Monday, April 13, 2009

What Iran Really Thinks About Talks - It's a game of diplomacy without sincerity

What Iran Really Thinks About Talks. By Michael Rubin
It's a game of diplomacy without sincerity.
Apr 12, 2009

On Apr. 9, Gholam Reza Aghazadeh, the head of Iran's atomic energy agency, announced that the Islamic Republic had installed 7,000 centrifuges in its Natanz uranium enrichment facility. The announcement came one day after the U.S. State Department announced it would engage Iran directly in multilateral nuclear talks.

Proponents of engagement with Tehran say dialogue provides the only way forward. Iran's progress over the past eight years, they say, is a testament to the failure of Bush administration strategy. President Barack Obama, for example, in his Mar. 21 address to the Iranian government and people, declared that diplomacy "will not be advanced by threats. We seek engagement that is honest and grounded in mutual respect."

Thus our president fulfills a pattern in which new administrations place blame for the failure of diplomacy on predecessors rather than on adversaries. The Islamic Republic is not a passive actor, however. Quite the opposite: While President Obama plays checkers, Supreme Leader Ayatollah Ali Khamenei plays chess. The enrichment milestone is a testament both to Tehran's pro-active strategy and to Washington's refusal to recognize it.

Iran's nuclear program dates back to 1989, when the Russian government agreed to complete the reactor at Bushehr. It was a year of optimism in the West: The Iran-Iraq War ended the summer before and, with the death of revolutionary leader Ayatollah Khomeini, leadership passed to Ayatollah Khamenei and President Ali Akbar Hashemi Rafsanjani, both considered moderates.

At the beginning of the year, George H.W. Bush offered an olive branch to Tehran, declaring in his inaugural address, "Good will begets good will. Good faith can be a spiral that endlessly moves on." The mood grew more euphoric in Europe. In 1992, the German government, ever eager for new business opportunities and arguing that trade could moderate the Islamic Republic, launched its own engagement initiative.

It didn't work. While U.S. and European policy makers draw distinctions between reformers and hard-liners in the Islamic Republic, the difference between the two is style, not substance. Both remain committed to Iran's nuclear program. Former Iranian President Mohammad Khatami, for example, called for a Dialogue of Civilizations. The European Union (EU) took the bait and, between 2000 and 2005, nearly tripled trade with Iran.

It was a ruse. Iranian officials were as insincere as European diplomats were greedy, gullible or both. Iranian officials now acknowledge that Tehran invested the benefits reaped into its nuclear program.

On June 14, 2008, for example, Abdollah Ramezanzadeh, Mr. Khatami's spokesman, debated advisers to current Iranian President Mahmoud Ahmadinejad at the University of Gila in northern Iran. Mr. Ramezanzadeh criticized Mr. Ahmadinejad for his defiant rhetoric, and counseled him to accept the Khatami approach: "We should prove to the entire world that we want power plants for electricity. Afterwards, we can proceed with other activities," Mr. Ramezanzadeh said. The purpose of dialogue, he argued further, was not to compromise, but to build confidence and avoid sanctions. "We had an overt policy, which was one of negotiation and confidence building, and a covert policy, which was continuation of the activities," he said.

The strategy was successful. While today U.S. and European officials laud Mr. Khatami as a peacemaker, it was on his watch that Iran built and operated covertly its Natanz nuclear enrichment plant and, at least until 2003, a nuclear weapons program as well.

Iran's responsiveness to diplomacy is a mirage. After two years of talks following exposure of its Natanz facility, Tehran finally acquiesced to a temporary enrichment suspension, a move which Secretary of State Colin Powell called "a little bit of progress," and the EU hailed.

But, just last Sunday, Hassan Rowhani, Iran's chief nuclear negotiator at the time, acknowledged his government's insincerity. The Iranian leadership agreed to suspension, he explained in an interview with the government-run news Web site, Aftab News, "to counter global consensus against Iran," adding, "We did not accept suspension in construction of centrifuges and continued the effort. . . . We needed a greater number." What diplomats considered progress, Iranian engineers understood to be an opportunity to expand their program.

In his March 24 press conference, Mr. Obama said, "I'm a big believer in persistence." Making the same mistake repeatedly, however, is neither wise nor realism; it is arrogant, naïve and dangerous.

When Mr. Obama declared on April 5 that "All countries can access peaceful nuclear energy," the state-run daily newspaper Resalat responded with a front page headline, "The United States capitulates to the nuclear goals of Iran." With Washington embracing dialogue without accountability and Tehran embracing diplomacy without sincerity, it appears the Iranian government is right.

Mr. Rubin is a resident scholar at the American Enterprise Institute.

What the Fed is doing to help end the economic crisis

The Fed's Balance Sheet. WaPo Editorial
What the agency is doing to help end the economic crisis
WaPo, Monday, April 13, 2009; A14

IN NOVEMBER 2005, BusinessWeek published a story that began, "Welcome to the era of the diminished Fed." It predicted that incoming Federal Reserve Chairman Ben S. Bernanke would avoid the activist models of his predecessors and turn to a more predictable rules-based system that he called "constrained discretion." Now, a few years later, the Fed is in uncharted territory in an effort to save the economy, and "quantitative easing" has handily trumped constrained discretion. The central bank has massively expanded its balance sheet by more than a trillion dollars, with more to come, and simultaneously increased the types of activities in which it engages, making the notion of a central bank that focuses merely on adjusting interest rates seem positively quaint.

The new activities focus on providing credit to help financial institutions, making direct loans and, recently, purchasing long-term assets, such as Fannie Mae debt. As a result, the U.S. central bank is now the proud overseer of the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), which helps money market mutual funds meet their obligations; the Commercial Paper Funding Facility (CPFF), which lends directly to market participants; and the Term Asset-Backed Securities Loan Facility (TALF), which makes direct loans in an effort to fix the securitization markets and provides liquidity swap lines to a host of central banks around the world -- not to mention TAF, TSLF, PDCF, and MMIFF. It's enough to make even the most avid Fed watcher's head spin. While Mr. Bernanke has made efforts to increase transparency -- ranging from the helpful expansion of Fed Web sites to granting an unusual interview on "60 Minutes" that was downright folksy -- the effectiveness of these policies is virtually impossible to assess.

That the Fed has entered into so many new areas is in part a reflection of Congress's unwillingness to do so. Reeling from the political sting of the Troubled Assets Relief Program bank bailout and bonuses, politicians have been thus far unwilling to provide more funds to help stabilize the financial sector. This has pushed the Fed to shift from broad, macroeconomic manipulation to specific intervention in targeted areas and institutions. These activities may well turn out to be the winch that pulls the economy out of the credit and financial market meltdown, though no one can say for sure, and the midst of a crisis is not the time for handing out final grades. We do know that traditional Fed rate reductions, which left the federal funds rate hovering near zero, were not enough to jump-start the economy and that something else had to be done.

The real challenge will be "unwinding" all of these activities. If the Fed fails to turn off these new policies quickly enough, they could be highly inflationary, but shedding the assets it has purchased could tangle up markets tremendously. The president of the Federal Reserve Bank of Philadelphia has warned that there could be significant political pressure to keep many of the programs in place, particularly since the economy may still feel weak when it is time to start contracting the Fed's bloated balance sheet. Creating all these new programs was a heavy lift; getting rid of them may be even harder.