Daily Archives: December 1, 2011

Iran’s challenge to global order has been among the most complex and confounding tasks for international diplomacy since that country’s 1979 Islamic revolution. A regime with declining domestic legitimacy has increasingly sought to channel discontent towards foreign enemies, imagined and real, and preserve its hold on power by any means. As surprised and disoriented by the Arab awakening as everyone else over the past year, Tehran has been scrambling to respond to the shifting sands of regional geopolitics, amid intensifying rivalries within the leadership itself.

This is the critical context for the escalation in the nuclear crisis now threatening to replace diplomacy with war as the west’s response to the Iranian threat. The recent comprehensive International Atomic Energy Agency report on Iran’s nuclear programme; public debate in Israel about the wisdom of a military strike, without much pushback from outside the country; private mutterings about the best “window” for such an attack; and now the serious diplomatic consequences of the assault on the British embassy and its staff, are combining to deepen the chasm of distrust to new and dangerous levels.

We subscribe to the view that the price of a nuclear-armed Iran would be very high – unacceptably high. Iran’s capacity to destabilise the region would increase considerably. The response from Saudi Arabia, Turkey and others would mean the end of the non-proliferation treaty. The chance that nuclear weapons would actually be used would be much closer.

But that is not an argument for military action now or in 2012. We are not talking about a discrete – or discreet – strike here. Avowed Iranian nuclear facilities are numerous and the regime does not lack for ammunition or targets in return. In addition to its own missile stores, Iran is invested in regional proxy armies, such as Hizbollah. All the war games show that targets as diverse as Saudi Arabia and the Emirates, Israeli and US facilities, and the Straits of Hormuz would come into play.

For these reasons we must avoid military action becoming a self-fulfilling prophesy. Diplomacy must take the lead in preventing a major war with Iran – for that is what it would be. What is more the regime faces at least four serious challenges of its own. First, it is clear that sanctions, cyberwar and covert operations have impaired Iran’s progress towards a nuclear weapons capability, with most estimates holding that the regime is at least two years away from achieving it. To be clear, no one has made the case that such an achievement is imminent.

Second, IAEA inspectors continue to monitor key installations and operations, providing a tripwire presence able to signal any dramatic change in policy or practice by Tehran. It would be disastrous if the fallout from the Iranian storming of the British embassy included the harassment or expulsion of inspectors by the regime.

Third, Iran’s strategic influence in the region is waning. Its sole ally in the Arab world, the Syrian regime, is badly weakened, and more likely entering an end game. Among the Arab public, Iran’s popularity has plummeted since the highs of the 2006 Lebanon war.

Fourth, and too often neglected, are the aspirations of the Iranian people. They have often showed that they do not share the regime’s hostility to the world, and instead aspire to the same kinds of open government that the youth of the Arab world are reaching for.

At a time like this, diplomatic drive and creativity are needed more than ever. Now is the time to support, directly and indirectly, the pressures on a regime currently fractured on all matters except the nuclear programme. And in this endeavour, war talk weakens our hand – strengthening the most uncompromising forces within Iran and corroding global cohesion in opposition to the programme.

Non-military options have not yet succeeded, but nor have they failed. However exasperating the diplomatic track, growing talk of a military option risks creating a logic all of its own, where the appalling consequences of a military strike are set to one side and a precipitate and unwise move to war becomes acceptable wisdom.

Nature abhors a vacuum and so does international politics. It cannot be filled by nudges and winks about military options. A concerted diplomatic effort on Iran is needed now to prevent the world sleepwalking into another war in the Middle East.

This article was co-written with Nader Mousavizadeh, who is chief executive of Oxford Analytica and was special assistant to former UN secretary-general Kofi Annan. David Miliband, MP for South Shields, was British foreign secretary from 2007-10

Over the past year Beijing has been caught between sticking to restrictive policies to achieve a ‘soft landing’ and switching gears to deal with the repercussions of the eurozone crisis. The cut in China’s bank reserve ratio by 50 basis points, which came as a surprise to some, signals that the risks of a major economic slowdown are now of greater concern than an overheated economy. Data showing that Chinese manufacturing activity contracted last month for the first time in almost three years only added to those fears.

China has been doing well in moderating inflation while moving to a more sustainable, but still robust growth rate. Inflation has fallen steadily to 5.5 per cent and should continue to slow. Growth has also slowed from 10.6 per cent in last year, to an estimated 9.3 per cent this year and eight to 8.5 per cent next year. But Beijing has been hesitant in moving to more accommodating policies for fear that the underlying forces that could lead to an overheated economy have not been fully addressed.

The leadership is particularly keen on reducing speculative activity in the property sector. Modest declines in house prices would be welcome, but a widespread collapse would foster serious problems. Recent statements that the property bubble and the debt servicing problems faced by local authorities still needed attention raised doubts that less restrictive policies were imminent.

Two things have changed to accelerate the timetable. On a broader scale, the seemingly intractable financial crisis in Europe has convinced the leadership that the consequences could be much worse than envisaged just a few months ago. On a more limited, but possibly more alarming scale for this political system, the slowdown in manufacturing activity, as well as reports of dramatic falls in exports and the immediate impact it has already had on firms in Guangdong have raised the prospect of labour unrest.

Beijing has handled economic downturns reasonably well, but it will be hard pressed to deal with something bigger than the crash of 2008. It has not yet fully dealt with the negative repercussions of the 4,000bn renminbi stimulus package implemented largely through the financial system. While that programme is credited with preventing a major downturn, it has weakened confidence in the banking sector. Thus there would be little support for another stimulus package of a similar nature.

While further monetary relaxation is likely, given the six increases in the reserve requirements over the past year, China has less flexibility in using either interest or exchange rate adjustments to support its objectives. Although the benchmark interest rate has been raised three times this year, the adjustments were small and deposit rates remain strongly negative. Ironically at a time when the US is putting pressure on China to let the renminbi appreciate, the concern now is that exports are falling too fast. China’s trade surplus may total only 1.5 per cent of gross domestic output this year and could even disappear in the near term.

While market forces might suggest a stable or even depreciating exchange rate, China could feel uncomfortable diplomatically in deviating from its stated intentions for a gradual appreciation. Beijing may be forced to resort to fiscal policies to deal with downside risks this time around, even though budgetary options are far more cumbersome to work with.

The writer is a senior associate at the Carnegie Endowment and a former country director for the World Bank in China.

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