Shadow Government

Previewing Iraq's provincial elections

This Saturday, Iraqis head to the polls to vote for provincial councils -- the country's first elections since U.S. troops withdrew sixteen months ago. The balloting comes at a time of growing peril for Iraq. Violence is escalating, as are tensions pitting the Shiite-dominated government of Prime Minister Nouri al-Maliki against the country's Sunni and Kurdish communities -- all exacerbated by the raging civil war in neighboring Syria. While posing a stern test to the viability of Iraq's democratic system, the elections will also serve as an important indicator of the relative strength of Iraq's competing coalitions -- especially Maliki's -- in advance of national elections scheduled for 2014.

At stake are nearly 450 seats on local governing bodies. More than 8100 candidates from some 265 political entities are competing. The elections cover 14 of Iraq's 18 provinces. The three provinces comprising the Kurdistan Regional Government will vote later this year, while elections in oil-rich and ethnically disputed Kirkuk have (by tacit agreement among the competing communities) not been held since 2005.

But in a highly controversial move, Maliki's cabinet decreed in March that balloting would be delayed by up to six months in Iraq's two most influential Sunni-majority provinces, Anbar and Nineveh -- both of which border Syria and have for months been the locus of large-scale (but mostly peaceful) anti-Maliki protests. Maliki claimed -- not entirely without justification, especially in Anbar -- that he was simply responding to the petition of local leaders worried that voters could not be adequately protected from growing collaboration between al Qaeda affiliates on either sides of the Iraq-Syria border. 

His opponents charge that the prime minister's real agenda is avoiding a massive anti-Maliki turnout that would further escalate opposition to his government. They correctly note that previous elections were conducted under far more threatening conditions. Both the U.S. and U.N. urged Maliki to reverse course, worried about the appearance of disenfranchising millions of Sunnis already agitated by claims that Maliki has been systematically moving to marginalize their community in the interests of establishing an Iranian-backed Shiite dictatorship. Maliki turned aside these criticisms, while suggesting the delayed elections might occur as early as May.

The reality is that violence threatens voting throughout Iraq. A series of more than 20 terror attacks on Monday hit targets across the country, including prospective polling places, killing Sunnis and Shiites alike. These were but the latest in a string of al Qaeda-linked assaults that have occurred at increasingly regular intervals. The campaign has also been marred by at least 15 candidate assassinations, all of them Sunnis and many believed to have been killed not by Al Qaeda but by political rivals within their own community. 

Whether Iraqi security forces can successfully protect the elections without the support previously provided by tens of thousands of U.S. troops is a major question mark. The fact that close to 700,000 army and police officers went to the polls in early voting last Saturday without incident was encouraging. Also of concern, however, is the possibility that the mere threat of violence could significantly depress turnout, stoking doubts about the legitimacy and future of Iraq's shaky democracy. An especially important indicator could be the participation of Sunnis -- a potential barometer of that disgruntled community's continued commitment to the post-2003 political order or, alternatively, a troubling sign that, perhaps inspired by co-religionists in neighboring Syria, they are looking to more confrontational methods to redress their grievances. 

Beyond violence, ensuring the integrity of the electoral process has to be a real worry. There is no doubt that America's heavy involvement during past elections helped deter fraud to a minimum. Absence that involvement, the risk of widespread wrongdoing -- or simply the perception of wrongdoing -- increases dramatically, even with the presence of a few hundred international observers and several thousand domestic monitors. The danger that significant swaths of the public may simply reject the legitimacy of the results cannot be discounted. 

Assuming a relatively free and fair vote, the outcome of Saturday's elections is hard to predict. No reliable polling is publicly available. Maliki has confidently claimed that his coalition will win big. In recent weeks, he has shrewdly sought to divide his Sunni opposition (including through a surprising set of proposals to ease de-Baathifcation laws), successfully co-opting stalwart nationalists like Deputy Prime Minister Saleh Mutlaq. The Iraqiya bloc of his main rival, former prime minister Ayad Allawi (a secular Shiite), has splintered, with the current speaker of parliament, Osama Nujaifi, and the former finance minister, Rafi Issawi, forming their own Sunni-based coalition.

Nevertheless, surprises remain possible. In local elections, a voter's familiarity with a hometown candidate can often trump allegiance to a national party. In provincial balloting four years ago, Iraqis voted to punish incumbents -- an inclination that if repeated on Saturday could well work against Maliki and to the benefit of his major Shiite rivals in the Islamic Supreme Council and Sadrist camp -- both of which are fielding their own candidates. For all his troubles, Allawi's bloc is the only one competing in all Iraq's provinces, both Sunni and Shiite, a nationalist vocation that could well accrue to his benefit. And even if Maliki's State of Law emerges as the top vote getter, post-election coalitions among his opponents could emerge that deny him the degree of local domination that he seeks.

Should Maliki nevertheless secure an overwhelming victory, it will likely fuel fears that his most worrisome authoritarian tendencies will be emboldened: more consolidation of control over key state institutions, particularly the means of coercion and the courts; more targeting and exclusion of political opponents; an intensified effort to resolve disputes with Iraq's Kurdish and Sunni minorities through confrontation; and increased dependence on Iran. Maliki's chances of winning next year's national elections, another four years in office, and increasingly unconstrained powers would increase significantly.  Should such fears be realized, the results for Iraqi stability and unity could be dire indeed -- especially in a regional context of dramatically heightened sectarian and ethnic tensions, perhaps leading to all-out state collapse in next-door Syria.

From that standpoint, Iraq's future may be best served if Saturday's elections see not only minimal violence, maximum participation, and limited irregularities, but also no clear winners and losers -- a triumph not only of the democratic process, but a therapeutic re-balancing of Iraq's political landscape that reminds all parties of the continued imperative of negotiation, compromise, and political partnership. 


Shadow Government

The IMF's cavalier call for spending -- with caveats

Yesterday the IMF chided the United States and the United Kingdom for their recent pursuit of austerity. The organization released its latest World Economic Outlook in anticipation of the annual World Bank-IMF spring meetings in Washington, when global financial dignitaries gather.

The IMF put forth top officials to discuss the organization's forecast -- which I'll take up in another post -- and also to critique the state of fiscal affairs in major countries. Carlo Cottarelli, the director of the IMF's fiscal affairs division, described 10 economies with serious fiscal problems -- debt in excess of 90 percent of GDP and rising. These 10 -- the United States, Japan, the UK, France, Italy, Spain, Belgium, Greece, Ireland, and Portugal -- account for 40 percent of world GDP (for all the headlines they draw, Greece, Ireland, and Portugal account for very little of that global GDP).

Cottarelli warned that there were numerous studies indicating that when debt hit 80 to 90 percent of GDP, growth would suffer. This seemed an oblique reference to the bubbling controversy over the work of Ken Rogoff and Carmen Reinhart. Count the IMF in the camp that think Rogoff and Reinhart are basically right. Cottarelli's conclusion, given his reading of the broader evidence, was that a country should not seek to stabilize debt/GDP at the 90 percent level, but rather should aim for significantly lower levels of debt.

While that might seem to support a call for austerity, the IMF's short-term policy conclusions were just the opposite. As the Wall Street Journal reported it:

"...the International Monetary Fund on Tuesday called on countries that can afford it -- including the U.S. and Britain -- to slow the pace of their austerity measures ... it warned euro-area policy makers against focusing too much on hitting tough deficit targets, saying they risked further deepening their downturn. ‘Fiscal adjustment needs to proceed gradually, building on measures that limit damage to demand in the short term,' the IMF said."

There were two interesting caveats to this call, however:

1. This recommendation to back off austerity only applied to countries that are not currently subject to market pressures.

2. Short-term easing needs to be paired with credible medium-term restraint. (Borrow more today; pay it back tomorrow). 

Those caveats are critical and raise all sorts of questions. Fortunately, I was at Cottarelli's press conference and got to ask.

Take the "market pressures" exception. You know a country is experiencing "market pressures" when that country's bondholders are panicking, a debt sell-off is underway, and interest rates on sovereign debt are soaring. When no one wants to buy or hold your debt, it is an awkward time to try issuing more. On this, there is broad agreement.

But how do you know when investors are about to lose faith in your debt? Is there any reason to expect advance warning? When should preparations begin?

Cottarelli's response was that we do not really know in advance. We have to guess. There are some indications of vulnerabilities -- a country whose debt is held more by international investors is more vulnerable -- but it's an art, not a science.

An honest but unsatisfactory reply. It does little good to say that we know market pressures when we see them. Once the market has turned on your debt, it's too late. Budget processes are slow, with long lags from initial discussion to actual spending. If interest rates were to spike on U.S. debt in September 2014, borrowing for that time period is covered by the budgets currently under discussion in Congress. And, for the record, Federal Reserve data show that in 2011 roughly 46 percent of U.S. debt was held by international investors. 

On the question of repaying additional short-term borrowing with medium-term frugality, I asked about judging the credibility of fiscal plans. The U.S. fiscal stimulus of 2009 was supposed to be a temporary measure, but worked itself into spending baselines. Congress regularly adopts measures that ‘balance' 10-year budgets, only to repeal those measures when the time comes. A classic example is the attempt to cut payments to Medicare providers, requiring a regular "doc fix" when it turns out there is a limit to the pro bono services doctors will provide.  So how do we know that medium-term promises are credible?

Cottarelli suggested that a first step was to look at whether a plan contained sufficient detail. Beyond that, though, he acknowledged it was a much more difficult issue. His recommendation was to look at a country's past record of implementing fiscal adjustment.

Other than the recent austerity, to which they object, it was unclear which episodes in recent British or U.S. fiscal history offer reassurance on this count.

The rationale for the IMF's call to set aside austerity is pretty clear -- large parts of the world are slumping, central banks are doing all they can on the monetary side, so the IMF would like to see a boost to demand through looser fiscal policy (lower taxes or higher spending). The Reinhart-Rogoff controversy is a sideshow here. The IMF is not embracing ever-rising debt levels; it is pushing select countries to adopt a temporary slump-busting burst.

Yet if one runs through the IMF's own check-list of pre-requisites for short-term relaxation -- current debt at sustainable levels; freedom from worry about a market panic; credible medium-run plans for cuts -- none of them seem to apply. The IMF prescription appears less a careful calculation than a double gamble. It is a bet that further short-term measures are appropriate to address a slow-down that has now dragged on for five years, and also a bet that those who adopt the prescription will not have to pay a hefty price down the line.

Stephen Jaffe/IMF via Getty Images