are waiting under the front porch of a small church pinned on the outskirts of a residential neighborhood. The Virginia Beach operations are normally ran out of a field office a few miles away. However, Ms. Arrison elected this non-denominational Christian worship center as the base for the weekend canvassing sessions. The church is one of a few scattered non-descript buildings along a major thoroughfare at the northern end of the city. Pastor Joe Flores, who is running for City Council, heads the congregation.

At around 11am, much later than expected, a church official appears, only to tell the campaign workers that a board meeting held the previous week established that running canvassing for Obama from the church ground violates its tax-free status. Politely, the woman asks the campaign to move their cars and flyers to the adjacent parking lot.

After a quick pep talk, Ms. Arrison dispatches Ms. Kelley to walk a neighborhood enclosed between Northampton Boulevard and

Volunteers for Obama Prepare to Canvass Decisive Virginia Beach

Baker Road. This is a solidly middle-class district, lined up with large dwellings and multiple cars per garage, and it is racially mixed. It is also one of the more contested in the county and yard signs for McCain/Palin compete with those for Obama/Biden at every street corner. Although until recently the campaign was talking to undecided voters – “If undecided voters speak with a volunteer in person, they will be ten times more likely to vote for your candidate,” Ms. Arrison explained outside of Pastor Flores’ church – this last week is mostly dedicated to getting out the vote, knocking on the doors of supporters to remind them to go to the polls.

As a result, the majority of the people who open their doors to Ms. Kelley are African-American democrats, many of who did not vote in 2004. Ms. Kelley’s job is precisely to make sure they turn out for Barack Obama this year. Despite an overwhelmingly positive response, Ms. Kelley worries that Obama supporters might be taking victory for granted: “People hear the polls saying that we are ahead and so I feel that we lack a sense of urgency, that we forget that the outcome of this election is still unclear.” Despite intermittent drizzle and chill air, Ms. Kelley walks for several hours and knocks on about sixty doors. She recruits a few new volunteers for the remaining days of the campaign, plants signs on the front lawns of supporters and encourages a woman with a broken leg and another who will be leaving for boot camp before election day to go cast their ballots at an early voting location. After her long day on the streets, Teya Kelley finishes her Saturday by joining Christina Arrison at her field office to make phone calls.

Ms. Kelley and Ms. Arrison Ready for the Final Stretch

The last stretch of this prolonged election seasons will come down to just this: long days on the streets of America turning out one’s own supporters. Especially in a place like southern Virginia where the numbers of democrats and republicans are practically even and where the outcome of elections is normally determined by turnout, campaigns are giving it all to increase participation levels by their faithful. On election night, for example, Obama’s foot soldiers will give up sleep to walk the neighborhoods of Virginia and place door-hangers in high commuters areas between midnight and three and again between three and six in the morning, so that even early risers will find a reminder that the time has come to cast the ballot.

Originally reported and written for Washington Prism

Washington DC –Republican and Democratic Presidential candidates John McCain and Barack Obama will battle each other on Friday in the first of three Presidential debates scheduled to take place before Election Day. On the backdrop of the financial meltdown that is sweeping through Wall Street, Friday’s face-off at the University of Mississippi will center on Foreign Policy, and McCain and Obama will have to address issues such as Russia, nuclear proliferation, Iran, energy, climate change and the Middle East.

“Complexity is the key word to describe today’s world, a complexity that could spiral out of control,” said Zbigniew Brzezinski at an event organized last Friday by New America Foundation, a liberal leaning think tank in Washington DC. The former National Security Advisor to President Jimmy Carter dissected the more pressing concerns in today’s foreign policy arena and gave recommendations to the next President of the United States in a discussion with General Brent Scowcroft, former National Security Advisor to Presidents Gerald Ford and George H.W. Bush.

Despite the many significant challenges to the role of the United States as the world superpower emerging from the international stage, all predictions are that the crisis of the international financial markets will take the center stage at Friday’s debate and that the two opponents will use every opportunity to bring the discussion back to this issue and tie the global economic crisis with the domestic turmoil, which is the highest priority on the voters’ minds. “This Great Depression 2.0 will redirect the focus of the campaign towards domestic issues,” said Michael Gerson at another similar event organized by the Council on Foreign Relations on Monday and that saw the participation of several of the Council’s Senior Fellows.

The collapse of major institutions on Wall Street during recent months unveiled structural flaws in the foundations of the American economy. A highly-indebted United States, holding a current-account deficit of the value of about 67% of its GDP, is now relying on foreign governments to subsidize its ever-growing debt, hoping that countries like China, Japan and Russia will keep buying dollar-denominated assets. “We should be very worried about this,” said Sebastian Mallaby, Director of the Maurice Greenberg Center for Geoeconomic Studies. Mr. Mallaby warned that those foreign governments make investment decisions not simply based on the ratio of risk versus return, but for political reasons as well. “This kind of decisions can always be reversed if new political considerations arise,” Mr. Mallaby noted. If foreign central banks were to start selling their US assets, the value of the dollar would crash, bringing down with it the whole of the American economy. Mr. Mallaby said he hopes to hear McCain and Obama tackling the economic crisis both on the level of immediate crisis management and on that of longer-term restructuring of international finance.

On the background of these dire economic conditions, the next US President will also be faced with many other contentious situations. Michael Levi, Director of the CFR Program on Energy Security and Climate Change, weighted in on nuclear proliferation and nuclear terrorism. Mr. Levi portrayed the relation with Iran as being at a very important, yet tense, crossroad: “Negotiations aren’t really going anywhere, sanctions aren’t really going anywhere,” he said. Mr. Levi expects that the candidates on Friday will be asked at least one question on what they would do as President if Iran were to get a nuclear weapon. “I hope that McCain and Obama will both be cautious enough to push a definite stance into the future, saying that they will decide on the situation depending on the conditions at the time something was to happen.” At the discussion hosted by New America Foundation, Mr. Brzezinksi and Mr. Scowcroft had expressed similar opinions: “We have to be serious about negotiating and I don’t think our posture thus far is one of serious negotiations, since we are asking the Iranians to stop enrichment as a pre-condition to talking about enrichment,” Mr. Brzezinksi said. Mr. Scowcroft tied the stand-off with Iran to a wider problem with nuclear proliferation: “If Iran enriches uranium, even if it doesn’t build a weapon, it will trigger proliferation in the region, by countries such as Egypt,” he said, while both speakers worried about the impact of the US-India nuclear deal on this worsening of proliferation activities world-wide.

Sheila Smith, CFR Senior Fellow for Japan Studies, also focused on the nuclear issue, and in particular on North Korea. Highlighting that the US has been grappling unsuccessfully with this problem since the mid-1990s, Ms. Smith noted that the situation is stalled: “I’m not confident that we are moving in the right direction.” New concerns come from the knowledge that Kim Jong Il might be very sick and to some extent incapacitated. Ms. Smith fears that the future holds some sort of regime change beyond the control of the United States and in the context of a North Korea armed with nuclear weapons.

On the upside, speakers at both the Council on Foreign Relations and at New America Foundation emphasized the importance of the relation between the United States and greater Asia, particularly China and particularly from an economic standpoint. “We take this relationship for granted,” CFR Sheila Smith argued, “and it is indeed a positive one.” However, Ms. Smith worries that Washington is not fully aware of how dependent the US is on Asia for its own economic vitality and as a result might not be ready to take the steps needed to continue fostering the relation. General Scowcroft believes that there are many areas in which the US and China could pursue an expansion of their bilateral dealings: “The Chinese work within the system even when they don’t agree with it,” he said, noting that they seem to possess a sense of historical evolution based on optimism that allows them to move slowly and progressively. Mr. Brzezinski agreed: “China is not trying to overturn the world order,” he said pointing to the profoundly interdependent relations with the United States, one in which both actors hold high stakes.

Russia instead is a different story and a concerning one at that. Jim Goldgeier, CFR Senior Fellow for Transatlantic Relations and Russia advisor to the Obama campaign, argued that the vision that the US had for America-Europe-Russia relations after the end of the Cold War, one of a wholesome and free Europe and a peaceful Russia, is not holding up. “Simply saying that Russia is isolating itself is just a lecture but it is not a policy,” Mr. Goldgeier said expressing the hope that the candidates on Friday will talk about a plan to rebuild the US relationship with Russia from the bottom up. Both Mr. Scowcroft and Mr. Brzezinski worried about the imperial nostalgia of the Russians: “Russia went from superpower to a cataclysmic collapse, which has introduced a great sense of humiliation and of grievance,” said Mr. Brzezinski at New America Foundation last Friday, “now they have regained strength and they want to make up for it.”

Finally Obama and McCain should also address energy security and climate change as one issue and frame it in the context of Foreign Policy, where traditionally Americans think of them as separate problems and most often in domestic policy terms. CFR Michael Levi argued that it would be important to acknowledge that this is not necessarily a win-win situation but that there are tensions between these two different facets of the same coin, and candidates must show that they can navigate these tensions.

Amidst the financial chaos, even defense policy has taken the backseat in the Presidential campaign and candidates have been “surprisingly muted so far,” said Stephen Biddle, CFR Senior Fellow for Defense Policy. In Biddle’s opinion, however, this development is mostly positive since a campaign would be the worst possible venue to make specific decisions on military strategy. It is also too easy to use defense policy as a means of threat mongering and, as a result, the fact that other issues are somewhat obscuring war-like talks should not be dismissed as negative. Nevertheless there are a number of bigger questions on which it would be important to hear the candidates speaking: “Are we at war with terrorism world-wide? What scale of risk are we willing to accept to reduce the risk to our homeland? What level of effort are we willing to undertake in order to reduce the risk to our homeland?” Mr. Biddle said.

The list of foreign policy challenges that will confront the next US Administration goes on and proves one important fact: that the campaign has already lived through many unexpected turns and it will continue to do so. This also tells us how hard it is to predict what issues the next President will actually have to deal with: “History makes a lot of choices for you,” said Michael Gerson at the Council on Foreign relations on Monday. As a result the debate will provide an important opportunity for the two candidates to show voters their character, values and judgment, all of which will be determinant of the types of decisions they would make as a President, independent on the actual context.

Finally, experts at both the Council on Foreign Relations and New America Foundation dared addressing the situation in the Middle East, although timidly: “Many problems in the region have become interlocked,” General Scowcroft noted, “the biggest ones of which are Iraq and Iran.” According to Scowcroft the peace process and a resolution to the Israeli-Palestinian conflict could greatly help with them, by re-energizing a more constructive relation with the Arab world and by isolating groups such as Hamas and Hezbollah. However, the peace process has dropped off the radar of the campaign. The fellows at the CFR event explained this by noting that the conflict between Israel and Palestine seems to defy a solution and, hence, that there is no political benefit to be had from engaging in a debate on this issue, other than using it for political platitude.

Pointedly framing the gloomy state of the world one month before Americans will elect their new President, Sebastian Mallaby said: “It is still a mystery to me why anybody would want to win this election.”

Originally reported and written for Washington Prism

Washington DC – Only a day before early voting begins in Virginia, with a host of other states following next week, a group of Republican-leaning analysts gathered Thursday at the American Enterprise Institute (AEI) — a conservative think tank in Washington DC — to assess the state of the 2008 Presidential Campaign. AEI Fellows Michael Barone, Karlyn Bowman, Norman J. Ornstein and John Fortier discussed issues ranging from the selection of Sarah Palin as the GOP candidate for Vice-President, to the ongoing financial crisis.

“Sarah Palin’s choice undoubtedly electrified the Republican base,” said Norman J. Ornstein, “I think she is the prettiest candidate for Vice-President since John Edwards,” he joked. Although everybody agreed that the selection of the Alaska Governor as his running mate helped McCain’s resurgence in the polls – the Republicans enjoyed a much more significant ‘convention bounce’ than the Democrats – the panelists acknowledged that the Palin effect is already fading. “Now the race looks very much like it did before the conventions,” Senior Fellow Karlyn Bowman commented. “Palin has been a great phenomenon but the polls have already shifted back,” echoed John Fortier, “we know in general that people don’t vote for the Vice-Presidential candidates and the receding of the polls indicate that the Palin effect might be dying down already.”

Undoubtedly the story of the week is the financial crisis, the bankruptcy of investment bank Lehman Brothers and the government rescue of insurance giant A.I.G. and of mortgage lenders Freddie Mac and Fannie Mae. “If the Campaign stays focused on the economy then Obama has a lot of traction,” Mr. Ornstein noted. Economic distress generally moves voters towards the Democratic Party, added Michael Barone. However, he also pointed out, a look at state polls seem to suggest a different reality: “Obama is doing well in economically vibrant places such as Colorado and Virginia, which were not on the Democratic map four years ago. And yet, in Ohio, Pennsylvania and Michigan, among the hardest hit by the crisis, the race looks like a dead-heat,” Mr. Barone said.

Despite the depth of the turmoil on Wall Street, the speakers at AEI agreed that it is too early in the campaign to state with certainty whether the financial crisis will remain the most pressing issue on the mind of the voters: “We will have many more surprises ahead that will suddenly shift what’s in front of the voters’ radar screen,” Mr. Ornstein said, “even if only temporarily.”

As far as the electoral map is concerned, panelists’ view on what should be expected diverged. While Mr. Barone predicted a surprising and unprecedented outcome, with states such as West Virginia potentially within reach of the Democrats, “This is a time of open field politics, when voters are moving around, candidates are moving around and many unexpected things happen,” he said. John Fortier argued that, in the end, the map won’t look too different from what it has been in the last few elections cycles. “I see history reasserting itself, especially if the results are close,” he said.

Norman J. Ornstein had a different explanation for the apparently tight race, one that other Conservative pundits have been making recently: “I see many similarities with the campaign of 1980 between President Carter and Ronald Reagan,” Mr. Ornstein said asserting that the desire for change is strong and it is in the direction of Obama, but that voters are still waiting to learn more about him. According to this perspective, support for Obama could be underrepresented in the polls conducted thus far. Mr. Ornstein believes that the reactions to the first of the three Presidential debates, hosted next Friday at the University of Mississippi, should give us a better grasp of what’s to follow.

Although there is still over a month before Election Day, early and absentee voting could impact the results in a way that is hard to predict. “Both campaigns are already targeting those voters whom they want to get to the polls early,” Mr. Fortier said recalling how he has been receiving e-mails from the McCain campaign inviting him to cast his early ballot in Virginia. In truth, most early voters wait until the last two weeks before Election Day. However, the AEI Fellows warned that it is important to remember, when making predictions, that there are Americans who will have voted even before any of the debates scheduled takes place.

Washington DC – It was a black Monday on Wall Street, with the Dow Jones that dropped 500 points – the worst loss in seven years – after a series of dramatic events that hit the US financial system over the weekend. Major investment bank Lehman Brothers went bankrupt; Bank of America abruptly bought off failing Merrill Lynch; and insurance group AIG says it is in desperate need of new cash injections. All of this came only weeks after the government-led bailout of mortgage giants Freddie Mac and Fannie Mae, and of investment firm Bear Sterns.

Benn Steil and Sebastian Mallaby, from the Council on Foreign Relations, held a media conference call in the afternoon to explain the significance of this chain of events. “The stakes of this current crisis go well beyond just a few financial institutions,” said Mr. Mallaby, Director of the Maurice R. Greenberg Center for Geo-economics. According to the former Washington Post columnist, the US role on the global stage is at risk. The world is watching the American model of free-standing investment banking and innovative financial engineering taking a serious hit and being outperformed by the more conservative European approach. While some of the most important financial institutions in the world collapse under the weight of debt they don’t have the cash to repay, “New York’s position as the pre-eminent go to place for ambitious young financiers is at risk.” As a longer-term result, the US might be losing economic competitiveness if highly innovative industries such as software and finance start migrating elsewhere.

According to Benn Steil, Director of the International Economics Council on Foreign Relations, the biggest concern for the US Department of the Treasury and the Federal Reserve is to salvage the credibility of dollar-denominated assets and prevent flight of capital abroad. “We do need to be concerned about the future of the Fed and Treasury, especially as they keep expanding their lending activities and last resort interventions,” Mr. Steil said. Inflation spurred by the need of the Federal Reserve to guarantee an excessive number of bad assets – by injecting increasing liquidity into the market — could motivate investors to abandon the US and pour their money onto Europe, for example. And, not coincidentally, the European Central Bank is already imposing much stricter restrictions on the kind of assets it takes as collaterals for its loans. In this sense, the decision by the US Government to refrain from intervening in the case of Lehman Brothers tried to send the message that the American financial system is still on solid footing with the exception of a few bad apples: “It was the right decision of the Fed and the Treasury not to step in with any sort of financial guarantees for Lehman Brothers and to let them go if that needed to be the case,” Mr. Steil commented.

The current financial crisis could potentially have a distressing effect on the already dwindling value of the dollar. High-level Chinese officials are among those concerned, especially over the exceptionally loose US monetary policy. China is particularly affected by it, since it continues buying US Treasury bonds in order to keep the value of the Yuan stable while the demand for Chinese exports increases. Benn Steil explained that the bailout of Freddie Mac and Fannie Mae stemmed from precisely this consideration. The main appeal of US Government bonds for foreign investors is that those assets are some of the most risk-free, since the Federal Reserve will always have the money to guarantee them, “at least in the sense that they can print the dollars needed to back those liabilities,” Mr. Steil noted. Worried that letting go of those investments could seriously damage the reputation of dollar-denominated assets, hampering capital inflows to the US from abroad, the government had no choice but to intervene in the case of Freddie and Fannie – which were always partially government owned.

In any case, it is expected that foreign governments will be careful in abandoning the US market, since many of them hold the majority of their national reserves in dollar-denominated assets. It would be counterproductive for them to diversify at a rate that would contribute to a sudden crash of the dollar and hence undermine the value of their own reserves. However, because foreign governments have accumulated enormous stocks of US assets in the past, “the threat of selling them does have the potential of becoming an important leverage in foreign policy,” Mr. Mallaby explained, since they could threat to disrupt the US financial markets at any time.

News of the financial meltdown, of course, reached the campaign trail and both Barack Obama and John McCain made the economy the centerpiece of their stump speeches on Monday. However, according to Mr. Mallaby, it would be unreasonable to ask them to introduce specific solutions in these remaining two months of the campaign, when it becomes very hard to talk about real policy issues and even more so about technicalities such as derivatives and collateralized securities: “They don’t want to look like they are indifferent but at the same time they don’t want voters to roll their eyes,” Mr. Mallaby said. As a result we should expect both candidates to focus on the more easily understood consequences that the financial turmoil will have on the real economy.

Finally, it remains to be seen whether the American electorate will hold the Bush Administration at all responsible for the turmoil on the financial markets. Although Mr. Mallaby and Mr. Beil said this would not be entirely fair, since the roots of the crisis are much deeper than whatever regulatory stance taken by George W. Bush in the past eight years, they acknowledged that this could very well happen. “I would think that there is always a risk for an incumbent party, especially for one that has been in office for two terms,” Mr. Mallaby concluded.

Originally reported and written for Washington Prism

Denver, CO – The economy was the main theme of Day Two at the Democratic National Convention, with speakers ranging from an unemployed and indebted textile worker from North Carolina, a victim of the Iowa flood, union representatives and a number of Congressmen and Senators from some of the states that have been hit the hardest by the crisis. And of course Hillary Clinton, who made the economy one of the central issues of her primary campaign.

The recession is by far the biggest worry for most Democrats in Denver. “I would say the economy is pretty lousy,” Anne Hatfield said. Anne is a delegate and a retired senior from Pennsylvania who has been witnessing the impact of rising prices of food and gas on her life and that of her community. “The state of the economy is horrible,” Tiffany Powers agreed. An African-American lawyer and delegate from North Carolina Tiffany explained: “I come from a rural community that relied heavily on the textile industry. But now our plants have closed, jobs have been shipped overseas, people lost their homes.” She believes that middle-class Democrats would want a tax-cut and better public education from President Obama.   read more

“The economy is definitely the most important issue today,” Angie Cruise, a political analyst from Tempe, Arizona said. “There have been a huge number of foreclosures in my community. And then I speak with people every day who tell me they have to choose between food and medicines,” Ms. Cruise added. Democrats want a stable economy, Angie believes, where they can find a job and stay in their homes. And they would want better health care and more investments in public schools.

Beyond the delegates, a large crowd of politically active Democrats flocked Denver to attend the DNC. “Everything is more expensive,” Lynda Clark from Maryland told me, “while salaries are not keeping up with the spike in prices.” Ms. Clark is a single woman who works in public broadcasting in Washington DC and is in Denver because the Obama campaign decided to reward her many months of volunteering with a ticket to the Pepsi Center. “My daughter is in college up in Massachusetts. She is at a state school, but even state schools these days are not that cheap,” Ms. Clark continues. Her daughter is working to help support herself and has taken out loans to pay for her studies: “She is going to graduate soon and she will be in debt. And so will I, since I also gave her money to put her through school.”

Donors are also among the thousands of guests, and probably some of the most important. Brett Hughes, an investments manager from Oklahoma, came here at the invitation of the party that wanted to thank him for his contributions. “Personally I’ve done extremely well in recent years,” Mr. Hughes said, “but I very well know that for most people the economy is a problem.”
He says he came here to help support the change that Sen. Obama promises as President: “Obama needs to have people like me paying higher taxes,” concluded Mr. Hughes, expressing no doubts about Sen Obama’s promise to raise taxes for rich Americans.

Originally reported and written for Washington Prism

Washington D.C. – New trade deals worth $2 billion were signed at a recent meeting of 48 African heads of state gathered in Beijing for the China-Africa summit, organized by the People’s Republic of China (PRC). China’s goal was to assess the status of its flourishing relations with the African continent.

Indicators of trade flows, arm sales, diplomatic ties and cultural exchanges are on the rise. Since 1995, trade between China and Africa has doubled each year. The overall volume rocketed to $39.7 billion in 2005.

Participants to the forum also passed an action plan, laying out cooperative programs from 2007 to 2009 under the framework of the Forum on China-Africa Cooperation (FOCAC). China has already canceled 10. 5 billion RMB Yuan (Chinese currency, about $1.3 billion) in debt to 31 least developed countries in Africa, and has accorded zero-tariff treatment to 190 categories of import commodities from 29 countries. At the forum, China promised to stay the course and pledged to double its current aid by 2009.

The booming relation with Africa is among the brightest examples of the direction of Chinese foreign policy and of Beijing’s rising influence as a global power. China’s overall role on the international scene is marked by significant improvements in many of its bilateral dealings; like with its South and Southeast Asian neighbors, South Korea, and the European Union.

This can in part be attributed to President Hu Jintao’s focus on military and foreign policy issues according to Jamestown foundation fellow Willy Wo-Lap Lam. “Hu wants to be remembered as a foreign policy president, because he knows that domestic problems cannot be as easily solved,” said Willy Lam at a recent conference at the Heritage Foundation, a conservative research center in Washington.

Hu has a good record thus far. “He has exploited successfully the vacuum created by US President George Bush’ single-mind obsession with fighting the War on Terror,” Willy Lam continued.

Contrary to its interactions in other regions, Bejing is one of the first players on the scene in Africa to be pushing for a stronger engagement. “They want to be the first movers, they want to get on the deal,” said international business consultant Walter Kansteiner, former Undersecretary of State for Africa.

The basis of the China-Africa relationship is economic. Beijing looks at Africa as a way to feed its industrial base at home, which needs raw materials, especially timber and iron ore. China is trading in oil, copper, platinum, gold and nickel with Zambia and the Democratic Republic of Congo, in timber with Cameroon, in iron ore with South Africa and Mozambique. Beijing is also assisting in building infrastructures, as like the railroad construction in Angola that is estimated to be employing between 10,000 and 40,000 Chinese workers.

The United States is striving to get a better grasp of the scope and depth of such trends in China’s international economics policy as a way to make better-informed decisions for its dealings with Beijing. Such effort encounters a number of obstacles according to Paul Hare of the US-Angola Chamber of Commerce. “We do not know how much money is really on the table, we do not know how many Chinese are in Angola, we do not know how contracts are awarded, we do not know how many Angolans work for Chinese companies,” said Hare at a Conference in Washington D.C.

In October 2000, Congress established the US-China Economic and Security Review Commission (USCC) under the Floyd D. Spence National Defense Authorization Act. The USCC is intended as a means of monitoring, investigating, and submitting to Congress an annual report on the national security implications of the bilateral trade and economic relationship between the United States and the China.

The commission is also responsible for providing recommendations to Congress for legislative and administrative action. The work of the USCC is centered on eight areas: proliferation practices, economic transfers, energy, U.S. capital markets, regional economic and security impacts, U.S.-China bilateral programs, WTO compliance, and the implications of restrictions on speech and access to information in China.

On Nov. 16, at a press conference for the release of the USCC annual report to Congress the commission’s Chairman Larry Wortzel expressed concern about China’s current stance. “The Commission believes that while China is a global actor, its sense of responsibility has not kept up with its expanding power,” Wortzel said.

The report offers recommendations to the US Congress on six different areas, from US-China bilateral trade relations, to China’s global and regional activities, to domestic issues such as media and its control over flow of information.

The USCC gives a harsh assessment of most of China’s policies. “The Commission hopes that China will use its position on the United Nations Security Council and its growing political influence in Asia, Africa, and elsewhere to address many serious problems. But this has not yet happened,” Wortzel said.

The USCC urges the Bush administration to take action against currency manipulation on the part of the Chinese government, which does not let the RMB Yuan value float openly on international markets. It also calls for the US trade representative to press ahead on property rights issues because of China’s “manifest failures to enforce them.”

The commission further advises the administration to raise the issue of media and Internet freedom and to “remind its counterpart that jailing journalists for publishing information it finds distasteful only draws negative attention from the international community.”

The report also encourages China’s assistance in a resolution of conflict in the Darfur region of Sudan. The Commission further writes that the US needs to secure “a resolution to the conflict that will halt the genocide occurring there and provide security and basic human rights for the affected population.”

Sudan remains the most striking example of concern that China’s approach to Africa creates among US official. At a recent conference in Washington DC, Carolyn Bartholomew, vice-Chairman of the USCC Commission and former Chief of Staff for the incoming Speaker of the House, Rep. Nancy Pelosi (D-CA), said; “China appears willing to deal with rogue states for oil or in order to counterbalance the United States.” She then added that “there is no more destructive bilateral relationship in Africa than that between China and Sudan, as far as US interests and the interests of the people of Sudan are concerned.”

In Washington, many worry about the ease with which China provides Africa with aid that is entirely unattached to any moral quandary. Beijing refuses to link its economic relations with the continent to human rights or democracy as the US and other Western countries want. “Chinese assistance to Africa is sincere, unselfish and has no strings attached,” said China’s Premier Wen Jiabao at the China-Africa Forum.
As China’s growing diplomatic influence approaches the scale of its booming economic importance, the USCC writes that the US should be skeptical of “Beijing commitment to accept its geopolitical responsibilities.” With its increasing power being felt across many regions, the report argues that “China’s posture as a potential counterweight to the United States, and its disposition to support volatile and repressive regimes as its client states is of particular concern.”

Washington D.C. – Last month, the International Monetary Fund (IMF) and the World Bank (WB) held their annual meeting in Singapore, a gathering that witnessed a first step towards the reform of the governance structure of the IMF.

The 184 participating members approved a proposal to increase the quota shares of the four most under-represented countries on the organization’s Board of Directors: China, South Korea, Mexico and Turkey. Quota shares, in IMF jargon, translates into increased voting power, as well as wider opportunities to borrow money from the Fund.

The week prior to the summit, IMF’s Managing Director Rodrigo de Rato, speaking at the Brookings Institution, a research center in Washington DC, said that the proposed reforms will “rectify the most extreme distortions in the representation”.

The plan for change was strongly backed by President George Bush. The reforms, however, have met with the suspicion of two sets of members.
European countries are concerned that the rebalancing of quota shares within the Board of Directors will benefit the four under-represented countries at their expenses. Germany and the Netherlands put forward an alternative formula for reform that would distribute voting rights based more on the openness of the states’ economy rather than on mere economic power.

German finance minister Peer Steinbruck said in an interview to Bloomberg news service, “The one-sided position of the US that a country’s Gross Domestic Product (GDP) should play the predominant role is not in line with our views”.

At the same time a host of developing nations also voiced doubts, although in the end chose to endorse the vote. The group of 24 countries – including Argentina, Brazil, Colombia, Egypt, Iran, Pakistan, Peru, India, Venezuela, South Africa and Nigeria – issued a communiqué in Singapore saying that they welcomed the increases of quota shares for the four countries but that the package did not address “the fundamental issue of the under-representation of developing and low-income countries as groups.”

Such concerns are expected to be tackled in a second round of broader reforms of the IMF structure in a way that would recognize the growing weight of emerging nations. The G24 worries that this second phase is by no means guaranteed, as Brazil, India, Argentina and Egypt pointed out in a joint statement issued during the summit.
India, for its part, seems committed to try to take the two year reform plan on a more equitable path. Prior to the September 18th vote, New Delhi mobilized political dissent to try to stop the implementation of the reform as it was.

Now, after the vote has passed, it still intends to pursue a different strategy for further reform. India’s Finance Minister P. Chidambaram told in an interview to The Hindu that he was now “looking forward to all countries, including the G-7, agreeing to construct a formula based on relevant criteria and reflecting the economic strength of countries in the 21st Century.”
Johannes F. Linn, Director of the Wolfensohn Center at the Brookings Institution, and Colin I. Bradford, a Fellow at the think tank’s Global Economy and Development Program, recently co-authored an analysis of the reform plan in the Washington Post.
In their opinion, although the vote can be deemed as a first step towards making the IMF a more representative and legitimate body, “to truly repair what has become an ailing global financial institution, the members of the IMF should move forward quickly with the managing director’s longer term agenda and even go beyond it”.

The two analysts suggest an action program that would comprise of five steps. First the IMF should increase the “basic” quota allocations for all countries – independent of economic weight – in order to give the smallest and poorest members a greater share in voting and better access to finance. Second, criteria for the allocation of “shares” should truly consider the reality of changing economic and financial weights of countries.
A third important step would be to reduce the total number of IMF Board “chairs” from the current 24 to 20. This could be done by consolidating the European seats on the Board into one representing the European Union as a whole.

The idea is already under consideration in Europe and it has the backing of the president of the European Central Bank, Jean-Claude Trichet as well as the chairman of Euro-zone finance ministers, Luxemburg leader Jean-Claude Juncker. However Germany, the largest European member to the IMF, remains opposed to the plan.

Fourth, the Brookings scholars believe that the selection of the IMF’s Managing Director should become independent of nationality, merit-based and more transparent. In practical terms, this would basically require that the Europeans give up their traditional claim to electing the Managing Director.

Finally, the United States needs to step in, and lead the European Union – the most affected by all of these changes – into accepting the reform of the IMF structure.
This could be done by not claiming, for example, the American increase in shares that would likely follow most revised quota allocation formulas. It could also translate in the US renouncing its claim to select the World Bank’s President. And Washington could also give up the veto power that it exclusively enjoys at the IMF and WB boards.

“The US”, Linn and Bradford write, “has broadly supported the steps suggested above, but it has failed so far to offer up any serious contribution of its own. It is time for the US to show its readiness to take an effective lead in global governance reform and allow the IMF, to more accurately reflect today’s global economy”.

“Unfortunately,” Johannes Linn told Washington Prism in a phone interview, “the current US administration is showing little interest in taking any serious action that would shake the political balance within the IMF Board of Directors.”

Mr. Linn continued, “Certainly Washington is very busy dealing with other issues. At the same time the Bush administration does not appear too interested in strengthening the role of International Institutions.”
Although this might not be the moment for a real opening, “there could be a new momentum in a couple of years, with a new administration that would not necessarily have to be Democrat, but just simply more multilateral in its approach”, Linn said.

In an interview with Fareed Zakaria on the PBS show Foreign Exchange, Zanny Minton-Beddoes, Washington bureau editor for the Economist Magazine also expressed reservations on the willingness of the US to waive some of its influence; “the US is basically prepared to give up something but it’s not prepared to lose its veto power.”
Because of how the planned reform will negatively impact the Europeans and because the US administration seems unwilling to take those steps that could convince the EU to go along, the preoccupation of the G-24 that the second round of reform will not go through seems to be justified. “If pushed too hard,” Johannes Linn told Washington Prism, “the Europeans might walk away.”

The consequences of an eventual EU retreat from the Fund could be felt not only within the IMF itself but could also impact the World Bank; for example if the Europeans decided to retaliate, they could do so by lowering their contributions to the Bank’s programs, Linn pointed out in our interview.

A return to a less multilateral approach towards more significant regionalism is not necessarily a problem, depending on where one stands on the issue. “To me personally,” Linn said, “it would be very unfortunate though”.

Washington D.C. — On July 26 the House and the Senate passed bills meant to reform the process regulating the Committee on Foreign Investment in the US (CFIUS), an inter-agency committee of the Executive branch in charge of evaluating foreign investments in the United States or foreign acquisitions of US companies that might interfere with the country’s security.  The Congress’ effort to implement changes to this legislation was mainly prompted by the Dubai Ports incident of this past spring.

In March 2006 Dubai Ports World (DP World), a company owned by the government of Dubai in the United Arab Emirates (UAE), purchased the Peninsular and Oriental Steam Navigation Company (P&O) of the United Kingdom, which was then the fourth largest ports operator in the world. P&O managed major U.S. facilities in New York, New Jersey, Philadelphia, Baltimore, New Orleans, and Miami. Because the transaction involved what can be considered as infrastructures critical to the US national security, such as ports, it was chosen to be reviewed by CFIUS.

The acquisition was approved by the committee, but it spurred a heated debate in Congress. Republicans and Democrats alike raised concerns over the transaction based upon the 9/11 Commission report, which stated that two of the hijackers were UAE nationals, and upon the belief that the UAE was a financial base for al Qaeda.

President George W. Bush, a supporter of the acquisition, threatened to veto any legislation by Congress that would have blocked the deal. In February, Bush claimed, “It would send a terrible signal to friends and allies not to let this transaction go through.”

In March, as a way to cool off the controversy, DP World said that it would have transferred its operations in the US to an American entity. As of the summer, however, DP World still owns and controls operations at 22 ports in this country.

The Dubai Ports incident brought to public attention the otherwise obscure role of CFIUS.  The Committee was instituted in the 1970s as a mean to assess security risks associated with Foreign Direct Investments (FDIs). It is a twelve-agency committee, with 6 departments (State, Defense, Commerce, Homeland Security, Justice and Treasury) and 6 inter-offices of the President, like the US Trade Representative. It is chaired by the Secretary of Treasury, while the Secretaries of the other departments are the sitting members. CFIUS now operates under the Exon-Florio Amendment to the Defense Production Act, enacted in 1988, which empowers the President to block mergers and acquisitions of American companies by foreign firms in the case that such transactions are judged as a possible threat to national security. In reaction to the DP World acquisition of P&O, two bills were recently passed putting forward measures to correct the review process’ supposed flaws.

The Senate bill (S. 3549) is called the Foreign Investment and National Security Act of 2006. It was sponsored by Senators Shelby (R-AL) and Sarbanes (D-MD). The House bill is H.R. 5337, the National Security FIRST (Foreign Investment Reform and Strengthened Transparency) Act of 2006, sponsored by House Majority Leader Whip Roy Blunt (R-MO). “The Dubai Ports World fiasco exposed serious flaws with the CFIUS process,” Blunt told reporters right after his bill cleared. “The bill the House passed is a common-sense fix to the problem that protects Americans first without hindering job growth and economic expansion.”

The Treasury chair of CFIUS is one of the points that came under the heaviest criticism. In the eyes of many such set up puts an unbalanced focus on the purely economic side of FDIs reviewed and does not take into sufficient account national security concerns. The two bills also address a supposed lack of transparency in CFIUS proceedings. The Committee is criticized for having resisted requests by members of Congress to brief them on the details of transactions, although its members defend such approach as an effort to protect the confidentiality of the process. Finally the proposed reforms aim at extending the timelines for the reviews, as the current thirty-day period is deemed insufficient for proper investigation to be carried out.

The two bills have different approaches as to the ways CFIUS supposed shortcomings can be solved. Now that they both cleared the floors of House and Senate, the two sides will have to come together and compromise in order to come up with a document that can be then signed into law by the President.

Even before the bills were passed, however, some observers expressed doubts over the approach of Congress in trying to reform the CFIUS review process. The Council on Foreign Relations (CFR), a think tank based in New York City, published a report on the topic. “Foreign Investments and national security – Getting the Balance Right” was released on July 18th and co-authored by Alan Larson and David Marchick, of Covington and Burling, a consulting firm in Washington DC.

The two analysts review CFIUS and its mechanisms as they are implemented now, critique its shortcomings and offer recommendations for changes. The study also addresses the reforms under consideration in Congress and openly raises reservations over how the Senate bill especially puts forward proposals that could have a chilling effect on Foreign Investments in the US.

Alan Larson told Washington Prism in a phone interview; “As the report underscores, we found scope for improving transparency and clarifying the role of Congress in the process. But a number of other criticisms missed the mark and we believe that the CFIUS review process has worked better than it is given credit for.”

The CFR Report points out to the importance of FDIs for the economic health of the United States. In 2003, the report notes, US affiliates of foreign investors employed 5.3 million workers in the United States, about 5% of the American workforce. On average, these affiliates pay higher annual wages. Foreign investors also spend consistently on Research and Development, creating high-skill, high-wage jobs that would not otherwise exist. Continued inflows of foreign capital are important to the US economy for another reason as well; US savings is insufficient to finance domestic investment, as shown by the current account deficit.

By benefiting economic health, FDIs also become a key factor in safeguarding national security.  “For example,” the report underlines, “foreign investments can contribute to infrastructure modernization and development of technologies in the United States.”  As such the main preoccupation of Larson and Marchick is that “the new legislation should not create the presumption that Foreign Investments in critical infrastructure automatically represent a threat to national security. They can actually help enhance it” Larson told us. Furthermore Larson and Marchick fear that unnecessarily restrictive approach to FDIs may simply encourage other countries to retaliate and take actions to limit the opportunities for American investors.

The recommendations offered by the CFR report seem to go the opposite directions to those that Congress is seeking to implement. Larson and Marchick believe that the Exon-Florio Amendment does not need major changes and that with a few minor corrections problems of transparency and accountability could easily be solved. If any, the CFIUS process could use reforms that make it easier for foreign investors to operate in this country, not harder.  “First of all, our opinion is that the majority of FDIs don’t raise security concerns” Alan Larson told Washington Prism.  This is immediately clear if one looks at the number of transactions that are actually reviewed by CFIUS. Out of over a thousand that go through annually, the Committee is called to evaluate only between forty and sixty-five. Furthermore, since 1997 only one acquisition was blocked and thirteen offers were withdrew before the CFIUS assessment because it was made clear to the foreign investor that the transaction would have not been allowed. Secondly, even in those cases that present security concerns “Exon-Florio already offers ways to address such issues,” for example through the negotiating opportunities embedded in the Amendment that give the two sides a chance of compromising and resolving contentions within individual deals.

The CFR report seems to conclude that CFIUS is already equipped with the tools it needs to carry out its job and that reforms must be careful.

The Administration, while showing willingness to work with Congress in updating the legislative framework of CFIUS, also warns of the consequences that excessive changes could trigger. In a testimony before the House Financial Services Subcommittee, Assistant Secretary for International Affairs Clay Lowery said “Reforms to the CFIUS process should send a signal that the United States is serious about national security and welcomes legitimate FDI. The Committee must examine each transaction thoroughly, but the timeframes for examination should not be unnecessarily long”. Lowery also emphasized the importance of preserving the attractiveness of the United States to overseas investors. “If foreign companies were to reduce their spending in the U.S. as a result of perceptions that the United States was less welcoming of FDI,” he stated “lower investment would cost American workers good jobs, reduce innovation, and lower the growth of the U.S. economy.”

The determination of Congress to reform CFIUS almost appears to have been prompted by concerns other than actual problems in the Exon-Florio mechanism. Partially, the complaints coming from both the House and the Senate over a supposed lack of transparency in the review process point out to the power struggle that exists between the Executive and the Legislative branches and underscore a track record of people in Congress wanting a larger role that they have.  Secondly, the decision of the Executive to approve the DP World acquisition of P&O, which seemed reasonable from the outside, nevertheless struck many in Congress as a surprise and as such contributed triggering a reaction. Finally, the Dubai Ports case followed closely another transaction that became quite controversial last year. In June 2005 China National Offshore Oil Corporation (CNOOC) made an $18.5 billion offer to buy the American oil company Unocal Corporation. A broad group of Democrats and Republicans reacted negatively to the offer and used a variety of arguments to help ensure that the Chinese bid failed. Despite the hands-off approach of the US administration and despite the fact that there was no direct block of the purchase, Congressional delays undermined the transaction. On August 2, in fact, CNOOC announced that it had withdrawn its bid, citing political tension inside the United States as the reason for such decision. The CNOOC case symbolized the rise of China as a world power and as such raised very delicate political issues, which likely also contributed to the desire that grew in Congress to reform the CFIUS process and to make the standards stricter for foreign investors wanting to operate in the United States.

Originally reported and written for Washington Prism