DEVELOPMENTS As the human, financial and diplomatic costs of the War in Iraq continue to mount - five years later - America's geopolitical equity spirals downward in inverse proportion. In this time, world leaders, influence peddlers and scholars have explored new ways to meet the threat posed by terrorism in an effective, yet sensible manner. On March 31st they may have gotten their wish, as a new front quietly opened in the War on Terror without firing a single shot. On that day, British index provider FTSE, in concert with Conflict Securities Advisory Group (CSAG), a Washington, DC consultant specializing in identifying corporate ties to sponsors of terrorism, combined to introduce the world's first "terror-free" index. According to CSAG Chief Operating Officer Adam Pener, the FTSE CSAG Terror-Free Index Series excludes some 350 foreign companies with non-humanitarian business ties to four state sponsors of terrorism committed to weapons programs, or in possession of weapon stockpiles: Iran, North Korea, Sudan and Syria. The austerity with which the index was named, however, belies the true dynamism of this crucial development in the War on Terror - through this index, Wall Street and the world financial markets can generate profit while putting significant pressure on rogue nations, without risking the life of a single soldier or spending a single tax dollar.
BACKGROUND
American companies are prohibited from doing direct business with state sponsors of terrorism on account of sanction laws; though the reasons for prohibition on investment in these nations are not merely political, but financial as well. Global security risk, as loosely defined by CSAG, is characterized as "the risk to share value and corporate reputation stemming from the intersection of a publicly traded company's international business activities and security-related concerns, such as terrorism and weapons proliferation." In fact, as mandated by Congress, the SEC devotes an entire division toward ensuring transparency and disclosure on global security risk on behalf of American investors. Foreign companies, however, are not subject to the jurisdiction of the United States, as corporate behemoths such as Total SA and Siemens do billions in new business each year in countries like Iran with impunity. Compounding this accountability problem is the fact that corporations lack any constituency, save their shareholders, who are often kept happy as long as profit margins remain high and dividends keep flowing. The ingenuity of the FTSE CSAG Terror Free Index Series is that it is the first index to use the structure of the global finance industry to expose the conglomerates supporting state sponsors of terrorism in the only place they are vulnerable: their quarterly earnings. By removing offending companies from the index, they are forced to choose between their ties to terror-sponsoring states and access to the U.S. capital market. This pressure can (and has) resulted in companies pulling out of these countries, thereby affecting the solvency of their economy and, in turn, their ability to sponsor terrorism. Omission from an index can mean substantial losses measured in hundreds of millions, or billions of dollars, for corporations and asset managers alike. Indexes are essentially menus of stocks from which the world's leading asset managers (State Street Global, Northern Trust, Deutsche Bank) select single stocks to be grouped together into investment vehicles. Some of the world's largest institutional investors, such as hedge funds, public pension funds and mutual funds, then invest in these products, and in turn the companies that comprise them. Last year's Institutional Investor Report by the Conference Board shows that American institutional investors alone controlled $24.1 trillion. This underscores the tremendous influence of institutional investors, asset managers and indexes on the global finance markets. All preliminary sources indicate that this year's figure, based on 2006 data, will be higher. Prior to the creation of the FTSE CSAG Terror Free Index, asset managers had no international index substitute tested to perform in the market that omitted offending foreign companies. What FTSE and CSAG have done will allow investors to reap high-yield returns while ensuring for the first time that their capital will not indirectly support the economy of a nation pushing an illegal nuclear program, sponsoring genocide or funding militias bent on the destruction of sovereign nations. Morally responsible investment products already exist in the marketplace as evidenced by tobacco-free ventures, as well as the creation of "green" investment products that allow investors the peace of mind of knowing that they've done right by their morals and their wallet. A very small number of mutual funds have already started down the "terror-free" road, however the FSTE CSAG effort could turn what was a trickle into a flood, thereby allowing a suite of "terror-free" vehicles to reach the marketplace. Investors such as public pension funds and police, firefighter and union retirement funds, not to mention individual investors, can then invest in market viable "terror-free" ventures, ensuring that at no point does their nest egg contribute toward making state sponsors of terrorism more comfortable as well. In fact, this development may come sooner than we think. Reportedly, based on the creation of the FTSE CSAG index, Northern Trust has agreed to offer a "terror-free" ETF. Additionally, analysis of the FTSE CSAG collaboration reflects less than a 0.1% drop in performance once offending companies were removed, though this with less market volatility and exposure to global security risk, thus affording asset managers the flexibility necessary for developing "terror-free" vehicles that perform identically to products that include offending companies.
ANALYSIS
As a result of the genocide in Darfur, popular movements have emerged (similar to groups protesting South African apartheid in the 1980s) calling for the divestment of any foreign company doing business in Sudan from state and municipal public pension funds. Already, numerous states and cities have authorized such action. Recently, due in part to the influence of the American Israel Public Affairs Committee (AIPAC), Iran has become a similar cause. Unfortunately, the divestment movement has reached a turning point. As well-intentioned as this legislation has been, diverging models between states, in addition to a focus on only the worst of the worst corporate offenders, has had the opposite effect necessary for influencing corporate behavior, in turn minimizing potential pressure on rogue nations. If used wisely, the FTSE CSAG collaboration has the power to fundamentally change the debate. States pursuing divestment along these lines will target not just one or another state sponsor of terrorism, but four of the free world's consensus worst offenders. In addition, both mega international conglomerates and smaller corporations more vulnerable to public pressure alike, across all industries, will feel the impact. For example, Iran divestment legislation typically focuses on petroleum companies that do more that $20 million in business with Iran each year. Even by the most liberal definition, this amounts to no more than fifty companies. By contrast, the FTSE CSAG product alone excludes some 350 companies for ties to state sponsors of terrorism, highlighting the significant number of companies slipping through gaping holes in that particular approach. Similarly, those fifty companies consist of some of the largest conglomerates in the world. So large, in fact, that high profit margins owing in part to business with states such as Iran portend that these companies would be unlikely to bow to calls for divestment, even if echoed by all fifty states. Any such effort aimed specifically at companies too entrenched to bow to pressure is inherently ill-suited to affect the broader market, let alone the offending nations. Much like punching a pillow in frustration, which may have an immediate placating effect, investors pursuing divestment through this model hoping to make a lasting impact will watch, themselves deflated, as the pillow fills back up with air within minutes (or with each economic cycle). At the core of diplomacy and business lies the concept of leverage - and in all aspects, the FTSE CSAG Terror Free Index Series promotes leverage for individual and institutional investors both from a public policy and market standpoint. Since 9/11, the new ways that nations prosecute the War on Terror through the global finance network have been revolutionary. Though for its innovation, the FTSE CSAG product could emerge as this revolution's "Shot Heard Round The World," as both Wall Street and Main Street can now enlist in the War on Terror while padding profits and protecting their nest eggs. -- John Sheehan is researcher with the Massachusetts House of Representatives, is an Associate with the Truman National Security Project, and an author of the "Massachusetts Model" divestment legislation making its way across the United States.
 DEVELOPMENTS On March 4th, China announced its intention to increase military spending next year by 17.6% to $59 billion. The increase is on top of last year's boost of 18%. U.S. Defense officials believe China's actual spending is over $100 billion annually, and have expressed specific concerns with the type of military programs China is pursuing. China's announced increase comes after two significant events in U.S.-Sino military relations. Last Thanksgiving, China refused the aircraft carrier USS Kitty Hawk from making a long scheduled port call in Hong Kong. But the U.S. and China also recently agreed to establish a military hotline between the two nations' defense chiefs. The hotline will allow direct communication between the two countries and will hopefully avoid incidents like the fallout after the downing of a U.S. spy plane over China in 2001.
BACKGROUND Until the 1990s, China's military was equipped with outdated 1950s-era, Soviet-provided weaponry. China's armed forces were large, but poorly trained and incapable of conducting modern military and humanitarian operations. Since 1994, China's official defense budget has increased nearly six-fold. During that period, U.S. officials estimate the full Chinese budget has increased by $30 billion. China has also begun to play a new role in the international community. It is an active participant in United Nations peace-keeping missions, contributing to at least fifteen since 1990. It is also planning to export more military hardware, including its indigenous J-10 fighter jet. But many in the United States believe China represents a military threat for which the U.S. should be prepared. A survey of recent headlines from China illustrates the potentially alarming developments: a new cyber-warfare capability to hack U.S. networks, a medium range ballistic missile used to destroy a weather satellite, and positioning of 900 missiles toward at Taiwan. The Pentagon's Quadrennial Defense Review (a four-year survey of military strategy, structure, and spending) singled China out as having great potential to compete militarily with the U.S. Furthermore, many think-tanks take for granted that China and the U.S. will one day be in military conflict (as such, there is no shortage of books on the topic). ANALYSIS However, even the high-end projection of Chinese military spending pales in comparison to U.S. spending. In 2008, the U.S. spent $480 billion on defense in addition to Iraq and Afghanistan war commitments, which put the total over $600 billion. China has actually been a driver for U.S. military spending. Despite long term engagement in smaller wars and insurgencies, the U.S. continues to invest record sums in advanced military hardware such as the Air Force's F-22 fighter jet, the Army's Future Combat Systems, the Navy's DDG Destroyer, and the joint Operationally Responsive Space initiative. Some of these programs may have applications in non-peer wars as the U.S. is currently fighting in Iraq and Afghanistan. But their main purpose is combat with another major global power. Since no other global power exists that can compare to the U.S. militarily, the specter of China is invoked to justify massive programs. There are many potential flashpoints in U.S.-Sino relations: the United States has commitments to Taiwan, which China believes is a breakaway province. The U.S. has worked to pressure China's energy partner, Sudan, on the situation in Darfur. And China's global economic rise increases uncertainty for the United States financial markets. Alternatively, there is no evidence that China's rise is not a peaceful one. For example, Chinese officials were embarrassed after the 2004 East Asia tsunami given that it did not have an aircraft carrier capable of assisting with humanitarian missions. Many of China's other military investments and advancements may be about national prestige, not national aggression. Time will tell whether the U.S. and China can continue to coexist militarily, or if conflict is inevitable. --
Marc Korman is a Juris Doctor candidate at the University of Maryland. He received his Masters of Arts in Government from Johns Hopkins University and previously worked on Capitol Hill.
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 President Medvedev DEVELOPMENTS On March 2, Dmitry Medvedev was elected the next president of the Russian Federation. He will succeed Vladimir Putin when he is sworn into office on May 7. A Putin protégé, the youthful Mr. Medvedev served under Mr. Putin as First Deputy Prime Minister and was also chairman of the enormous Russian gas giant, Gazprom. Medvedev is considered much more liberal than his mentor, causing many around the world to believe his arrival in the Kremlin will bring change to Russia's world agenda. Yet, after the election, Medvedev was quoted as saying, "We will be able to preserve the course of President Putin." Will Medvedev's Russia act differently than Putin's or will Russian resurgence continue? BACKGROUND Far from the superpower status of the Soviet Union, Russia endured hard times in the 1990s. In an effort to rapidly reform the world's largest state-run economy into a market oriented one, Russian President Boris Yeltsin announced that his country would adopt a policy of shock therapy in 1991. In addition, as Russia took on the USSR's debt, living standards decreased, incomes shrank, and industrial output declined. Millions were plunged into poverty. Between 1990 and 1995, Russia's GDP dropped by approximately 50%. As privatization continued, many natural resources and large businesses were bought up by businessmen who became billionaires virtually overnight. Many of these oligarchs transferred billions in assets and capital outside of the country. However, the worst came in August 1998, when a financial crisis crippled the Russian economy. During this time, the West's actions also bred Russian resentment. Many Russians were baffled by the Americans' belief that the United States, not Mikhail Gorbachev, had dismantled the Soviet Union, Other Russians thought that their country should be treated as a former superpower, not a defeated enemy. Many believed that the United States took advantage of Russia's weakness. One example was the "spinach treatment: a paternalistic Uncle Sam fed Russian leaders policies that Washington deemed healthy, no matter how unappetizing these policies seemed in Moscow." And many Russians also saw NATO expansion as a threat to Russia. It was under these conditions, that Vladimir Putin came to power when Boris Yeltsin resigned December 31, 1999. After winning the Russian elections in 2000, Putin embarked on an ambitious venture to bring power back to Russia. Putin was a sharp contrast to his predecessor. Compared to Yeltsin, he was "sober, athletic, and grimly determined to prosecute the bloody war in Chechnya and wipe out terrorists." In addition to bringing the chaos in Chechnya under control, many analysts claim that Vladimir Putin has brought economic stability to Russia. Russia's GDP has grown by approximately 7 % for nine consecutive years and foreign direct investment has tripled in the last three years, Its middle class is expanding, and the federal budget has been running surpluses since 2001. Russia has used this new economic power to reassert itself on the world stage. With Moscow's coffers, the Russian military is reclaiming a more prominent role. In the summer of 2005, Russia engaged in the first ever joint military exercises with China, dubbed "Peace Mission 2005." In August 2007, Russia announced that it was resuming the patrols of strategic long-range bombers - a practice that had been abandoned since 1992. Since then, Russian bombers have been seen near Guam, Norway and Japan. In addition to its new claim in the Artic, Russia also announced that it was sending its first major naval sortie into the Mediterranean since the Cold War. In December 2007, Russia formally withdrew from the Conventional Forces of Europe Treaty. For his radical modernization of Russia, Vladimir Putin was recently named the 2007 Time Person of the Year. But his restructuring of Russia's place in the world has been heavily criticized by many in the West for three reasons. First, as elaborated in a recent report by The Economist, the recent revival of Russia's economy is due to high oil prices, not Putin's economic policies. Secondly, although lives of ordinary Russians have improved, many westerners have denounced Russia's slide from democracy. The Kremlin currently owns all the main national television networks. In 2004 Putin announced that he would appoint all governors, and in 2007 a viable Organization for Security and Co-Operation in Europe (OSCE) presence was banned from Russia. Third, many complain of the rampant corruption in Putin's government and the power given to those who formerly worked in the military or security services, known as the siloviki. According to some studies, approximately three quarters of all officials in Putin's government have a background in the siloviki. ANALYSIS This is where Dmitry Medvedev could differ from Vladimir Putin. He will be the first Russian president who has not been in the Communist Party or the KGB. Some insiders support this, but add that although he does not come from the siloviki, he comes from the other side of Putin's regime: the bureaucracy. If political infighting persists between the two groups, it will be harder for Medvedev to pursue more liberal policies - if he even chooses to do so in the first place. However, some evidence suggests that Medvedev is much more liberal. Medvedev has said that not only are free media and property rights vital for building democracy, but that Russia must also follow the rule of law. He has also said that "freedom is better than non-freedom," and that this applies to economic and personal freedoms. Such talk makes many believe that Russia's current relations with the West may improve. Then again, it is possible that Medvedev's perceived liberalism may force him to compensate by being more ruthless than people expect. Although Russia has a new president, with Vladimir Putin as Medvedev's Prime Minister the future of Russia remains a mystery. Perhaps Putin's influenece will fade as Medvedev consolidates power as president, allowing for a liberal shift in Russian foreign policy. Or it is feasible that Putin will remain powerful as Prime Minister, a sort of Russian Deng Xiaoping, possibly running for President again after Medvedev's first term. Or, as seen in Medvedev's recent comments on NATO expansion into Georgia and Ukraine, Medvedev's policies will stay consistent with those of Putin. In any case, with the Russian population decreasing, a massive HIV problem growing, the possibility of oil revenues (and hence state revenues) declining, and three American Presidential candidates calling for a crackdown on Russia's sway from democracy, the future course of the relationship between Russia and the West will remain unclear for the next few years. --- Ryan Kaiser is a Master's Candidate at Georgetown University's School of Foreign Service. He obtained his B.A. in Diplomacy and Foreign Affairs, cum laude, from Miami University in 2004 and has experience in international affairs in both the public and non-profit sectors.
General David H. Petraeus DEVELOPMENTS March 19, 2008 marked the fifth anniversary of the American-led invasion of Iraq. Our time there has spanned longer than both World War II (three years, eight months) and the Civil War (four years). Only the Vietnam War (eight years, five months) and the Revolutionary War (six years, nine months) have engaged America longer. Four days later, on March 23, 2008, four U.S. soldiers died in a roadside bombing in a neighborhood in southern Baghdad, bringing the death toll to a haunting 4,000 Americans. With these chilling reminders of the scope and sacrifices of America's ongoing military efforts in Iraq, recent developments on the ground have provided new fuel for the debate regarding the wisdom of the ongoing U.S. operation there. In late-March, Iraqi Prime Minister Maliki initiated a risky military offensive in the southern city of Basra-the second largest in Iraq-in order to reign in radical Shiite cleric Moqtada al-Sadr and his Mahdi army and root out the criminal gangs and armed thugs who controlled huge segments of this important port city. Largely as a result of these military operations initiated by the Iraqi government-and later backed by U.S. and British coalition forces-attacks against U.S. troops and Iraqi security forces soared across Baghdad in the last week of March to the highest levels since the deployment of additional U.S. troops reached full strength last June as part of "surge" strategy. With violence on the ground in Iraq spiking in recent weeks, the top U.S. commander in the region, Army Gen. David H. Petraeus and the chief diplomat, Ambassador Ryan C. Crocker, appeared before Congress on April 8th and 9th to provide legislators with a progress report. BACKGROUND It has been about a year since General Petraeus arrived to command U.S. forces in Iraq, Ambassador Ryan C. Crocker took over as the chief U.S. diplomat, and the military deployed 30,000 more troops to protect and rebuild neighborhoods as part of President Bush's "surge" strategy. Until the recent spike in attacks referenced above, many regions in Iraq had experienced a precipitous drop in violence. Indeed, even Democrats were lauding the military aspects of the "surge" and crediting it with producing some credible and positive results. However, the deployment of additional troops to the region is only a partial explanation of this trend. Iraq experts primarily credit three other factors with the decrease in violence in the country. First, the dampening of violence can be attributed to the fact that many neighborhoods that were formerly occupied by both Sunni and Shiite residents, and had been the scene of sectarian killings in the past, have been effectively cleared of different sects. That is, ethnic cleansing and massive relocation have created separate Sunni and Shiite neighborhoods. Second, the emergence of Sunni Awakening Councils-armed neighborhood groups, some of whom were former insurgent fighters-have turned their guns away from the coalition forces to the terrorists and successfully driven al-Qaeda out of many districts of Baghdad and elsewhere. And third, Shiite cleric Moqtada al-Sadr, called a six-month truce and ceasefire, ordering his powerful Mahdi army to refrain from attacking both rival Shiite groups and the U.S. army. Political Reconciliation? And even U.S. officials acknowledge that the "surge" has not led to the political reconciliation the administration had hoped for. Senate majority leader Harry Reid (D-NV) remarked, "[t]he surge may have provided a temporary window for the Iraqi government to make progress, but it is becoming increasingly clear that that window is closing and the opportunity has been squandered." Even Republican Senator Chuck Hagel (R-NE) has expressed frustration, asking of Petraeus "where is the diplomatic surge, in my opinion, the one core issue that in the end is going to make the difference as to the outcome of Iraq…[?]" Intense Fighting in Basra and Baghdad
The results from the Basra offensive are mixed. Many Republicans have hailed it as an example of the Iraqi government standing up and further proof that President Bush's troop surge is working. Moreover, many have praised Prime Minister Maliki for demonstrating strong leadership ability by acting decisively without U.S. pressure or assistance and finally shedding his reputation as a sectarian figure by going after fellow Shiites.
But the ultimate effectiveness of the engagement remains in doubt. More than 1,000 Iraqi soldiers and policemen-including dozens of officers and at least two senior field commanders-either refused to fight or simply abandoned their posts during the assault against Shiite militias. The disorganization of Iraq's shaky security forces calls into question the American's effectiveness in training these groups and raises concerns about the country's ability to maintain safety and order on its own. Others criticize the offensive for, on the one hand, actually strengthening the anti-American Shiite cleric Moqtada al-Sadr, and on the other hand, bolstering the legitimacy and influence of the Iranian regime in the region that played an important role in brokering an end to the fighting. ANALYSIS The congressional testimony of General Petraeus and Ambassador Crocker raised two important issues regarding future strategy in Iraq. First, the consensus view is that Iran is the biggest threat to the long-term security of the Iraqi people; and second, troop levels will be effectively frozen at 140,000 after the last of the brigades that were added as part of the surge departs Iraq at the end of July. General Petraeus's congressional testimony has revived the debate in the defense community about the U.S. policy regarding Iran. Although he acknowledged that Iran has at times been an arbiter among extremist groups, General Petraeus also declared that Iranian-backed groups may be the "biggest long-term threat to the viability of a democratic Iraq." The question as to whether the U.S. should engage Iran politically will likely receive a lot of attention by the presidential candidates. In order to maintain stability in Iraq, it would seem that any large-scale withdrawal of American troops would need to be accompanied by substantial regional diplomacy with Iraq's neighbors. Because of its ability to influence security conditions on the ground, it is difficult to envision this process succeeding without participation from Iran. Thus, whether or not the U.S. chooses to diplomatically engage Iran over its nuclear ambitions, it seems imperative to develop a diplomatic track regarding the future stability of an autonomous Iraqi nation. But the Petraeus-Crocker testimony had another effect. Citing General Petraeus's report, President Bush announced that he would freeze troop levels at the end of July. This means that the next President will likely start his or her term with 140,000 soldiers in Iraq - about the size it has been for most of the past five years. This sets the stage for a presidential election filled with contrasts between the Democratic and Republican nominees over the future of American involvement in Iraq. Moreover, it sets Congress's legislative priorities for the Spring: Democratic leaders are already preparing to amend war-funding legislation to limit the president's options and to direct money to domestic priorities, while lawmakers from both parties took on his plan to sign a strategic agreement with Iraq that would outlast his presidency. Although the last six months have seen Iraq moved to the back burner in the minds of many Americans as the country's economic woes have mounted, it is likely to become front and center again as the country prepares for an historic general election in November. --
Robert Friedman is Managing Editor of Foreign Policy Digest.
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