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Austerity Revisited: How Global Financiers Rigged the Bank Bailouts of the 1980s

Austerity Revisited: How Global Financiers Rigged the Bank Bailouts of the 1980s

By: Andrew Gavin Marshall

Originally posted at Occupy.com

20 May 2014

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In the first part of this Global Power Project series, I examined the origins and early evolution of the International Monetary Conference, an annual meeting (to be held June 1-3 in Munich) of several hundred of the world’s most influential bankers who gather in secrecy with the finance ministers, regulators and central bankers of the world’s most powerful nations. The second part looked at the role of the IMC in the lead-up to the 1980s debt crisis. Now, in Part 3, we examine the role the IMC played throughout that debt crisis which began in August of 1982.

At the 1982 International Monetary Conference, bankers noted that they had been cutting back extensively on loans to developing countries, with some leading bankers warning that the lending cut-backs could result in “aggravating the problems of countries already in economic difficulties and threatening to throw them into default” – which is exactly what happened a couple of months after that’s year’s conference.

A. W. Clausen, former CEO of Bank of America, spoke at the IMC in 1982 as then-president of the World Bank, and told the assembled bankers it was “an honour to be the first President of the World Bank to address the International Monetary Conference,” noting that, “themes of partnership and interdependence have repeatedly been at the center of our IMC meetings.” It was the subject Clausen wanted to address, “the tightening interdependence between the developed and the developing nations,” announcing “a new era of partnership between the World Bank and international commercial banks for helping the economies of the developing countries.”

Clausen told the bankers that “in order to develop a closer partnership with you, we intend to expand the International Finance Corporation [the investment arm of the World Bank] to explore the possibility of a multilateral insurance scheme for private investment, and to develop new mechanisms for attracting commercial bank co-financing.”

He also noted that the “fundamental objective of the World Bank” was “to help raise the standard of living of people, especially poor people, in the developing countries,” and argued that “people in developing countries will benefit from a closer partnership between the World Bank and international commercial banks.” Clausen was speaking roughly three months before Mexico announced its debt repayment problems, sparking the debt crisis, though he acknowledged that the developing world was experiencing a “balance-of-payments disequilibrium and debt-servicing difficulties.”

In addition, Clausen noted that the affiliate organization of the World Bank, the International Finance Corporation, had a special purpose which was “to encourage productive private enterprises in developing nations” whose loans do not have to be guaranteed by governments, and which can take equity (or shareholdings) in corporations. Clausen noted that together with the IMF and the General Agreement of Tariffs and Trade (GATT), the World Bank “has helped to build an interdependent global economy,” adding: “International commercial banking depends on the relatively integrated, dynamic, and peaceful world economy that these official institutions have nurtured.”

Thus, he suggested, “we should now develop the complementarity between the World Bank and international commercial banks into a closer relationship of collaboration,” and recommended “greater collaboration between [the] IFC and commercial banks,” which “has great potential for stimulating commercial investment in the developing countries.” All of the initiatives Clausen proposed revolved around the basic objective of increasing “the collaboration of the international banking community” with the World Bank, in order “to assist poor nations to better manage their economies through the establishment of economic policies that are conducive to economic growth and development” and thus “bringing them fully into the global economy.”

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The Debt Crisis

In the first full year of the international debt crisis that tore Latin America and other developing countries into financial ruin – with entire populations pushed overnight into poverty through austerity measures that were demanded by the IMF and the global banks, in return for additional loans and debt rescheduling – the more than 200 global bankers at the International Monetary Conference met in Belgium where they were “treated like royalty,” met at the airport by “special hostesses” and were then chauffeured in Mercedes limousines to the Hyatt Regency Hotel.

The bankers attended a cocktail party at the Palais d’Egmont and hosted the King of Belgium for an afternoon lunch. It was in this “fairy-tale atmosphere,” as the New York Times described it, that the world’s top bankers met with government officials and central bankers and enjoyed “the luxury of thinking about the grand problems of world finance, unfettered by the real world’s concerns.”

The bankers at the 1983 conference agreed that the major debtor countries, in particular Brazil and Mexico, would need time to reshape their economies, with estimates ranging from three to seven or eight years of austerity, and various “structural reforms” designed to enforce neoliberal economic policies upon those entire populations. James Wolfensohn, a former partner at Salomon Brothers who started his own consultancy (and later went on to become President of the World Bank), delivered a popular speech at the IMC recommending that there could be no one solution to the debt crisis, but that each country would have to be handled on a case-by-case basis.

The banker William S. Ogden, a former vice chairman of Chase Manhattan, presented another popular speech at the IMC in which he explained that what was needed to resolve the debt crisis was “sustained world economic growth, avoidance of protectionism, increased government aid to the third world and more disciplined economic policies among the developing countries.” In other words, harsh austerity measures.

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That very same year, Ogden was in the midst of creating a unique organization of international banks and bankers to represent their collective interests as a global community in the face of the debt crisis. That organization came to be known as the Institute of International Finance, itself the subject of a previous set of exposés in the Global Power Project.

At the 1984 meeting of the International Monetary Conference (IMC), a special meeting occurred among some of the top banks that held a large percentage of Mexico’s debt. They participated in a “closed meeting” with major central bankers and finance officials, including representatives of the IMF, who recommended that the banks lower their interest rates on loans to Mexico in order to reduce pressure on the country. Walter B. Wriston, chairman of Citicorp, who had previously opposed any concessions to the impoverished nations in crisis, at this point appeared willing to adhere to some reductions in interest rates for Mexico.

The closed meeting was also attended by Willard C. Butcher, Jr., the chairman of Chase Manhattan; John F. McGillicuddy, chairman of Manufacturers Hanover Trust Company; Lewis T. Preston, chairman of J.P. Morgan & Company; Walter V. Shipley, chairman of Chemical Bank; Wilfried Guth, managing director of Deutsche Bank; Guido R. Hanselmann, executive board member of Union Bank of Switzerland (UBS), and Sir Jeremy Morse, chairman of Lloyds Bank of London.

The following day, the international banks announced that they would agree to negotiate a long-term debt solution for Mexico. Included in the decision as well was the IMF managing director, Jacques de Larosiere; the chairman of the Federal Reserve, Paul Volcker; and a special representative of the banks, Citibank Vice Chairman William R. Rhodes, who announced the decision to negotiate on behalf of the banks and who was personally responsible for chairing multiple “bank advisory committees” that negotiated debt rescheduling with various countries in Latin America.

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Three years later, in 1987, Mexico was still caught in a painful crisis and the world’s bankers were still meeting for the IMC in luxurious surroundings, partaking in opulent social events to discuss the issue of world debt problems. The more than 200 bankers at the meeting expressed their frustration with the problems of the global monetary system, the instability of the floating exchange rate system, and currency crises. William Butcher, that year’s chairman of the IMC, warned that the global monetary system would not “correct itself” and instead the search for a new and more stable system “must be intensified.”

The most popular speech at the IMC that year was delivered by Japan’s vice minister of finance for international affairs, Toyoo Gyohten, who proposed the establishment of “some international mechanism” which would be responsible for managing international monetary crises, and would be required “to have at least several hundred billion dollars in order to influence the financial markets.”

At the next year’s meeting of the IMC, then-Chairman of the Federal Reserve, Alan Greenspan, spoke to the assembled bankers, explaining that further declines in the U.S. Dollar would not help American exports. His comments led to a rise in the Dollar, “greeted positively in the financial markets,” and stock and bond prices rose on Wall Street. The heads of the central banks of other major industrial nations, such as West Germany and Britain, were also present at the conference where collectively the central bankers “reiterated the need to keep inflation down as a way to continue worldwide economic growth” – a position met with great approval by the bankers present at the meeting.

At the 1989 meeting of the IMC, many of Mexico’s largest international lenders attended a special meeting after which they announced a $5.5 billion “aid” package (aka bailout) for Mexico in cooperation between Japanese banks, the IMF and the World Bank. But the so-called “aid packages” handed out by Western banks and international organizations to the crisis-hit developing nations were, in fact, bailouts for the major banks: the funds were given to the countries explicitly to pay the interest that they owed to the banks, while at the same time forcing those governments to implement strict austerity measures and other economic reforms.

William R. Rhodes, Citibank’s main official responsible for debt rescheduling agreements, was present at the meeting, which was also attended by Angel Gurria, the chief debt negotiator for Mexico. Rhodes stated that the meeting at the IMC “set the stage for rapid progress.” In the final part of the Global Power Project series on the International Monetary Conference, I examine the continued relevance of the IMC from 1989 to the present – including the bankers who composed its leadership, as well as a review of leaked documents pertaining to the 2013 meeting of the IMC in Shanghai.

Andrew Gavin Marshall is a 27-year-old researcher and writer based in Montreal, Canada. He is project manager of The People’s Book Project, chair of the geopolitics division of The Hampton Institute, research director for Occupy.com’s Global Power Project and the World of Resistance (WoR) Report, and hosts a weekly podcast show with BoilingFrogsPost.

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How the International Monetary Conference Helped Fuel the 1980s Debt Crisis

How the International Monetary Conference Helped Fuel the 1980s Debt Crisis

By: Andrew Gavin Marshall

Originally posted at Occupy.com

14 May 2014

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Last week, in Part 1 of the Global Power Project’s investigations into the machinery behind the International Monetary Conference, I examined the history and evolution of the IMC from its founding by the American Bankers Association in 1954 to the global financial and monetary disruptions of the late 1970s.

The IMC, happening June 1-3 in Munich, brings together hundreds of top bankers with leading finance officials and central bankers from the world’s industrial powers to discuss major economic, financial and monetary issues of the day – and to form a consensus on policies for managing the world economic order. In part 2 of the series, I look at the role of the IMC in the lead-up to the 1980s debt crisis.

What Fueled the Debt Crisis?

The 1980s debt crisis erupted when Mexico announced in 1982 that it could no longer service its debts to Western, and primarily American, banks. This resulted in a crisis that quickly spread across Latin America, Africa and parts of Asia. The oil price rises of the 1970s had led to a surge in revenues for oil-producing nations, which had invested their surplus oil wealth in Western banks that then lent the money to poor, developing nations requiring oil in order to finance their industrialization.

Then, following the 1979 oil shocks, the Federal Reserve in the United States decided to dramatically increase interest rates. The result: interest payments on “third world” debts skyrocketed, ultimately forcing Mexico and other nations to seek bailouts in order to pay their interest to the world’s major banks.

At the 1980 International Monetary Conference meeting, two years before the debt crisis erupted, some of the world’s top bankers – particularly Wilfried Guth, the managing director of Deutsche Bank – warned that a “safety net” may be needed to bail out the major banks that lent money to the developing world. Chase Manhattan Chairman David Rockefeller, who also attended the meeting, agreed that such a “safety net” for the banks was “well worth considering.”

Other leading bankers warned that since the world’s major banks were big lenders to each other, there was “a danger that if one large institution were to fail, a chain reaction could be started that would topple other banks around the world.” (“A ‘Safety Net’ for Banks is Proposed,” New York Times, June 3, 1980).

An Exclusive Event

The June 1980 meeting of the IMC took place in New Orleans, to which The New York Times reported that “only the most elite of the world’s financiers are invited.” American participants at that year’s meeting included Treasury Secretary G. William Miller and Federal Reserve Board Chairman Paul A. Volcker, as well as the chairmen of America’s three largest banks: David Rockefeller (Chase Manhattan), A.W. Clausen (Bank of America) and Walter Wriston (Citibank). The New York Times noted that the IMC “has been a forum where the heavyweights of world finance often take off their gloves.” (“Bankers Meet in Discord,” New York Times, 2 June 1980).

The bankers who attended the conference to discuss issues of debt and poverty were greeted at the New Orleans airport by police officers who provided them with security and doubled as “porters and chauffeurs,” driving the bankers in unmarked police cars to their hotels. The IMC, which is presided over by a 15-member board that decides who gets invited to the yearly meetings, admits banks based upon their size and the scope of their international operations.

At this gathering, eight of the 15 board members were Americans, including Walter B. Wriston, chairman of Citibank; Willis W. Alexander, executive vice president of the American Bankers Association, and leading figures representing First National Bank of Chicago, Wells Fargo, Mellon Bank and Chemical Bank, among others (“The Talk of New Orleans: Agonies of World Banking,” New York Times, 8 June 1980).

Though official sessions of the meeting were closed to the press, in briefings afterward the bankers warned that some developing nations were having increasing difficulty paying interest on their debts to the big banks – and that although the situation had not yet reached crisis proportions, they were wary of what was to come. David Rockefeller declared an urgency “for official organizations, such as the International Monetary Fund, to increase their lending to oil-consuming countries,” and suggested that “private banks and the international institutions should work more closely together.”

Likewise, Wilfried Guth of Deutsche Bank presented a 35-page paper in which he stated that the global financial system was “fairly under control for 1980,” but warned that “critical developments are feared for 1981 and later” when many developing nations “will find it extremely difficult to raise the money they need to pay for oil and other essential imports, including food.” Powerful bankers and monetary officials at the conference widely supported Guth’s paper and presentation, with David Rockefeller warning that international loans given by commercial banks had already surpassed $1 trillion.

The global bankers noted that the underlying issue was “the huge transfer of wealth from the oil-consuming nations to the oil-producing nations,” and warned that “economic stability can be achieved only if the oil-consuming countries accept declines in their living standards” and “an indefinite recession” (“Oil Payment Worries Grow,” New York Times, 7 June 1980).

Meanwhile, the most popular person at the conference that year was a specially-invited guest named Milton Friedman, the University of Chicago economist known for his promotion of neoliberal economic orthodoxy. As the New York Times noted, “It seemed that just about everyone wanted to sit at Mr. Friedman’s lunch and dinner tables.” Friedman had been invited to the IMC to preside over a debate on nothing less than “how monetary policy should be designed and implemented.”

The 1980 IMC meeting seemed to bear formal fruition when Ronald Reagan assumed the presidency in January of 1981, as his new economic policies won “praise from at least one important foreign group – bankers.” The New York Times noted that the several hundred of the world’s top financiers from the IMC meeting “expressed understanding and support of even the most controversial of American monetary policies – the record interest rates that have strengthened the dollar and battered most foreign currencies as a result.”

It was the very same interest rate hikes that led to highly-indebted poor countries finding themselves unable to pay the increased interest on their loans – which pushed them into bankruptcy and the need for bailouts. But for global bankers, there was nothing but praise. Sir Jeremy Morse, chairman of Lloyds Bank of London one of those in attendance at the IMC, stated that, “In general, most people feel that high interest rates are appropriate to the inflationary position of the Western world, and are appropriate to the United States position.”

The only issue of bankers’ “irritation” with the Reagan administration, it seemed, was the fact that incoming Treasury Secretary Donald T. Regan – the Chairman and CEO of Merrill Lynch from 1971 to 1980 – had cancelled his trip to the IMC at the last minute. As many at the conference noted, it was “tradition” to have “a formal address by a senior American economic official.” The President of Wachovia, John G. Medlin Jr., commented, “I think he should have come … I don’t think he understood the importance of this group.”

In the absence of Regan, the responsibility of explaining official American economic policies fell to Federal Reserve Chairman Paul Volcker, himself a former official at Chase Manhattan where he had worked for David Rockefeller. Volcker stood up to the challenge and “was a great success among the bankers [at the IMC], many of whom expressed support for him.”

In the next installment of this series investigating the International Monetary Conference, I examine the role of the IMC throughout the 1980s debt crisis and its position as an important, influential forum that helped to articulate and definitively shape consensus around neoliberal Western economic policy.

Andrew Gavin Marshall is a 26-year-old researcher and writer based in Montreal, Canada. He is project manager of The People’s Book Project, chair of the geopolitics division of The Hampton Institute, research director for Occupy.com’s Global Power Project and the World of Resistance (WoR) Report, and hosts a

Crowdfunding a Book for the Revolution

Crowdfunding a Book for the Revolution

By: Andrew Gavin Marshall

A photo I took at the May 22 mass protest in Montreal

Dear Readers and Supporters,

Funding for The People’s Book Project has essentially – despite a few select donations – come to a halt. At the moment, there are not enough remaining funds to sustain the Project past the next week or so. For this reason, I have started a crowdfunding initiative through Indiegogo, a large crowdfunding website, to attempt to raise funds for both the Book Project itself, and to facilitate a trip to Europe, specifically Greece and Spain, in order to undertake research and journalism from the front lines of the economic crisis and anti-austerity revolts. This was done in an attempt to shift the burden of financial support from those who have long supported my work – through my website(s) – to a new audience with a much wider reach than my own, which is very minimal, to say the least.

However, funding through Indiegogo is also currently not sufficient, so I am asking for your help in promoting this initiative, through Facebook, social media, networking, etc. The only way to increase financial support is to increase exposure, and I cannot do this on my own. If you have the means, or are so inclined, your financial contributions would be enormously appreciated as well, either through my website or on Indiegogo. However, it is in the networking, social media, and promotion that I need a great deal of help. I often see the same names who take it upon themselves to help promote my work through social media, and it is incredibly appreciated; just as I often see the same names who provide financial support. While both of these groups – with some overlap between them – are essentially the reason why I have been able to continue independent research and writing up to this point, I need to expand my exposure and bases of support, in order to continue the Project itself, but also to lift some of the burden from those who have consistently supported this Project as it approaches its one-year anniversary.

So, if you have not made a financial contribution, please consider doing so, and just as – if not more – importantly, please help in sharing my articles, book promotions, and the new Indiegogo fundraising page. Your efforts mean a great deal to me, and are enormously appreciated. So thank you for all you have done, and continue to do!

In looking at the objective for the first volume of the Book Project, with a focus on the global economic crisis and global anti-austerity and resistance movements, I feel that I should re-post some of the research and writing that has come about through the generous support of readers and supporters thus far, and of which a great deal will be going into the first volume of the Book.

Starting with the global economic crisis and anti-austerity resistance movements, the following articles, samples, and excerpts have been made possible due to the generous support of readers:

Welcome to the World Revolution in the Global Age of Rage

Austerity, Adjustment, and Social Genocide: Political Language and the European Debt Crisis

Italy in Crisis: The Decline of the Roman Democracy and Rise of the ‘Super Mario’ Technocracy

Super Mario Monti and the Dictatorship of Austerity in Italy

These articles are collectively but a small sample of the actual research and writing which has gone into the Project over the past two months, which has surpassed 300 pages in writing (with over 100 pages on Greece alone!).

On the subjects of education as social control, class warfare, and student movements, the following articles have been made possible: the series, “Class War and the College Crisis.”

Part 1: The “Crisis of Democracy” and the Attack on Education

Part 2: The Purpose of Education: Social Uplift or Social Control?

Part 3: Of Prophets, Power, and the Purpose of Intellectuals

Part 4: Student Strikes, Debt Domination, and Class War in Canada

Part 5: Canada’s Economic Collapse and Social Crisis

Part 6: The Québec Student Strike: From ‘Maple Spring’ to Summer Rebellion?

Part 7: Meet Canada’s Ruling Oligarchy: Parasites-a-Plenty!

Further into the subject of the Quebec student movement, the following work has been made possible due to reader contributions and support:

Ten Points Everyone Should Know About the Quebec Student Movement

From the Chilean Winter to the Maple Spring: Solidarity and the Student Movements in Chile and Quebec

Quebec Steps Closer to Martial Law to Repress Students: Bill 78 is a “Declaration of War on the Student Movement”

Writing About the Student Movement in Québec: You’re Damn Right I’m “Biased”! … Confessions of a Non-Neutral Observer

Québec Students Spark the ‘Maple Spring’

The Maple Spring and the Mafiocracy: Struggling Students versus “Entitled Elites”

On June 11, the Global Elite Gather in Montreal: Will the Maple Spring Say Hello?

Stand Strong and Do Not Despair: Some Thoughts on the Fading Student Movement in Quebec

Organize, Imagine, and Act: How a Student Movement Can Become a Revolution

On the issue of Empire, the following research, samples, and writing have been made available through reader support and donations:

The Predatory Global Empire in Panama: Punishing the Poor

A Revolutionary Idea for a Revolutionary Time: A Plan of Action for the Global Political Awakening

An Education for Empire: The Rockefeller, Carnegie, and Ford Foundations in the Construction of Knowledge

Education or Domination? The Rockefeller, Carnegie, and Ford Foundations Developing Knowledge for the Developing World

The Council on Foreign Relations and the “Grand Area” of the American Empire

The American Empire in Latin America: “Democracy” is a Threat to “National Security”

Organized Terror and Ethnic Cleansing in Palestine

The Kennedy Brothers, State Terror, and Friendly Dictatorships

Punishing the Population: The American Occupations of Haiti and the Dominican Republic

The U.S. Strategy to Control Middle Eastern Oil: “One of the Greatest Material Prizes in World History”

Fighting the “Rising Tide” of Arab Nationalism: The Eisenhower Doctrine and the Syrian Crisis

Economic Warfare and Strangling Sanctions: Punishing Iran for its “Defiance” of the United States

Bringing Down the Empire: Challenging the Institutions of Domination

All of this does not even begin to truly cover the amount of extensive research and writing which has been undertaken in the past year, a good deal of which will be integrated into the first volume of the Book. Again, ALL of this has only been made possible due to the support of readers.

Readers and supporters have also undertaken – of their own initiative – to kindly translate some of my articles into foreign languages, simply because they chose to do so, and for which they received no financial compensation.

Among the French translations of some of my articles are:

De la dépression économique globale a la gouvernance mondiale

La politique économique du gouvernement global

Fermons la réserve fédérale mais ne nous arrêtons pas en si bon chemin!

L’éveil politique et le nouvel ordre mondial

Contre l’Institution, avertissement au mouvement Occupy Wall Street

Un court message pour l’humanité: nous voulons être libres !

De l’anarchie: Une Interview

A Greek translation of my article:

“Be the Change: A 12-Point Proposal for the Occupy Movement”

An Italian translation of one of my recent articles on the European debt crisis:

“Il linguaggio Orwelliano dietro la crisi della zona Euro”

And in Spanish translations:

“La ‘Crisis de la Democracia’ y el ataque a la educación”

Movimiento estudiantil, dominación por deudas y lucha de clases en Canadá

Del Invierno Chileno a la Primavera Canadiense: ¡Solidaridad!

Quebec se acerca a la ley marcial para reprimir a estudiantes

“Bienvenido a la revolución mundial en la era de furia global”

 

So thank you, sincerely, for all of your support over this past year. I could not have done any of this without you, and it’s only possible – and will only be possible in the near future – because of your support. And I will thank you in advance for helping to promote my writing, research, and fundraising campaign on Indiegogo.

In Solidarity, now and always,

Andrew Gavin Marshall

Andrew Gavin Marshall is an independent researcher and writer living in Montreal, Canada. His website (www.andrewgavinmarshall.com) features a number of articles and essays focusing on an analysis of power and resistance in the political, social, and economic realms. He is Project Manager of The People’s Book Project, and is currently writing a book on the global economic crisis and resistance movements emerging around the world. To help this book come to completion, please consider donating through the website or on Indiegogo.

From Global Crisis to “Global Government”

From Global Crisis to “Global Government”
US Intelligence: A Review of Global Trends 2025
Global Research, December 19, 2008

Introduction

The United States’ National Intelligence Council has released a report, entitled Global Trends 2025: A Transformed World“. This declassified document is the fourth report of  the Global Trends 2025: The National Intelligence Council’s 2025 Project,

The report outlines the paths that current geopolitical and economic trends may reach by the year 2025, in order to guide strategic thinking over the next few decades. The National Intelligence Council describes itself as the US Intelligence Community’s “center for midterm and long-term strategic thinking,” with the tasks of supporting the Director of National Intelligence, reaching out to non-governmental experts in academia and the private sector and it leads in the effort of providing National Intelligence Estimates.

The report was written with the active participation of not only the US intelligence community, but also numerous think tanks, consulting firms, academic institutions and hundreds of other experts. Among the participating organizations were the Atlantic Council of the United States, the Wilson Center, RAND Corporation, the Brookings Institution, American Enterprise Institute, Texas A&M University, the Council on Foreign Relations and Chatham House in London, which is the British equivalent of the CFR.[1]

Among the many things envisioned in this report to either be completed or under way by 2025 are the formation of a global multipolar international system, the possibility of a return of mercantilism by great powers in which they go to war over dwindling resources, the growth of China as a great world power, the position of India as a strong pole in the new multipolar system, a decline of capitalism in the form of more state-capitalism, exponential population growth in the developing world, continuing instability in Africa, a decline in food availability, partly due to climate change, continued terrorism, the possibility of nuclear war, the emergence of regionalism in the form of strong regional blocks in North America, Europe, and Asia, and the decline of US power and with that, the superiority of the dollar.

The Economics of Change

The discussion of global economics begins with analyzing the potential repercussions of the current global financial crisis. It states that the crisis “is accelerating the global economic rebalancing.  Developing countries have been hurt; several, such as Pakistan with its large current account deficit, are at considerable risk.  Even those with cash reserves—such as South Korea and Russia—have been severely buffeted; steep rises in unemployment and inflation could trigger widespread political instability and throw emerging powers off course.” However, it states, “if China, Russia, and Mideast oil exporters can avoid internal crises,” they may be able to buy foreign assets, provide financial assistance to struggling countries and “seed new regional initiatives.” It says that the biggest change for the West will be “the increase in state power.  Western governments now own large swaths of their financial sectors and must manage them, potentially politicizing markets.” It continues in saying that there is a prospect for a new “Bretton Woods,” to “regulate the global economy,” however, “Failure to construct a new all-embracing architecture could lead countries to seek security through competitive monetary policies and new investment barriers, increasing the potential for market segmentation.”[2]

The report states that as a result of the major financial disruptions under-way and those still to come, there is a need to rebalance the global economy. However, “this rebalancing will require long-term efforts to establish a new international system.”[3] It states that major problem to overcome will be a possible backlash against foreign trade and investment by corporations, particularly in “emerging economies,” with the potential of fueling “protectionist forces” in the US; an increasing competition for resources between emerging economies such as Russia, China, India and even Gulf states; a decline in democratization, as the China-model for development becomes attractive to other emerging economies, authoritarian regimes and even “weak democracies frustrated by years of economic underperformance”; the role of Sovereign Wealth Funds (SWFs) in providing more financial assistance to developing countries than the World Bank and IMF, which could lead to “diplomatic realignments and new relationships” between China, Russia, India and Gulf states with the developing world; the loss of the dollar as the “global reserve currency,” as “foreign policy actions might bring exposure to currency shock and higher interest rates for Americans,” and a “move away from the dollar” which would be precipitated by “uncertainties and instabilities in the international financial system.”[4]

The dollar’s decline as a “global reserve currency” will be relegated to “something of a first among equals in a basket of currencies by 2025. This could occur suddenly in the wake of a crisis, or gradually with global rebalancing.”[5]

It states that for the first time in history, the financial landscape will be “genuinely global and multipolar,” and that, “redirection toward regional financial centers could soon spill over into other areas of power.”[6] It states that there is potential for a divide within the West between the US and EU, so long as they continue divergent economic policies, where Europe is more state-centric and with the US as more market-based. However, “the enhanced role of the state in Western economies may also lessen the contrast between the two models.”[7] This enhanced role of the state in economic matters is largely due to the current financial crisis.

Latin America

In outlining Latin America’s path for the next two decades, the report states that many countries will have become middle income powers, however, “those that have embraced populist policies, will lag behind—and some, such as Haiti, will have become even poorer and still less governable.” It says Brazil will become the major power of the region, but that, “efforts to promote South American integration will be realized only in part.  Venezuela and Cuba will have some form of vestigial influence in the region in 2025, but their economic problems will limit their appeal.” However, it said that many parts of Latin America will remain among “the world’s most violent areas,” and that, “US influence in the region will diminish somewhat, in part because of Latin America’s broadening economic and commercial relations with Asia, Europe, and other blocs.”[8]

Europe

In discussing the issue of Muslim immigration into the European Union, the report states that, “Countries with growing numbers of Muslims will experience a rapid shift in ethnic composition, particularly around urban areas, potentially complicating efforts to facilitate assimilation and integration.” Further, “the increasing concentration could lead to more tense and unstable situations, such as occurred with the 2005 Paris suburban riots.” This mass immigration and reactions of Europeans, among other factors, “are likely to confine many Muslims to low-status, low-wage jobs, deepening ethnic cleavages.  Despite a sizeable stratum of integrated Muslims, a growing number—driven by a sense of alienation, grievance, and injustice—are increasingly likely to value separation in areas with Muslim-specific cultural and religious practices.”[9]

The report also states that by 2025, Europe “will have made slow progress toward achieving the vision of current leaders and elites: a cohesive, integrated, and influential global actor able to employ independently a full spectrum of political, economic, and military tools in support of European and Western interests and universal ideals. The European Union would need to resolve a perceived democracy gap dividing Brussels from European voters and move past protracted debate about its institutional structures.” In other words, the move toward a European superstate will revolve around convincing the public that it is not a threat to democracy or sovereignty.

It further states that Europe should and likely will take in “new members in the Balkans, and perhaps Ukraine and Turkey. However, continued failure to convince skeptical publics of the benefits of deeper economic, political, and social integration and to grasp the nettle of a shrinking and aging population by enacting painful reforms could leave the EU a hobbled giant.”[10]

Russia: Boom or Bust?

The report’s focus on Russia stresses two possible scenarios. One in which Russia triumphs as an international player in the new international system, with the “potential to be richer, more powerful, and more self-assured in 2025 if it invests in human capital, expands and diversifies its economy, and integrates with global markets. [Emphasis added]” However, Russia could also take another path, where “multiple constraints could limit Russia’s ability to achieve its full economic potential,” such as a shortfall in energy investment, an underdeveloped banking sector, and crime and corruption. It also points out that a “sustained plunge in global energy prices before Russia has the chance to develop a more diversified economy probably would constrain economic growth.”[11] Could this be a veiled threat to Russia to either join into and merge with the international system, which is directed by Western elites, or face a possible economic backlash, perhaps in the form of manipulating oil prices? This strategy has not by any means been unheard of, as a look at the 1973 oil crisis and the lead up to the first Gulf War in 1991 have proven.

In contemplating Russia’s likely future, the report states that with a more “proactive and influential foreign policy” Russia could become an “important partner for Western, Asian, and Middle East capitals; and a leading force in opposition to US global dominance.” However, it states that, “shared perceptions regarding threats from terrorism and Islamic radicalism could align Russian and Western security policies more tightly.” In other words, perhaps increased incidents of terrorist activity in or near Russian territory can force it to align more closely with the West, if only at first in security integration. It also elaborates on the other potentiality for Russia, saying that it is “impossible to exclude alternative futures such as a nationalistic, authoritarian petro-state or even a full dictatorship.”[12]

Iran

The report states that there are alternatives with Iran. In one instance, “political and economic reform in addition to a stable investment climate could fundamentally redraw both the way the world perceives the country and also the way in which Iranians view themselves.” This could move Iran away from “decades of being mired in the Arab conflicts of the Middle East.”[13] Or the other option is Iran starts a nuclear arms race, continues to become the object of Western alienation, and may even become unstable and mired in conflict.

A Post-Petroleum World?

The report states that by 2025 there will likely be a “technological breakthrough that will provide an alternative to oil and gas, but implementation will lag because of the necessary infrastructure costs and need for longer replacement time.” In this instance, it states that “Saudi Arabia will absorb the biggest shock,” and “In Iran, the drop in oil and gas prices will undermine any populist economic policies,” and that, “Incentives to open up to the West in a bid for greater foreign investment, establishing or strengthening ties with Western partners – including the US – will increase.” The report also states that, “Outside the Middle East, Russia will potentially be the biggest loser, particularly if its economy remains heavily tied to energy exports, and could be reduced to middle power status.  Venezuela, Bolivia, and other petro-populist regimes could unravel completely, if that has not occurred beforehand because of already growing discontent and decreasing production.”[14] Again, this raises the issue of the manipulation or control of oil prices for political purposes, as the states all likely to be affected negatively by a plunge in oil prices also happen to be the states most at odds with the West, and specifically, the United States.

Africa: More of the Same

The report starts off by saying that “Sub-Saharan Africa will remain the most vulnerable region on Earth in terms of economic challenges, population stresses, civil conflict, and political instability.  The weakness of states and troubled relations between states and societies probably will slow major improvements in the region’s prospects over the next 20 years unless there is sustained international engagement and, at times, intervention.  Southern Africa will continue to be the most stable and promising sub-region politically and economically.” This seems to suggest that there will be many more cases of “humanitarian intervention,” likely under the auspices of a Western dominated international organization, such as the UN.

Further, the region will “continue to be a major supplier of oil, gas, and metals to world markets and increasingly will attract the attention of Asian states seeking access to commodities, including China and India.” However, “Poor economic policies—rooted in patrimonial interests and incomplete economic reform—will likely exacerbate ethnic and religious divides as well as crime and corruption in many countries.”

It also states that there will likely be a democratic “backslide” in the most populous African countries, and that, “the region will be vulnerable to civil conflict and complex forms of interstate conflict—with militaries fragmented along ethnic or other divides, limited control of border areas, and insurgents and criminal groups preying on unarmed civilians in neighboring countries.  Central Africa contains the most troubling of these cases, including Congo-Kinshasa, Congo-Brazzaville, Central African Republic, and Chad.”[15]

Resurgent Mercantilism and the “Arc of Instability”

The report states that there is a likely possibility of the resurgence on the world stage of mercantilist foreign policies of great powers, as access to resources becomes more limited. Perceptions of energy scarcity “could lead to interstate conflicts if government leaders deem assured access to energy resources to be essential to maintaining domestic stability and the survival of their regime.” In particular, “Central Asia has become an area of intense international competition for access to energy.”[16]

The report also states that, “The Middle East and North Africa (MENA) will remain a geopolitically significant region in 2025, based on the importance of oil to the world economy and the threat of instability.” It gives a positive and negative scenario. In the positive, where economic growth becomes “rooted and sustained,” regional leaders will ensure stability both economic and political. However, “in a more negative scenario, leaders will fail to prepare their growing populations to participate productively in the global economy, authoritarian regimes will hold tightly to power and become more repressive, and regional conflicts will remain unresolved as population growth strains resources.”

The report elaborates that, “youth bulges, deeply rooted conflicts, and limited economic prospects are likely to keep Palestine, Yemen, Afghanistan, Pakistan, and others in the high-risk category.  Spillover from turmoil in these states and potentially others increases the chance that moves elsewhere in the region toward greater prosperity and political stability will be rocky.  The success of efforts to manage and resolve regional conflicts and to develop security architectures that help stabilize the region will be a major determinant of the ability of states to grow their economies and pursue political reform.” In other words, expect continued destabilization of the region.

It states of Iran, that its “fractious regime, nationalist identity, and ambivalence toward the United States will make any transition from regional dissenter toward stakeholder perilous and uneven.  Although Iran’s aims for regional leadership—including its nuclear ambitions—are unlikely to abate, its regional orientation will have difficulty discounting external and internal pressures for reform.”[17]

In relation to Afghanistan, the report states that, “Western-driven infrastructure, economic assistance, and construction are likely to provide new stakes for local rivalries rather than the basis for a cohesive Western-style economic and social unity.” Further, as “Globalization has made opium Afghanistan’s major cash crop; the country will have difficulty developing alternatives, particularly as long as economic links for trade with Central Asia, Pakistan, and India are not further developed.” It states that sectarian conflicts will continue and increase.

The report describes Pakistan as a “wildcard,” especially in relation to conflict in Afghanistan. It states that its Northwest Frontier Province and tribal areas “will continue to be poorly governed and the source or supporter of cross-border instability.” It states that, “If Pakistan is unable to hold together until 2025, a broader coalescence of Pashtun tribes is likely to emerge and act together to erase the Durand Line,” and fractionalize Pakistan into ethnic divides. Essentially, expect Pakistan to be broken up into ethnically divided countries and territories.

It also stipulates that Iraq will continue to be plagued by sectarian and ethnic conflicts, which will spillover into other countries of the region, as “Iran, Syria, Turkey, and Saudi Arabia will have increasing difficulty staying aloof. An Iraq unable to maintain internal stability could continue to roil the region. If conflict there breaks into civil war, Iraq could continue to provide a strong demonstration of the adverse consequences of sectarianism to other countries in the region.”[18] Put another way, Iraq will collapse into civil war, break up and become an example to the rest of the region regarding what happens to countries that pursue divergent policies from those of the West.

Nuclear War

The report states that there is a likely increase in the risk of a nuclear war, or in the very least, the use of a nuclear weapon by 2025. “Ongoing low-intensity clashes between India and Pakistan continue to raise the specter that such events could escalate to a broader conflict between those nuclear powers.” Further, “The prospect of a nuclear-armed Iran spawning a nuclear arms race in the greater Middle East will bring new security challenges to an already conflict-prone region, particularly in conjunction with the proliferation of long-range missile systems.” The report also brings up the prospect of nuclear terrorism as an increased risk.[19]

Terrorism

The report states that terrorism will by no means disappear from the international stage by 2025. It interestingly postulates that there is a possibility of Al-Qaeda’s influence as a terrorist group greatly diminishing, or all together disappearing, being replaced with new terrorist threats.[20]

It discusses the actions that will likely be pursued by countries in reaction to terrorist threats, saying that many governments will be “expanding domestic security forces, surveillance capabilities, and the employment of special operations-type forces.” Counterterrorism measures will increasingly “involve urban operations as a result of greater urbanization,” and governments “may increasingly erect barricades and fences around their territories to inhibit access. Gated communities will continue to spring up within many societies as elites seek to insulate themselves from domestic threats.”[21] Essentially, expect a continued move towards and internationalization of domestic police state measures to control populations.

Global Pandemic

The report states that there is a distinct possibility of a global pandemic emerging by 2025. In this case, “internal and cross-border tension and conflict will become more likely as nations struggle—with degraded capabilities—to control the movement of populations seeking to avoid infection or maintain access to resources.” It states that such a likely candidate for a pandemic would be the H5N1 avian flu.

It states that in the event of a global pandemic, likely originating in a country such as China, “tens to hundreds of millions of Americans within the US Homeland would become ill and deaths would mount into the tens of millions,” and “Outside the US, critical infrastructure degradation and economic loss on a global scale would result as approximately a third of the worldwide population became ill and hundreds of millions died.”[22]

A New International System Is Formed

In discussing the structure and nature of a new international system, the report states that, “By 2025, nation-states will no longer be the only – and often not the most important – actors on the world stage and the ‘international system’ will have morphed to accommodate the new reality. But the transformation will be incomplete and uneven.”

The report states that under a situation in which there are many poles of power in the world, yet little coordination and cooperation between them all, it would be “unlikely to see an overarching, comprehensive, unitary approach to global governance. Current trends suggest that global governance in 2025 will be a patchwork of overlapping, often ad hoc and fragmented efforts, with shifting coalitions of member nations, international organizations, social movements, NGOs, philanthropic foundations, and companies.” In other words, by 2025, there won’t be an established global government, but rather an acceleration of the processes and mechanisms that have been and currently are underway in efforts to create a world government.

The report also interestingly points out that, “Most of the pressing transnational problems – including climate change, regulation of globalized financial markets, migration, failing states, crime networks, etc. – are unlikely to be effectively resolved by the actions of individual nation-states. The need for effective global governance will increase faster than existing mechanisms can respond [Emphasis added].”[23] In other words, due to the growing threat of international problems, which are essentially the result of Western political-economic-intelligence activities and policies, the solution is a move toward international governance, which will be overseen and run by those same Western interests.

In discussing the rise of the emerging powers, particularly China and India, the report observes that their economic progress has been “achieved with an economic model that is at odds with the West’s traditional laissez faire recipe for economic development.” So the question is, “whether the new players – and their alternative approaches – can be melded with the traditional Western ones to form a cohesive international system able to tackle the increasing number of transnational issues.” It continues, saying that “the national interests of the emerging powers are diverse enough, and their dependence on globalization compelling enough, that there appears little chance of an alternative bloc forming among them to directly confront the more established Western order. The existing international organizations – such as the UN, WTO, IMF, and World Bank – may prove sufficiently responsive and adaptive to accommodate the views of emerging powers, but whether the emerging powers will be given – or will want – additional power and responsibilities is a separate question.”[24] So, as the new powers emerge, as a result of Western elite-directed globalization, they will likely merge with the Western controlled world order as opposed to becoming an alternative or opposition force to it.

Regionalism

The report discusses the topic of regionalism in different areas of the world: “Greater Asian integration, if it occurs, could fill the vacuum left by a weakening multilaterally based international order but could also further undermine that order. In the aftermath of the 1997 Asian financial crisis, a remarkable series of pan-Asian ventures—the most significant being ASEAN + 3—began to take root.  Although few would argue that an Asian counterpart to the EU is a likely outcome even by 2025, if 1997 is taken as a starting point, Asia arguably has evolved more rapidly over the last decade than the European integration did in its first decade(s).” It further states that, “movement over the next 15 years toward an Asian basket of currencies—if not an Asian currency unit as a third reserve—is more than a theoretical possibility.”

The report elaborates on the concept of regionalism, stating that, “Asian regionalism would have global implications, possibly sparking or reinforcing a trend toward three trade and financial clusters that could become quasi-blocs (North America, Europe, and East Asia).” Such blocs “would have implications for the ability to achieve future global World Trade Organization agreements and regional clusters could compete in the setting of trans-regional product standards for IT, biotech, nanotech, intellectual property rights, and other “new economy” products.”[25] So these three main regional blocs will make up the initial structure of international governance by 2025, progressing toward the ultimate goal of a global government.

The Decline of Democracy

The report states that with democratization around the world, “advances are likely to slow and globalization will subject many recently democratized countries to increasing social and economic pressures that could undermine liberal institutions.” Part of this reasoning is that “the better economic performance of many authoritarian governments could sow doubts among some about democracy as the best form of government.  The surveys we consulted indicated that many East Asians put greater emphasis on good management, including increasing standards of livings, than democracy.” Of great significance, the report also states that, “even in many well-established democracies, surveys show growing frustration with the current workings of democratic government and questioning among elites over the ability of democratic governments to take the bold actions necessary to deal rapidly and effectively with the growing number of transnational challenges.”[26]

This is a very important point, as among many “well-established democracies” are the United States, which is already experiencing a massive shift away from democracy. China, which has been able to emerge rapidly as a result of Western-controlled globalization, and which remains authoritarian, can essentially be viewed as a model for the international system being shaped, as democracies take a turn toward authoritarianism and other rising powers choose to pursue development in the same manner. Essentially, the new international system will mark a move away from democracy and towards international authoritarianism.

Conclusion

It is important, when reviewing the above information provided by the report, to understand the perspective of the authors. The US intelligence community worked closely with businesses, prominent academic institutions and powerful think tanks, all of which play extremely significant roles in shaping our current world order. Thus, the perspectives outlined in the report come with an inherent bias, and so it is important to “read in between the lines.” The report does NOT state what the objectives of the US intelligence community, academic institutions, businesses or think tanks will be in this future 2025 scenario, but you can be assured that they will not play backseat roles and merely observe situations. These are among the most powerful players in the international arena, and this vision of 2025 is the world they are shaping.

So when the report suggests the likely fractionalization of Pakistan, they do not say that it is a US objective to do so, but rather that it is a likely possibility that such a scenario will occur. Thus, it is important to comprehend this information with an understanding that those who wrote the report, have been, are currently, and will in all likelihood, continue to be among the most powerful actors shaping the world order and the new international system. They have been behind the great “transnational issues” and are now proposing their “international solutions.”

Notes

[1]        NIC, Global Trends 2025: A Transformed World. The National Intelligence Council’s 2025 Project: November, 2008: Acknowledgements

[2]        NIC, Global Trends 2025: A Transformed World. The National Intelligence Council’s 2025 Project: November, 2008: 10

[3]        Ibid, 11

[4]        Ibid, 11-12

[5]        Ibid, 94

[6]        Ibid, 12-13

[7]        Ibid, 13-14

[8]        Ibid, 15

[9]        Ibid, 25

[10]      Ibid, 32

[11]      Ibid, 31

[12]      Ibid, 32

[13]      Ibid, 36

[14]      Ibid, 46

[15]      Ibid, 56

[16]      Ibid, 63

[17]      Ibid, 65

[18]      Ibid, 72-73

[19]      Ibid, 67

[20]      Ibid, 69-70

[21]      Ibid, 70-72

[22]      Ibid, 75

[23]      Ibid, 81

[24]      Ibid, 82

[25]      Ibid, 83

[26]      Ibid, 87