Colombia-Ecuador-Venezuela: A Close Call

• Santander and Bolivar Called to the Colors to Butress Uribe and Chávez
• Uribe tries out for The Dick Cheney Role
• A Narrow Escape from Brinkmanship
• No victors, but Uribe clearly is a loser

As last week’s diplomatic crisis between Venezuela and Colombia demonstrates, Chávez has once again sought to appropriate historical symbols in an effort to score political points. Employing explosive language, Chávez remarked “Some day Colombia will be freed from the hand of the (U.S.) empire. We have to liberate Colombia.”

At its peak, the political battle lines of the triangular confrontation embracing Colombia, Venezuela, and Ecuador had been drawn. On the one side was Colombia, a key U.S. ally headed by rightist Álvaro Uribe. On the other side was Chávez, who seeks to turn Venezuela into a powerful regional player that may serve as a counterweight to Washington’s desire to project its authority. Ultimately, Chávez seeks to plant his socialist economic agenda fused with a parliamentary democratic political system throughout the region and to this end he has been able to recruit key allies such as Ecuador, Bolivia, Nicaragua, and, or course, Cuba.

Bolívar and His Historical Legacy
When Chávez employs the word “liberate,” he conjures up the epic struggles from South America’s stormy political past which gave the continent its present borders. The Venezuelan leader clearly intends to make an association with Bolívar, a Venezuelan native hero who liberated Colombia from the Spanish. Bolívar, the “Great Liberator” is revered by many as a great hero in the lands that he freed from Spain.

A tactical military genius, Bolívar was also a skilled politician who in 1819 adroitly managed to briefly unify Ecuador, Colombia, Venezuela and Panama into one large nation state called the Republic of Gran Colombia. The Great Liberator believed Venezuela would carry more prestige as part of a larger entity than it could ever hope to acquire on its own. “Only a Venezuela united with New Granada [Colombia] could form a nation that would inspire in others the proper consideration due to her,” Bolívar once argued. Because of Bolívar’s cult-like status in the region, it’s critical for Chávez to prove that he is on the right side of history, and that he, and no one else, has inherited the true mantle of the Great Liberator.

The Standoff
The recent crisis involving a Colombian military incursion into Ecuador is politically tailor-made for Chávez, and the Venezuelan leader has wasted little time in seeking to exploit it. The diplomatic tit-for-tat was set into motion on March 1st when, in flagrant disregard for Ecuadoran sovereignty, the Colombian government ordered an attack of a FARC guerilla camp site in Ecuador, a mile from the Colombian border. For years, the Marxist FARC has been locked in a protracted struggle with successive Colombian governments in Bogotá.

From a military and strategic standpoint, Uribe has some reason to be pleased: seventeen rebels were killed in the raid, as well as Raúl Reyes, the FARC’s second in command. Though there’s no evidence that the U.S. helped to plan the attack, the Southern Command in Miami might have played a role by providing intelligence to the Colombian military.

For years, the U.S. has provided billions of dollars in military aid to the Colombian government which has been at war not only with left wing guerrillas but also with other progressive forces such as indigenous peoples, human rights workers, and labor union activists. The Uribe government has been tainted by human rights abuses and its association with right wing paramilitary death squads.

While Uribe has been aggressively prosecuting the war almost from the onset of his presidential term, he has now succeeded in escalating the conflict beyond its borders. Predictably, Ecuador immediately recalled its ambassador to Colombia and ordered troops to deploy to the border. Predictably, Chávez backed up Ecuador by similarly recalling its ambassador to Colombia and massing troops on its western border. Uribe then hit back against Chávez, accusing him of supporting the FARC guerrilla insurgency and encouraging terrorism.

Employing Bolívar as a Rhetorical Tool
Although it has always been somewhat unlikely that the border dispute would result in actual military hostilities, it appeared to be very risky (at least for part of the time). For a while, Chávez appeared intent on stepping up his non-stop public relations blitz against President Uribe. For the Venezuelan leader, part of his future efforts are likely to hinge on appropriating historical symbols such as Bolívar and casting the Colombian regime as enemies of the Great Liberator and his legacy. Bolívar, Chávez has said, was a socialist like himself; was stridently opposed to the United States, and, also like himself, was determined to build a classless society. What’s more, the Venezuelan leader argues, Bolívar’s dream of uniting Latin America represented a threat to oligarchs and imperialists, thus awakening the ire of the United States.

Chávez has no doubt taken some historical liberties and embellished his causal intellectual ties to Bolívar. The Liberator never talked about class struggle per se, though he did refer to the need to abolish slavery. The Liberator also issued decrees for the establishment of schools (for boys as well as girls), deplored the misery of indigenous peoples, and ordered the conservation of forest resources.

But Bolívar was perhaps most forward looking when he spoke of the necessity of integrating Latin America. It was Bolívar, early on, who understood that the region had no future unless it confronted both Europe and the U.S. as a unified bloc. The United States, Bolívar once famously declared, seemed “destined by providence to plague America with misery on behalf of freedom.”

Chávez has said that he will not rest until Venezuela is liberated from the “imperialist and anti-Boliviaran threat.” He frequently draws comparisons between Bolívar’s struggle against the Spanish Empire and his own political confrontation with the United States (which Chávez habitually refers to as “The Empire”). Employing his usual penchant for making over self-serving historical connections, however far-fetched they may be, Chávez recently warned Colombian “oligarchs” not to tangle with Venezuela. “Don’t even think about it,” he said, or “you would run into the soldiers of Bolívar.”

Bolívar’s Cult of Personality in Venezuela
Given the prominence that Chávez has attached to Bolívar in his public speeches, it’s not surprising that books about the Great Liberator are briskly selling in Caracas. In Venezuela, Bolívar is revered as a God-like figure and his popularity continues to soar. Indeed, a popular religion based on the fertility goddess of María Lionza has appropriated Bolívar as one of its central ritual figures. The faith is based on indigenous, black, African, and Catholic roots, and priests hold ceremonies in which the spirit of the Liberator is channeled through a medium who coughs when Bolívar is present, since Venezuela’s most distinguished native son had a debilitating case of tuberculosis. Meanwhile, religious altars of the faithful generally feature a portrait of Bolívar.

Venezuela’s currency, main squares, and universities bear the Liberator’s name. His sayings are taught in schools, broadcast on the radio and emblazoned on government buildings. Chávez almost reverentially has referred to his political movement as a “Bolivarian Revolution.” Chávez has renamed his country the Bolivarian Republic of Venezuela and has reportedly left a chair empty at meetings to honor the Liberator.

Chávez supporters, or Chavistas, have dubbed the areas they politically control as “liberated zones of the Bolivarian Republic,” and adorn offices and homes with portraits of the Liberator. Chávez has promoted so-called Bolivarian Circles, local grassroots groups at the local or barrio level, which lobby the government for important grass-root resources.

Meanwhile, Chávez champions Bolívar’s idea of a unified South America, and echoes the Liberator’s words during his televised speeches. Chávez also likes to appear on television with a portrait of Bolívar near at hand. Riding along Caracas highways, one may see repeated instances of murals juxtaposing portraits of Chávez and Bolívar.

In Caracas, a key historic landmark is Bolívar’s house as a youth. Located along downtown streets crowded with informal vendors, the house is often full of visiting school children. In conjunction with the author’s next book, Revolution! South America and the Rise of the New Left (to be released April 1 with Palgrave-Macmillan), a visit is paid to the museum, and its director, Mercedes García, is interviewed.

According to her, Chávez’s chronically lengthy speeches awakened an interest in the Liberator. The volume of people visiting the museum has been increasing, and at the time I visited, 3,500 individuals were showing up every week. In particular, there was great curiosity amongst the military, and soldiers from all over the county were paying visits to the museum.

War of Words Between Chávez and Uribe: It’s All About Bolívar
Uribe however has sought to question Chávez’s almost exclusive appropriation of Bolívar as a political icon. “The truth, President Chávez, is that if you are pursuing an expansionist project in this continent, Colombia has no place for that, project,” Uribe remarked. “One cannot set fire to the continent, as you are doing, speaking one day against Spain, the next against the United States; abusing Mexico one day and Peru the next, and the day after that, Bolivia,” Uribe continued. “One cannot abuse a whole continent, or set it on fire as you do, by speaking of imperialism, when you, based on your own ambitions, are looking to set up an empire.”

Seeking to rip down Chávez’s historical narrative, Uribe said “We cannot abuse history, we cannot stain the memory of our heroes, by disfiguring them in popular demagoguery, in misleading the people. We cannot mislead the people by misinterpreting the legacy of the Liberator Bolívar. Bolívar was an integrationist, but not an expansionist.”

Bolívar, Uribe continued, brought independence to South American nations, “but he did not bring them [newly independent countries] a new era of subjection.” Turning up the rhetoric, Uribe added, “Bolívar did not spend his time trying to remove European domination from the Americans, only to impose his own terms with the power at his disposal—as you wish to do—on the people of Venezuela and on the people of Colombia.”

Sparing no opportunity to exploit his favorite subject, Chávez has accused Uribe of being a spokesperson of the “anti-Bolivarian oligarchy.” The Colombian oligarchy, Chávez remarked, “Doesn’t want peace and believes it can mess around with us. Neither the Colombian oligarchy nor any other oligarchy can mess with us. Venezuela needs to be respected.” In one of his typical bombastic flourishes, Chávez added that when Uribe accused him of carrying out Bolivarian expansionism in South America, the Colombian politician was talking like the U.S. President. Underneath Uribe’s mask, Chávez said, lurked President Bush.

Colombian Elite: Fearful of Bolivarian Revolution
Uribe’s diplomatic ripostes are not surprising, given the fortress mentality now prevalent within the Colombian elite. Within a rising tide of left social movements and progressive-minded regimes that have flourished throughout the region, Colombia remains a bastion of conservatism and reaction. What’s worse, many ordinary Colombians are beginning to gain inspiration from Chávez and his so-called Bolivarian Revolution, thus adding to the Colombian elite’s sense of political isolation.

In several Colombian provincial states, Bolívar has again been politicized. Recently, Colombians formed Bolivarian Circles similar to those common in Venezuela. In Barranquilla, a Colombian port, barrio and social activists, union organizers and some members from the Polo Democrático left opposition have united to form the Corriente Bolivariana Colombiana (Colombian Bolivarian Current), a political organization that claims almost 5,000 members and fields candidates in local elections.

A worrying consideration for the Colombian elite is that Chávez may have an ideological impact not only upon ordinary Colombians, but also those Colombians living in Venezuela. For years, Colombian immigrants have fled the war in their country, fleeing across the border and seeking greater economic opportunity. Unfortunately for the Colombian elite, many émigrés have returned to Colombia and helped to organize Bolivarian movements at home.

Oscar Manduca, a Bolivarian organizer and candidate in Atlántico state on the Caribbean coast, has remarked, “This is a social movement against poverty in Colombia. Venezuela’s revolution can help change things here through solidarity and cooperation across the frontier.” Meanwhile the Movimiento Bolivariano de Colombia S A (sin armas)—the Bolivarian Movement of Colombia (without arms)—is presenting an electoral challenge to right wing politicians who control politics along the Colombian frontier in Santander state.

Containing the Bolivarian Revolution
Ever since Chávez was elected in 1998, the Colombian media establishment has been implacably opposed to the Venezuelan leader and commonly refers to Chávez as a dictator or caudillo. Venezuelan commentator Gabriel Bustamante believes that Colombian journalists “don’t know, and don’t want to know, anything positive” about political and social changes in his country. “Revolutions threaten their privileges, so there is a need to create ‘Chávezphobia’—an excessive and irrational fear about Chávez and even Bolívar to try to stop Colombians being influenced,” he said.

There would seem to be a fair degree of truth in what Bustamante says. The newspaper El Tiempo, a bastion of elite sentiment in Bogotá, has editorialized that “Caudillos like Chávez have historically impeded the consolidation of liberal democracy in Latin America.” Rafael Nieto, a columnist at the Colombian magazine Semana, worries that “Polo Democrático leaders going to Caracas and Bolivarian officials in Bogotá could become a daily occurrence.”

Echoing elite opinion, the Uribe government has acted to limit Chávez’s political influence within Colombia. Before diplomatic relations wound up in tatters, Uribe was careful in handling Chávez when the latter visited Colombia. Uribe forced the Venezuelan president to meet him at an isolated hacienda rather than allow his presidential motorcade to travel through the capital.

What’s more, a meeting with opposition Polo Democrático leaders had to be conducted after midnight, in private at the Venezuelan Embassy. When Chávez asked to visit Bolívar’s historic hacienda in central Bogotá, the authorities (who were afraid that the Venezuelan leader would come into contact with ordinary Colombians) denied his request. Meanwhile, Colombia’s intelligence services cracked down on the Corriente Bolivariana Colombiana, raiding a political meeting of the group on the coast. Armed Forces Commander Freddy Padilla commented that “Bolivarian circles are spreading all over Latin America, and particularly here in Colombia we want to prevent this from happening.”

Santander: Chávez’s Great Historical Villain
Within this climate of escalating political tensions, Chávez has whipped up a furor by making skillful use of his own historical narrative. He has referred to the “Colombian oligarchy” as the most rancid and criminal elite group in Latin America. The oligarchy, Chávez says, descends from a despicable historical figure named Francisco Paula de Santander. For Chávez, Santander, Bolívar’s Vice President, is a great historical villain.

It was Santander, Chávez charges, who was most responsible for bringing down South American unity and dashing any hope that the Bolivarian independence struggle might lead to real political change. By 1825, Bolívar’s influence on the countries that he had liberated was on the wane. Returning to Bogotá from his military campaigns, the Liberator resumed his duties as president of Colombia but found that he had little political support from government officials and the local citizenry.

In 1827 he pushed for a new Colombian constitution that would have increased the power of the president. But a constitutional convention in 1828 rebuffed Bolívar and rejected any change to the constitution. It was a stunning reversal for him. Egged on by his supporters however, he struck back by assuming dictatorial powers. Predictably, such a move did not go over well amongst Colombia’s political elite.

Sporadic uprisings broke out in opposition to Bolivarian rule, and in 1828 a group of conspirators in Bogotá, tiring of his dictatorship, broke into the presidential palace intent on murdering him. It was Santander, Chávez claims, who was the intellectual author of the plot to kill Bolívar and thus sabotage the Great Liberator’s political project.
Though Bolívar survived the infamous ‘Black September Night’ attempt against his life, Colombia’s continued opposition to his united Latin America dream disillusioned him. Dispirited and disheartened, the Great Liberator resigned as president. By now sick with tuberculosis, Bolívar departed Bogotá for the Caribbean coast.

Gran Colombia was already in shambles: Venezuela had left the Republic as had Ecuador and the new nations Bolívar helped to found were wracked by violence and internal dissension. Bolívar died on the way to Cartagena on December 17, 1830, at the age of 47. Bolívar asked to be buried in his home city of Caracas, but he had so many political enemies that his family feared for the safety of his remains. In 1842, his body was finally taken home.

Seeking to take advantage of Bolívar’s tragic death and political eclipse, Chávez has remarked, in yet another questionable historical leap, that Uribe is a spokesperson for the “Santanderean” and “anti-Bolivarian” oligarchy. Uribe responded in turn that the Venezuelan president was manipulating history and that Santander “gave us the example of adherence to the law. The truth, President Chávez, is that we cannot make a mockery of the law, as you do, trying to abuse General Santander, and exchange the rule of law for personal whim.”

Bolívar’s Death: Chávez Suspects Foul Play
Taking his picturesque concept of history to yet greater political heights, Chávez is now intent on proving that Bolívar was poisoned by corrupt oligarchs and did not succumb to tuberculosis. The Venezuelan leader asserts that in Bolívar’s day, tuberculosis was not lethal enough to cause death in a few scant weeks. As evidence to support his version of the medical arts, Chávez points to one of Bolívar’s letters in which the Liberator discusses his future plans. Bolívar wrote the letter shortly before his own death.

“Some say he [Bolívar] was very ill and knew he was going to die, and he wanted to die by the side of the sea and he died happy, and Colombia was happy and Venezuela was happy,” Chávez said in a long speech. “How the oligarchs fooled us, the ones here, the ones there. How the historians who falsified history fooled us.”

The Venezuelan leader recently convened a high commission, led by his vice president and composed of nine cabinet ministers and the attorney general. Their mission: exhume Bolívar’s remains, which lie in a sarcophagus at the National Pantheon in downtown Caracas, and conduct scientific tests to confirm Chávez’s contention—that diabolical assassins murdered Bolívar. “This commission has been created because the executive considers it to be of great historical and cultural value to clarify important doubts regarding the death of the Liberator,” Venezuela’s official Gazette said.

Even Chávez’s most stalwart supporters say their leader may have gone too far this time. “This doesn’t make any sense,” said Alberto Mueller Rojas, a retired general who works as a presidential adviser on international affairs and military matters. “Why should I care? Bolívar died. If they killed him, they killed him. If he died of tuberculosis, he died of tuberculosis. In this day and age, this doesn’t have any significance.”

In his historical novel, The General in His Labyrinth, the legendary Colombian writer Gabriel García Márquez portrayed Bolívar as a man of the people opposed by a reactionary oligarchy. However, neither García Márquez nor any serious historian has suggested that the Liberator was poisoned. John Lynch, a Bolívar biographer, points out that as the Liberator lay dying he was watched over by a “qualified and conscientious” French doctor whose medical bulletins were later published in Caracas. Lynch has accused Chávez of “a modern perversion” of the mythical cult of Bolívar.

It’s unlikely that Chávez will ever be able to prove his historical hypothesis by exhuming Bolívar’s tomb, but at least he will have succeeded in scoring more points in the never-ending propaganda war against Uribe. As the frail diplomatic engagement continues in the upcoming weeks, and Ecuador, Colombia and Venezuela try to tame their simmering wrath, it won’t be surprising if we hear yet more Bolivarian rhetoric coming from adjunct professor Chávez. Almost two hundred years after his death, Bolívar is still the central and defining figure in the lands that he formerly liberated, a region still wracked by chronic political instability, poverty, and glaring social inequalities.

UK war costs double as equipment replacement soars

IRNA - Islamic Republic News Agency

The combined cost of Britain's military operations in Afghanistan and Iraq is expected to almost double in the year ending March 2008, according to an all-party group of MPs.

A reported by the Defence Select Committee showed that the cost of operations by British forces in Afghanistan has risen to more than Pnds 1.6 billion (Dlrs 3.2 bn), a year-on-year increase of 122 percent compared with 2006/07.

More surprisingly, given the reduction in troops in Iraq, the cost of Britain's military deployment there has also increased to Pnds 1.6 bn, a year-on-year rise of 72 percent.

The combined costs, about 50 percent more than the government forecast three months ago, come as military officials have made it clear that the number of British troops in Iraq would not now be cut to 2,500 by spring, as Prime Minister Gordon Brown has suggested.

Committee chair James Arbuthnot said that few people will object to the investment being made in better facilities and equipment for our troops in Iraq and Afghanistan.

"However, this estimate represents a lot of public money. The MoD (Ministry of Defence) needs to provide better information about what it is all being spent on," Arbuthnot warned.

The sharpest increases were for buying, repairing and replacing new armoured vehicles and other equipment acquired under a special Urgent Operation Requirements system, referred to as UORs.

The total cost of operations in Iraq and Afghanistan since the so-called war on terrorism began back in 2001 now totals some Pnds 10 bn, compared with only some Pnds 7 bn previously set aside.

A new book published last month, co-authored by Joseph Stiglitz, former World Bank, said that the cost of Britain's two wars was expected to rise to more than Pnds 20 bn, including social costs, by 2010.

Nick Harvey, Liberal Democrat defence spokesman, warned that the new parliamentary report "clearly shows how the Iraq war is continuing to bleed our finances dry, leaving soldiers in Afghanistan overstretched and under-equipped."
Kate Hudson, the chair of CND peace group, said there was also clear human costs of the wars in Iraq and Afghanistan are clear, with an estimated 655,000 dead in Iraq alone.

"The opportunities lost by spending these billions on further destruction rather than on humanitarian reconstruction adds to the long list of tragedies unleashed by Bush's wars," Hudson said.

Brand Cuba

By MICHAEL CASEY

As Fidel Castro brings his reign in Cuba to a long overdue end, we are left to ponder how a leader with such a dismal economic record could retain power for a half-century.

There is merit to many of the standard explanations for Castro's longevity -- both those of his critics, who cite political repression, and those of his fans, who believe the Cuban majority was won over by advances in health and literacy. There is also some merit in the arguments blaming Washington, either for its self-defeating trade embargo or for not being tough enough.

But these only tell part of the story. Instead, if we view Castro's political machine through the apolitical prism of the market, we can attribute its durability to a concept that's alien to his socialist rhetoric, and deeply rooted in the American capitalist system he claims to despise: branding. Castro's political "success" is a case study in managing the global information economy.

The Cuban Revolution is and always has been a brand. Its face has changed over time -- from the "barbudo" rebels of the Sierra Maestra to Che Guevara's piercing stare, from Cuba's graying salsa legends to its globe-trotting medics -- but incredibly, its essence has survived.

Marketing gurus tell us that a successful brand functions as a store of values. It encapsulates a pool of attractive ideas that satisfy customers' desire for meaning. To encourage loyalty to a brand, they say, the marketer must cultivate a sense of belonging and personal identification with the individual.

For many within a core constituency of left-leaning, relatively well-educated people both inside and outside Cuba, Castro's "revolution" achieved precisely this. To this niche market, Cuba evokes a set of magical buzz words long-favored by the radical left: "resistance," "social justice," "struggle." It represents an idealized, selfless counterpoint to ruthless, greedy capitalism. It is the alternative to brand U.S.A.

This is, of course, a constructed "Cuba," one with little relation to the real Cuba, with its dysfunctional, increasingly inequitable social and economic structure. But savvy brand managers are rarely hindered by a divergence from reality. Has the availability of perfectly safe, free tap water stopped marketers from touting the life-giving powers of their bottled alternatives?

Castro has long been blessed with a great ability to manipulate information and images in the interest of self-promotion. During a pivotal 1957 interview with New York Times correspondent Herbert Matthews, he had his men move around in the trees to create the illusion of a bigger rebel force. Five decades later, the art had not deserted him. After his intestinal illness was first revealed in July 2006, the delayed, staggered release of photos of the convalescing Cuban leader in an Adidas tracksuit seemed designed to give his archenemies enough rope to hang themselves. Many Miami Cuban bloggers prematurely pronounced Castro dead and denounced the first images as fakes.

In the early 1960s, Castro was forever trailed by a clique of talented photographers -- including Alberto Korda, who took the most famous photo of Che Guevara. Preferring Life magazine's documentary style over the bleak genre of Soviet socialist realism, they portrayed the bearded Cuban leader in a humanistic light, and gave his revolution a vibrant, hopeful and distinctly American aesthetic.

Later, when CIA-backed Bolivian soldiers killed Guevara in 1967 -- converting the Argentine-born revolutionary into a martyr-hero for Paris and Berkeley radicals -- Castro wrapped himself in the image of his former comrade-in-arms, which conveniently helped him cover up Cuba's very un-revolutionary submission to Soviet dominance. The Cuban government actively promoted Korda's iconic image, which the country's poster artists soon gave a Pop Art makeover. The now-ubiquitous Che brand was born.

Years later, in the 1990s, branding helped hide the wealth divide and graft in Cuba that arose out of the post-Soviet dual-currency system. Decrepit Havana was marketed as a giant museum, a revolution frozen in time -- complete with rusted '50s Chevys and octogenarian musicians. Later, with the rise of the anti-globalization movement, Che was re-resurrected in a pitch to younger tourists, one that came with Cuban-made calendars, watches, postcards and all manner of trinkets bearing Korda's image.

Now Cuba's brand centers on health care. Its free hospitals are depicted as alternatives to an unfair, inefficient U.S. system, while its foreign-posted doctors put a face on the country's projected spirit of humanitarianism.

Some 200 of these medics turned up at last October's 40th anniversary of Che's execution in La Higuera, Bolivia. They demonstrated how the Cuban revolution's brand has been simultaneously altered and preserved through a period of sweeping transformation on the island and in the world outside it.

These doctors -- members of a 30,000-strong foreign medical corps, whose work gives Havana access to badly-needed goods like Venezuelan oil -- are unwittingly contributing to a mounting problem back home. Their absence exacerbates staffing constraints in Cuba's once well-regarded hospitals, now stretched by the demands of an aging population. Nonetheless, in the long string of speeches at La Higuera, Cuban, Venezuelan and Bolivian officials feted the physicians as model revolutionaries -- guerrillas with stethoscopes in place of rifles. And in case the branding tie-in wasn't clear, each medic was dressed in a white lab coat opened to reveal a red or blue Che T-shirt.

Mr. Casey is Dow Jones Newswires bureau chief in Buenos Aires, and author of "Che's Afterlife," a forthcoming book to be published by Vintage on Alberto Korda's famous image of Che Guevara.

McCAIN'S TAX CUTS PLAN

Bush and the Dollar

By DAVID MALPASS

When President George W. Bush addresses the Economic Club of New York on Friday, his comments on the dollar crisis will be the crucial issue for markets and the economy. The best thing he could do would be to state clearly that he wants a stronger dollar. That would draw liquidity back to the U.S., lower inflation risks, and head off the growing calls for government bailouts and support programs.

Absent administration support for the dollar, recent Fed rate cuts have simply sped up the flood of capital away from the U.S. without providing enough domestic stimulus. The rest of the world is already full of cheap dollars, pushing gold and oil to new highs, European tourists onto Madison Avenue, and petro-dollar sovereign wealth funds into building islands to use up their excess.

A clear presidential preference for a stronger dollar could cause an immediate leap in financial markets. U.S. stocks and corporate bonds are attractively priced -- except for the dollar risk. No matter how high a bond yield or how strong the track record of a U.S. private-equity manager, the threat of continued dollar weakness holds global liquidity at bay. The prospect of a stronger dollar would reverse that.

This week, Mr. Bush may well use the same inadequate mantras that the administration has repeated since 2001: A strong dollar is in the "national interest," and the dollar should reflect U.S. economic "fundamentals." U.S. Treasury Secretary Hank Paulson used these standard phrases, now taken to be code words for a weaker dollar, on March 3, with predictable results -- the dollar hit new lows last week. Jean-Claude Trichet, the hard-money head of the European Central Bank, perhaps holding his nose, voiced similar encouragement for the dollar on March 3 (and yesterday): "I consider it very important what has been affirmed and reaffirmed by the U.S. authorities . . . according to whom a strong dollar is in the interest of America."

Damned by faint praise. The officials are not saying they want a stronger dollar, or that they will do something to stop the dollar's plunge. In fact, the U.S. has repeatedly prevented the G-7 group of finance ministers and central bankers from discussing ways to strengthen the dollar, most recently by imposing a dollar-lite agenda at the February G-7 meeting.

The current dollar mantra, coined in the 1990s, never made sense. Saying a strong dollar is in our "national interest" ignored the need for dollar stability. It set no upper bound on the dollar's strength, causing a destructive global deflation cycle from 1997 to 2001.

The dollar is now weaker than the loonie, the Canadian dollar, yet the same hollow 1990s phrases are being mouthed. If a strong dollar is in the "national interest," then the seven-year dollar collapse is clearly in need of a remedy. There's an equally deep logical flaw in claiming that the dollar should depend on economic "fundamentals." A strong, stable currency is itself one of a country's most valuable fundamentals, not a byproduct of other fundamentals. Our fundamentals haven't been nearly as bad as the dollar's seven-year slide. More likely, the weak dollar trend is itself a bad economic fundamental, masking health elsewhere.

The policy shift to a stronger dollar is as critical for national security as it is for economic health. Oil would cost less if the dollar were stronger, slowing the transfers to our antagonists in Venezuela, Iran and Russia. A stronger dollar would allow U.S. wealth to grow as fast as foreign wealth, adding to our strength and independence.

Though many economists still support the theory of unlimited free-floating exchange rates, no weak-currency country has had a healthy economy. Momentum takes over and pushes currencies to extremes that can't be hedged. Many also think current interest rates control currencies. But 1% more or less in annual interest won't make up for a country's longer term intentions for its currency. Markets have labeled the U.S. a weak-currency country. That's an albatross that the president should dump.

An administration decision to support a stronger dollar would be dramatic, and probably so unexpected that it would break the dollar's downward momentum, and with it the defeatism now dragging us down. If the dollar started up, the vicious cycle -- dollar weakness causing economic weakness and more dollar weakness -- could be reversed.

The president's dollar preferences matter even in the short run, setting expectations that become self-fulfilling. The many speculators now short-selling the dollar, or betting against the U.S. in favor of commodities and other currencies, would have to reduce their positions. This would immediately add to U.S. liquidity, and improve the outlook. Treasury would begin working to achieve a stronger dollar, opening the possibility, anathema to dollar shorts, of a G-7 preference for a stronger dollar or even coordinated currency intervention.

There's more at stake in the dollar debate than a recession, inflation and a bear market. In the economic confusion created by the weak-dollar policy, presidential campaigners are blaming Nafta and free trade, not the weak-and-weaker dollar, for hard times.

The president should state a preference for a stronger and stable dollar. It has a good chance of stopping the credit crunch. It's free and easy. And let's face it: Other measures aren't working.

BEST OF THE WEB TODAY

Political Diary

Just What the Doctor Ordered

House Ways and Means Chairman Charles Rangel has been spending time in the hospital with the flu the last few days, but he is likely to have gotten a real morale booster yesterday with the news of Gov. Eliot Spitzer's meltdown.

Mr. Rangel, who has represented Harlem in Congress for 38 years, is known to hold the prickly governor in minimal high regard. He has often snidely referred to Mr. Spitzer as "the smartest man in the world," a reference to the governor's well-known arrogance.

Should Mr. Spitzer resign, Mr. Rangel would also be in the catbird's seat. Lt. Gov. David Paterson, a former state senator from Harlem, is a longtime protege of Mr. Rangel and would likely grant his mentor wide influence over patronage and fiscal issues. "Rangel could have instant access to Paterson anytime of the day or night," is how one New York Democratic leader evaluates Mr. Rangel's likely importance in a Patterson administration.

So if Mr. Rangel makes an even swifter recovery from the flu than is expected, there will be good reasons for that new spring in his step and twinkle in his eye.

-- John Fund

Deus Ex Machine Politics

There is little chance that New York will be competitive in the presidential race this year, but the Spitzer scandal will breathe new life into New York's battered GOP. Poised to fill the governor's seat is Lt. Gov. David A. Paterson, a Democrat who has little name recognition and lacks the force of personality that animated Mr. Spitzer's political career. Mr. Paterson, an ally of Rep. Charlie Rangel, will likely be a seat-warmer while both parties prepare to battle for the governor's mansion in 2010. Democrat Attorney General Andrew Cuomo will likely now become the de facto leader of his party in the state.

Meanwhile, Senate Republican leader Joe Bruno, a veteran political infighter, will take the lieutenant governor's seat, giving him a larger platform to use for Republican advantage. He could run for governor himself in two years. But it's more likely that he'll find someone else within his party to carry the Republican banner. If Rudy Giuliani wants to get back into the game, this is his chance. There's also a possibility that New York Mayor Michael Bloomberg could be interested. And then there's John Spencer, the former mayor of Yonkers who ran against Hillary Clinton for senate in 2006. He has a fundraising base, knows what it takes to run a statewide campaign and has executive experience.

A little more than a year ago, Eliot Spitzer's gubernatorial landslide (69%) was the biggest the state had ever seen. New York seemed on a path to becoming a one-party state. Democrats tightened their grip on the state's General Assembly, won every state-wide elective office and even won in a few upstate congressional districts that traditionally favor Republicans. This year, led by Mr. Spitzer, Democrats looked likely to win control of the last vestige of Republican power in New York, the state Senate. How quickly things change. Republicans now see an opening to reverse their fortunes in New York, only helped if Mr. Spitzer tries to cling to office. It remains to be seen if the state and national GOPs are up to seizing the opportunity.

-- Brendan Miniter

Quote of the Day

"In lead stories Monday night about New York Governor Eliot Spitzer being linked to a prostitution ring, neither ABC's World News nor the NBC Nightly News verbally identified Spitzer's political party. Must mean he's a liberal Democrat -- and he is. CBS anchor Katie Couric, however, managed to squeeze in a mention of his party. On ABC, the only hints as to Spitzer's party were a few seconds of video of Spitzer beside Hillary Clinton as they walked down some steps and a (D) on screen by Spitzer's name over part of one soundbite. NBC didn't even do that. While ABC and NBC failed to cite Spitzer's political affiliation in the four minutes or so each network dedicated to the revelations, both managed to find time to applaud his reputation and effectiveness as the Empire State's Attorney General before becoming Governor" -- Brent Baker of the conservative Media Research Institute.

Follow the Money

The fall of Eliot Spitzer, caught in the roll-up of a high-end prostitution ring, is bound to be an occasion for a great deal of dime-store psychoanalysis about what led to his self-destructive behavior.

But perhaps the most interesting detail isn't the all-too-familiar tale of a politician imagining himself immune to the laws and standards he prescribes for others. The most interesting detail is how he got caught.

The New York Governor, who made his bones doggedly pursuing alleged financial crimes, was undone by his own bankers. The financial transactions by which he endeavored to conceal his payments to the Emperors Club were unusual enough that they prompted a referral by his bank to the IRS, which in turn brought in the FBI and ultimately the prosecutors. Based on the information currently available, Mr. Spitzer himself was the thread that began the unraveling of the Emperor's Club prostitution ring.

Prosecutors are supposed to know better. But in this case, Mr. Spitzer appears to have left behind precisely the kind of paper trail that he once used himself in pursuit of Wall Street malefactors, real or imagined. The latest burble from the TV talking heads this morning now suggests that Mr. Spitzer is delaying his resignation as leverage for a favorable plea bargain. If so, he apparently learned at least one thing from his years as a dictator of humiliating plea bargains to those caught up in his publicity-seeking investigations. All the more ironic, then, that the Sheriff of Wall Street gave himself away with his slippery financial dealings, rather than his sordid appetites, ending in his disgra

Obama, Clinton Turn Focus to Pennsylvania Primary (Update1)

March 11 (Bloomberg) -- Democratic presidential candidates Barack Obama and Hillary Clinton kept up their sparring while campaigning today in Pennsylvania even as voters in Mississippi headed to the polls for a primary there.

Obama made a final appeal to Mississippi voters this morning, talking about energy, education and the economy in Greenville, before heading north. Obama, who's vying to become the first black U.S. president, is heavily favored in the state, where more than half of the Democratic electorate is black.

Clinton renewed her line of attack on the Illinois senator's experience and record, telling a crowd of several thousand people in Harrisburg, ``There's a big difference between talk and action.''

The former first lady ``will say and do anything to win this election,'' Obama spokesman Bill Burton said in a statement sent to reporters ahead of her speech.

Both campaigns are turning their attention to Pennsylvania, which has 158 pledged delegates available in its primary on April 22, compared with 33 at stake today in Mississippi. Clinton, a senator from New York, trails Obama in the race for Democratic convention delegates who will select the party's nominee. She has set Pennsylvania as a key test of her campaign.

Labor Support

Clinton stood on stage at a downtown concert hall with dozens of supporters behind her, including a group representing union workers. She's counting on organized labor to help her score a victory in Pennsylvania, which has lost more than 200,000 manufacturing jobs since the beginning of 2001.

The 35-minute speech focused on the economy and on Clinton's experience as a senator and first lady.

``I want you to be voting on the basis of who you believe will be our best president, who can be our commander-in-chief from Day One,'' Clinton, 60, said. ``I don't want you voting on a leap of faith, I want you to look at the record, I want you to look at the results.''

She told the audience that the ``eyes of America and the world are on Pennsylvania.'' She also drew applause from the audience when she said she would reduce U.S. dependence on foreign oil.

In Greenville, Mississippi, this morning, Obama made a campaign stop at Buck's Restaurant, where he ate a breakfast of scrambled eggs, grits, turkey sausage and wheat toast with the town's mayor and other city officials.

They spoke about education and ``clean energy'' jobs, among other topics. As they talked, some in the crowd outside were chanting ``Yes, we can,'' Obama's campaign slogan.

Obama Supporter

Restaurant owner S.B. Buck, 60, said he's supporting Obama over Clinton, even though he thinks the candidate's husband, Bill Clinton, was a great president. Buck, who is black, said he was turned off by some of the tactics used by the Clinton campaign that have injected race into the political debate.

``I think they did more to put people in his corner than take them out,'' Buck said in an interview.

Obama's aides spoke out against statements made by Clinton supporter Geraldine Ferraro, a former U.S. representative from New York and the Democratic vice presidential nominee in 1984. In an interview with the Daily Breeze newspaper in Torrance, California, Ferraro said Obama has advanced because of his race.

Ferraro Remarks

``If Obama was a white man, he would not be in this position,'' Ferraro was quoted as saying by the newspaper in a story published March 7. ``And if he was a woman he would not be in this position.''

Clinton today disavowed the remarks and called them ``regrettable.'' In an interview with the Associated Press, Clinton said, ``We ought to keep this on the issues.''

Obama adviser David Axelrod called on Clinton to remove Ferraro from any position with her campaign and said doing anything less would encourage other supporters to make such statements. Another Obama campaign adviser, Susan Rice, said the remarks were ``really outrageous and offensive.''

``It is the sort of comment that we have heard repeatedly, I'm afraid, from some of the Clinton surrogates,'' she said on MSNBC today.

An Obama adviser, Samantha Power, resigned last week after she was quoted in a Scottish newspaper calling Clinton ``a monster.'' Rice said Ferraro's comments were ``far worse.''

Senator John McCain of Arizona, who has secured the Republican presidential nomination, is holding fundraisers this week while campaigning in townhall-style forums.

Economic Downturn

In St. Louis today he promoted his economic agenda and emphasized his understanding that the economy was in a downturn.

``We know that Americans are hurting. We know that these are difficult times,'' said McCain, 71.

He also took shots at Clinton and Obama over their statements that they would begin withdrawing U.S. combat troops from Iraq if elected and would demand that Mexico and Canada agree to modifications to the North American Free Trade Agreement.

Pulling out of Iraq too soon would mean that ``the conflict will spread and we will be back, with greater sacrifices,'' he said.

McCain said an attempt to renegotiate the free-trade agreement with the nation's two neighbors would throw U.S. credibility into question in other treaty talks.

Fallon Stepping Down as Mideast Commander, Gates Says (Update2)

March 11 (Bloomberg) -- Admiral William Fallon is stepping down as head of U.S. Central Command because of perceived differences on Iran policy with the Bush administration, Defense Secretary Robert Gates said today.

Fallon, 63, assumed command of all U.S. forces in the Middle East and Central Asia a year ago, with responsibility for the wars in Iraq and Afghanistan. He informed Gates of his decision today in the wake of an Esquire magazine article that portrayed him as an ardent opponent within the administration of war with Iran to halt its possible building of a nuclear bomb.

While the U.S. is pursuing a policy of diplomatic pressure on Iran at the United Nations and unilateral sanctions to weaken its access to the international banking system, the Bush administration hasn't ruled out military action as an option.

``Recent press reports suggesting a disconnect between my views and the president's policy objectives have become a distraction at a critical time and hamper efforts in the Centcom region,'' Fallon said in a statement.

Fallon said while he doesn't believe a policy rift exists, ``the simple perception that there is makes it difficult for me to effectively serve America's interests there.''

Gates said Fallon ``reached this difficult decision entirely on his own.''

`Right Thing'

``I believe it was the right thing to do, even though I do not believe there are in fact significant differences between his views and administration policy,'' Gates told reporters at the Pentagon.

The Esquire piece praised Fallon as ``the rarest of creatures in the Bush universe: the good cop on Iran, and a man of strategic brilliance.''

The article said Fallon had created tensions with the White House by opposing the administration's Iran rhetoric and cited well-placed observers as saying ``it will come as no surprise if Fallon is relieved of his command before his time is up next spring, maybe as early as this summer, in favor of a commander the White House considers to be more pliable.''

Gates described as ``just ridiculous'' an idea raised in the article that if Fallon leaves, it may mean the U.S. is going to war with Iran.

Fallon will leave his post at the end of the month. Army Lieutenant General Martin Dempsey, the deputy commander of Central Command, will serve as acting commander once Fallon steps down, Gates said.

`Enormously Talented'

``Admiral Fallon will be difficult to replace,'' Gates said. ``He is enormously talented.''

Before taking the Mideast command, Fallon was in charge of U.S. forces in the Pacific.

Democratic Senate Majority Leader Harry Reid called Fallon's departure ``yet another example that independence and the frank, open airing of experts' views are not welcomed in this administration.''

In an interview last month in Doha, Qatar, Fallon said Iran continued to supply lethal aid and training to extremist militias in Iraq and said the U.S. was looking for ``a long-term change'' in Iranian behavior.

Fallon, a former fighter pilot known to friends as ``Fox,'' routinely rejected news stories that suggested he clashed with General David Petraeus, the top U.S. military commander in Iraq. Fallon's resignation comes just weeks before Petraeus is scheduled to testify before Congress on security conditions in Iraq.

Iraq Pause

In the interview last month, Fallon endorsed Petraeus's decision to pause this summer before deciding whether to continue withdrawing U.S. combat brigades from Iraq later in the year.

Fallon's appointment was part of a broad shakeup of the U.S. military's command structure in the Middle East that coincided with President George W. Bush's decision to add 21,500 combat troops in Iraq to the 131,000 already there, with the primary goal of stabilizing Baghdad.

Bush, in a statement, said Fallon, a Vietnam veteran who previously served as head of U.S. Pacific Command, had served the U.S. ``with great distinction'' for 40 years. He was the first Navy officer to head Central Command.