Shadow Government

State snubs House request to examine Argentina-Iran ties

Last month, three members of the House Foreign Affairs Committee (HFAC) -- Chairman Ileana Ros-Lehtinen (R-FL), Subcommittee Chairman Connie Mack (R- FL), and freshman member David Rivera (R-FL) sent a letter to Secretary of State Hillary Clinton expressing their concern over information they had received on suspicious activity involving Argentina, Venezuela, and Iran and asking the State Department to investigate whether any nuclear cooperation is at play between the three countries.

Rather than making any serious effort to look into the matter, however, State dismissed the legislators' queries within a matter of days with a perfunctory: "We have no reason to believe that Venezuela serves as an interlocutor between Iran and Argentina on nuclear issues, nor that Argentina is granting access to its nuclear technology."

Well, the members didn't have any reason to either -- until information started to coming to light that has raised disturbing questions.

Argentina-Iran nuclear ties are nothing new, dating from the 1980s. The reactor in Tehran is largely of Argentinean design and Argentina was shipping highly enriched uranium to Iran as late as 1993. That relationship, however, ended under intense U.S. pressure in the early 1990s and seemingly was severed forever as Iran's role in the terrorist bombings against Jewish targets in Buenos Aires in 1992 and 1994 came to light.

Still, Tehran never lost hope about restoring nuclear ties with Argentina and has made it a priority since. In 2009, the Iranian representative to the International Atomic Energy Agency publicly reaffirmed, "We are interested in buying [nuclear fuel] from any supplier, including Argentina."

Enter Hugo Chavez.

It's no secret that for the past several years the Venezuelan leader has been on point for expanding Iranian relations in South America, especially in Ecuador and Bolivia. Sources have told HFAC that in 2007 Iranian President Mahmoud Ahmadinejad personally asked Chavez to intercede with President Nestor Kirchner (the late husband of current President Cristina Kirchner) to reverse Argentine policy and once again allow Iran access to Argentine nuclear technology.

Sources have also provided information to HFAC that in February 2010 Argentine Minister of Planning and Public Works, Julio de Vido, in a meeting with Venezuelan Vice President Elias Juau, offered to share nuclear technology with the Venezuelan government, which has had a nuclear cooperation agreement with Iran dating from November 2008.  

In addition, HFAC possesses documents indicating a financial relationship between Venezuela, Argentina, and Iran involving transfers of up to $250 million to build some 200 "socialist factories" in Venezuela -- mainly in the food processing and industrial equipment sectors -- although no one seems to be able to locate exactly where those factories are located, if they are operating at all.

The aforementioned comes against the backdrop of constant Argentina-Iran diplomatic parrying that continues to this day about the 1990s bombings and the price of restoring relations. In this, the Kirchner government can, on the one hand, be tough in its rhetoric holding Iran accountable for the Buenos Aires attacks, only to then undercut its position by offering Tehran quasi-olive branches.

For example, this past April, the Argentinean paper Perfil, citing confidential documents, reported that in a meeting last January with Iranian ally Bashar Assad of Syria, Argentinean Foreign Minister Hector Timerman offered to drop the investigations into the Buenos Aires attacks (several Iranian officials are wanted in those attacks) in return for restoring robust Argentina-Iran economic ties (once valued at more than $1 billion). Timerman denied the report, but the resulting scandal nearly cost him his job.

Yet, last month, Timerman again waded into controversy, calling an Iranian offer to help Argentina find the "real" culprits in the Buenos Aires attacks a "very positive step forward." Such a Jekyll-and-Hyde approach on Argentina's part only creates more uncertainty as to what its true intentions are vis-à-vis Iran.

Granted, there is no smoking gun on whether Hugo Chavez is playing the middleman to real or considered nuclear exchanges between Argentina and Iran, but given the players and histories involved there is certainly room for skepticism -- and the House members have every reason, given the stakes involved, to express their concern and expect a serious examination of the matter. And they deserve better from the State Department.

In fact, State's indifference to congressional concerns about the state of affairs in the Western Hemisphere is beginning to be noticed. Over several hearings this year, State representatives have either arrived unprepared to answer substantive questions or else appeared dismissive of Members' concerns about inter-American security or threats to democracy. One can only hope that when the Obama administration names a new Assistant Secretary for Western Hemisphere Affairs that individual will reinstitute a healthy respect for the views and opinions of members of Congress who happen to care deeply about the region.   


Shadow Government

Who spooked the markets?

As global stock markets tumbled over the last few trading days, pundits fell all over each other to assign blame. Not only can the finger-pointing be diverting -- and perhaps politically advantageous -- but it is natural to search for reason and understanding in such a harrowing time. The problem is a surfeit of suspects. Here are a few:

Was it the S&P downgrade?
On Friday, after markets closed, the United States lost its AAA rating, at least in the eyes of one beholder (and not the first). It was a clumsy process, marred by math errors, that seemed to reinforce a lingering low opinion of the ratings agencies left over from their gullible endorsement of subprime mortgage bundles.

At the heart of S&P's critique was a pessimism about the U.S. political process. There are two facets to this: the dalliance with default in the debt ceiling debate, and concerns about the longer-term fiscal situation in the country.

There are a few problems with fingering the S&P as the reason for the market swoon. First, U.S. markets fell for a couple days preceding the downgrade. Second, the existence of U.S. political dysfunction was hardly news. Third, and most telling, the wrong markets fell on Monday. If the driving concern is that the U.S. government will be unable to pay its debts, one would expect the price of those debts to fall. Instead, it was stocks that fell while U.S. bond markets rose sharply. The 10-year bond yield, which had been 3.2 percent in the start of July, fell to 2.34 percent yesterday (bond yields move in the opposite direction from bond prices). Such a drop can signal a number of ominous things, but not generally doubts about the lender's creditworthiness.

Was it President Obama's Monday afternoon speech?
The talk, which notably failed to calm markets and drew scathing reviews, did not offer any new or promising vision. Yet despite the fact that the Dow dropped a couple hundred points after the President spoke, this explanation seems as implausible as the popular argument that it was all Republicans' fault. To spell that latter argument out: House Republicans supported fiscal responsibility (passed a budget) and opposed tax hikes. They used their constitutional power over the budget and borrowing to win a deal that would begin to impose some spending restraint and that precluded any similar default standoff for the rest of the President's term. Markets, the reasoning must go, hated all that. The standoff went on for weeks, but somehow markets only reacted once Standard & Poor's explained it all to them, days after it was resolved.

On to the next suspect.

Was it the bad news about the American economy?
The last couple of weeks have featured some weak readings on the U.S. economy, including surprisingly poor GDP numbers on July 29. The jobs number last Friday was strong enough to stave off utter despair, but too feeble to portend a reviving economy. What's more, lest anyone forget the lingering effects of last decade's housing boom and bust, Monday featured a stark reminder. AIG filed suit against Bank of America alleging mortgage securities fraud. BofA's stock dropped 20 percent for the day.

The eminent Ken Rogoff provides a thoughtful, if disturbing, overview of the economic scene in today's Financial Times. He argues that large debt overhangs are not very amenable to quick fixes, like fiscal stimulus, and suggests:

"It is better to think of the global economy as going through a ‘Second Great Contraction' (the Great Depression being the first) involving credit and housing, and not just output and unemployment."

Was it the festering crisis in Europe?
In the Washington Post, Robert Samuelson makes a case that the real troubles lie across the Atlantic. He opens:

Europe may no longer be able to save itself. Too many countries have too much debt. Its economic growth -- which helps countries service their debts - is too feeble. And nervous financial markets seem increasingly prone to dump the bonds of vulnerable countries. This is the real risk to the global and U.S. economic recoveries, far overshadowing Standard & Poor's downgrade of U.S. Treasury debt and Monday's sharp stock market decline."

I discussed some of the foreign policy implications of a European breakdown back in June. These are secondary to the direct economic ramifications. A crisis revolving around debt and Europe's common currency would pose existential problems for the European Union, would cripple a major world economy, and could jolt the U.S. financial sector.

Fortunately -- or unfortunately -- we don't need to pick just one culprit for recent financial swoons. As strong as the temptation may be to anthropomorphize The Market, it really is a collection of millions of people placing buy and sell orders for their own, potentially diverse, reasons.

If we give up on explaining each jag of the Dow Jones and instead look at the economic landscape, there is one useful distinction to be drawn. With some problems, one can discern solutions; the question is whether there will be the political will and leadership to reach those solutions. The U.S. difficulties fall in this category. The Bowles-Simpson deficit reduction commission offered one viable fiscal path; House Republicans offered another, in the form of a budget. President Obama may offer a third. With other problems, it is hard to see any palatable solution. Each potential outcome is tainted by alarming risks. Europe's situation falls in this category. With both these types of economic problem roaming the land, small wonder markets got spooked.