Briefing Book

Nukes Forever

Barack Obama is spending billions to maintain and upgrade America's nuclear weapons. But his opponents say it's not enough. Will they ever be satisfied?

Sixty-five years ago, scientists working in a secret city in northern New Mexico journeyed south to yet another secret location to test their "gadget." J. Robert Oppenheimer, head of the Manhattan Project, reacted to the atomic explosion that shattered the predawn desert silence by simply saying, "It worked."

The "secret city" was Los Alamos, home to the Los Alamos National Laboratory, the lab that produced the Little Boy and  Fat Man atomic bombs that were exploded over Hiroshima and Nagasaki, respectively. The lab became the star of the U.S. Cold War nuclear weapons complex; its scientists designed the hydrogen bomb and multiple other warheads. To establish a healthy atmosphere of competition, a second nuclear weapons laboratory, Lawrence Livermore National Laboratory, was established near San Francisco. The exclamation "it worked" has probably been uttered by nuclear designers many hundreds of times since.

Under heavy public and congressional pressure, the United States ended its program of nuclear testing in September 1992, and President Bill Clinton signed the Comprehensive Test Ban Treaty four years later, barring all nuclear explosions, military or otherwise. The Senate failed to ratify the treaty, but the United States has still honored what Clinton called the "longest-sought and hardest-fought-for arms-control treaty in history."

The U.S. moratorium on nuclear testing was a major turning point for the nuclear weapons complex. It meant that, without the ability to conduct nuclear tests, the labs would still have to be able to answer the questions: Will it work? How well will it work? What sorts of programs do we have to ensure that it will work? These questions form the nexus of the nuclear warhead "modernization" debate, which is now becoming a point of contention in the political battle over the ratification of President Barack Obama's new strategic arms treaty with Russia, known as New START. As we'll see, the treaty's opponents have created the false impression that Obama isn't doing enough to maintain America's fearsome nuclear arsenal, when in fact he's throwing billions into the effort -- even, arguably, expanding it despite his pledge to work toward a world free of nuclear weapons.

Since the moratorium on testing began, the Energy Department has managed the United States' 9,613 remaining nuclear weapons through its subagency, the National Nuclear Security Administration (NNSA), under the Stockpile Stewardship and Management Plan (formerly the Stockpile Stewardship Program). This plan relies on a range of scientific techniques to certify and maintain the nuclear arsenal. A direct result of these experimental and computational developments has been the NNSA's Life Extension Programs. Using a variety of physical, chemical, and mathematical methods, the NNSA's scientists identify potential problems associated with aging in each type of warhead and remedy them by replacing parts and refurbishing the weapons as necessary. All this is accomplished without underground testing or building entirely new warheads; the latter was actually proposed at one point by George W. Bush's administration, but Congress refused to fund it. Maintaining the stockpile requires regularly taking apart some of the weapons to look for signs of aging, especially in the plutonium and uranium components -- hence why the NNSA's complex of capabilities also includes the production of plutonium "pits" (the essential "trigger" for a thermonuclear bomb) and uranium processing facilities.

When the Obama administration submitted New START to the Senate, it was also required by law to submit a classified "Section 1251 report" describing how the nuclear complex will be maintained and modernized over the next decade. Independent studies have proved time and time again that the Life Extension Programs and the Stockpile Stewardship and Management Plan are working, and that the arsenal will be stable and reliable for decades to come. Many lawmakers, as well as the Obama administration, have thus made the argument that strengthening the Life Extension Programs and providing $80 billion over 10 years for the Stockpile Stewardship and Management Plan and all associated facilities within the nuclear weapons complex is the most sensible way to answer the "modernization" question. The unclassified version of the Section 1251 report, as well as the Stockpile Stewardship and Management Plan, reflect this.

But there are a vocal few who consistently argue that whatever funding is provided for the nuclear security complex simply won't be enough. Sen. Jon Kyl (R-Ariz.) is the loudest of these opposing voices. After he and several other Republican senators paid a visit to Los Alamos and Sandia National Laboratories at the end of July, he held a news conference on Capitol Hill in which he demanded $10 billion more on top of all the funding that has already been proposed by the Obama administration. He was vague about the money, saying it was necessary, "so that we know that this program is not going to go for a while and peter out," but he didn't clarify exactly what he thinks the additional funding will do. His arguments seem to boil down to two things: a different definition of "modernization" and simply wanting new warheads and possibly even new testing.

Kyl and like-minded policy analysts consistently define modernization as the production of new weapons and new strategic delivery systems. Kyl uses this definition to present the argument that U.S. nuclear systems are dangerously behind the times, and therefore the only way to catch up with the rest of the world is to build new nuclear weapons. His argument has been debunked in a number of ways, most notably that the United States is doing everything short of making new weapons and has also budgeted for extensive modernization of its strategic delivery systems (ballistic missiles, submarines, and bombers). The Obama administration has even hedged on the no-new-nuclear-weapons pledge that it presented in this year's Nuclear Posture Review and has stated that though new warheads are not needed, it is leaving options open for a "full range of [Life Extension Program] approaches," including warhead replacement. In essence, this provides a considerable range of options for the president -- with congressional approval, of course. It's also worth pointing out that the top budget priorities for the U.S. nuclear weapons complex, as defined by the most recent Stockpile Stewardship and Management Plan, are new plutonium pit facilities at Los Alamos and new uranium processing facilities at Y-12 in Oak Ridge, Tenn.

Clearly, the Obama administration has seen to it that the U.S. nuclear weapons arsenal will be funded, maintained, and even expanded over the next 10 years.

So, why isn't this enough for the opposition? Presumably, the only thing that will mollify Kyl and others would be new warheads. During the Bush administration, they almost got them, when Congress initiated a program to explore the design of a completely new nuclear warhead, the first new hydrogen bomb designed in almost 20 years. The warhead became known as the Reliable Replacement Warhead (RRW) because it was supposed to replace older warheads and would be made from components that had already been tested, thus (theoretically) reducing the need for new testing. But the Bush administration discovered that the political, technical, and strategic issues of making a new nuclear warhead and planning for its deployment as an integral part of the U.S. nuclear deterrent were more complex than it had predicted. For example, a study by an independent defense science advisory panel known as the JASON group concluded that there was no guarantee that the new warhead wouldn't have to be tested. And though it would be put together from existing components, the United States would actually be building new bombs -- making Washington less credible in its efforts to pressure new and would-be proliferators to give up their nuclear programs. Congress ultimately refused to fund the RRW in 2008.

There is always the possibility that the RRW will be resurrected; the Nuclear Posture Review doesn't even explicitly exclude the possibility of an RRW-like warhead. It's not hard to imagine that some time in the future, another presidential administration and a different Congress will put the new manufacturing facilities at Los Alamos and Oak Ridge to use as part of a plan for new nuclear warheads. Everything will be in place, ready for Kyl's flavor of modernization. And because the Pentagon has emphasized that it is already upgrading and rebuilding key strategic nuclear delivery systems (including completely rebuilding the Minuteman III missile and upgrading its warheads to more powerful ones, and upgrading strategic bombers), it's fairly clear that the U.S. nuclear deterrent will be a force to be reckoned with for decades to come -- all despite Obama's idealistic vision of a nuclear-free world.

So, regardless of how the opposing sides define modernization, both factions should be pleased with what they're getting as the final package. That's why the treaty has garnered the support of everyone from the directors of the national laboratories and the NNSA to many key military figures and nuclear strategy experts. Opposition to the treaty simply doesn't make sense at this point; after all the hearings and all of the technical analyses, opposing it just looks like cynical, transparent partisan maneuvering. There is no reason to object to the treaty on the basis of the question, "Will the arsenal work?" There's enough money in the pipeline for it to "work" for many, many years to come.


Briefing Book

How to Safeguard Afghanistan's Mineral Riches

A six-step guide.

The resignation over the weekend of Afghanistan's deputy mining minister passed with hardly a murmur in Washington, but it appears to bode ill for the future management of the country's mineral wealth.

Indeed, according to a June 14 article by James Risen of the New York Times, Afghanistan is rich. The United States pegs the value of the country's mineral deposits at $1 trillion, which dwarfs its $12 billion annual GDP. As Risen says, this discovery could transform Afghanistan into "one of the most important mining centers in the world." Or, as the Pentagon put it, Afghanistan could become the "Saudi Arabia of lithium." Leaving aside the fact that a lot of people have known about these mining deposits for quite a while, I'd have to agree with Gen. David Petraeus's assessment that this mineral find offers "stunning potential" for Afghanistan.

However, as Michael L. Ross writes, we need to temper our exuberance, as the discovery of natural resources in a developing country is not always the good news it appears to be. In fact, resource-rich developing countries face the significant challenge of using their natural wealth to improve the living standards of average citizens, rather than wasting it through weak institutions and corruption, a phenomenon often referred to as the "resource curse." Civil wars and political turmoil tend to exacerbate the problem.

All this is fairly well known. Yet the minerals, they tell us, are there -- and Afghanistan is racing ahead to develop them. But how can a war-torn country beset with corruption manage to succeed where many more stable countries with far stronger institutions have failed?

One increasingly popular option for dealing with the resource curse is the commodity-based sovereign wealth fund (SWF). Countries as diverse as Angola, Azerbaijan, and Venezuela are turning to these special-purpose financial vehicles to help ensure proper management of resource revenues. The idea is that, by sequestering some or all of their resource revenues in an SWF, countries can better smooth resource price volatility, make long-term fiscal policy, manage the currency appreciation associated with mineral exports, facilitate intergenerational savings, and, perhaps most importantly, minimize corruption and tame the political temptation to misuse the newfound wealth. In effect, a properly designed commodity fund offers a powerful "commitment mechanism" that can prevent a pool of revenues from turning into slush funds for the political elite.

Afghanistan desperately needs an SWF of its own, but the simple act of creating an SWF is not enough to overcome the resource curse. The new fund must also be accompanied by the appropriate design and governance principles and practices. But how to do it?

Two SWF success stories are most relevant to this case. First there's Papua New Guinea, which has an enormous liquefied natural gas project in the works. The country is already well into its own SWF due diligence despite the fact that its gas revenues aren't expected to come online until 2014. In fact, the country's Treasury Department recently released a "discussion paper" that outlines various factors that the government will need to take into consideration in setting up its new fund, from the importance of professional management, transparency, and accountability to some key structural and design characteristics. For Afghanistan, the lesson here is that planning can (and should) begin long before the resource revenues arrive.

Another model is São Tomé and Príncipe, a classic example of the challenges that a small, poor country can face when trying to manage oil wealth. As the Harvard Kennedy School's Jeffrey A. Frankel points out, the country in 2004 established something called the National Oil Account to receive all national hydrocarbon revenues. The 2004 law also set out to ensure that the new SWF was well designed and governed to ensure proper stewardship of the country's finite natural resources. And despite some political instability -- there was a failed coup attempt in 2003 inspired by the promise of looming oil wealth -- this tiny island nation off the west coast of Africa has managed to set up an SWF with all of the appropriate features to prevent the resource curse, from defining strict formulas for calculating the "annual funding amount" that the government receives from the SWF to laying down the rules governing the management and investment of the assets.

Afghanistan could also stand to learn from botched efforts to stand up SWFs. Some of these failures are highlighted in a recent paper by Martin Gould of Australia's Treasury. Gould argues that the assets of the fund should not (in most cases) be held onshore because this will do little to prevent Dutch Disease -- the phenomenon whereby resource wealth leads to currency appreciation and manufacturing declines. He also cautions against setting up an SWF before retiring the country's sovereign debt, especially if the country has a high debt burden and high borrowing costs (it would make more sense to pay down the debt first). Gould further notes the importance of having a clear set of objectives for the fund, with strict withdrawal guidelines and borrowing rules. Finally, he illustrated the pitfalls of poor governance and a lack of professional management.

International organizations have already done much of the legwork associated with setting up a well-governed SWF. A team of experts at the International Monetary Fund has laid out a handy SWF road map, many of the design principles of which would apply to Afghanistan. Further, an entity known as the International Working Group of SWFs in 2008 developed what are called the Santiago Principles, also known as the Generally Accepted Principles and Practices, which lay out some of the key design considerations that should underpin any new SWF, such as the legal framework, the fund's coordination with macroeconomic policies, its institutional framework, its governance structure, and, lastly, the setup of its investment and risk-management practices.

Altogether, these experiences, cases, and analyses offer sufficient guidelines for an initial sketch of the design and governance principles that should underpin any new Afghan SWF. The following features -- though not a comprehensive list -- are of the utmost importance:

1. Define the job: The SWF should have a clearly defined mandate and set of objectives, such as facilitating intergenerational savings, smoothing commodity revenues for fiscal stabilization, managing currency appreciation, or diversifying national revenues away from resources -- or perhaps all of the above. Most importantly, the objectives should be clearly articulated and drive the day-to-day operations of the fund.

2. Stay apolitical: The SWF's operational management must be totally independent from politicians. More to the point, the SWF should be devoid of political influence. While this might seem difficult to achieve, there are plenty of legal and governance mechanisms at the disposal of enlightened policymakers looking to minimize their own influence. These include strict legal separation of the SWF's assets from those of the government, a segregated governance model whereby the fund is not under the direct control of the government, a rigid code of conduct forbidding political contact with employees, and public disclosure and external oversight by recognized independent experts.

The Canada Pension Plan (CPP) offers a helpful example. While it's not a commodity fund, it is a national-level financial institution that was set up with the explicit mission of keeping its assets totally separate from political interests. As such, it offers important lessons for Afghanistan. First, the management of the assets in the CPP is vested to an independent board. Second, the political requirements for changing the board's mandate are even greater than for changing the Canadian constitution; there is thus almost no possibility politicians would be tempted to use the fund's assets for purposes other than funding the country's pensions. Third, the 1997 legislation that set up the board explicitly rejected all political or social investing objectives and defined the economic welfare of plan participants as its singular focus. Finally, the board, the CEO, the senior management and all professional staff are bound by a code of conduct that requires them to notify others if they are subjected to political influence, witness such influence, or even have suspicions about influence. This "honor code" applies to all components of the institution's operations, from sourcing investments and hiring staff to managing the fund's facilities.

3. Hands off the cookie jar: The government should receive a single annual transfer from the SWF, and that's it. This annual transfer can be included in the formal budgeting process, but the fund should not be susceptible to ad hoc or discretionary spending demands. More to the point, prudent, strict, and rigorously defined formulas should determine the amount of money the Afghan government gets each year -- not the whims of President Hamid Karzai or whoever replaces him in Kabul. In addition, the fund should never be used as collateral for international borrowing; otherwise the ability to borrow unconstrained money backed by the highly constrained, rule-bound SWF would render the rules and governance practices of the SWF irrelevant.

4. Keep the money outside Afghanistan: The SWF's assets should be held offshore to mitigate Dutch Disease and increase the number of investment options (doing so will also help prevent politicians from misusing the fund's assets). The only time the money would be brought "onshore" would be for the annual transfer of funds from the SWF to the government.

5. Put the technocrats in charge: The SWF must be managed by a committee of experts who, bound by the "prudent person rule," must act as good stewards. The SWF's investment decisions should aim to maximize risk-adjusted financial returns, based exclusively on economic and financial criteria. Extrafinancial or political investing can sometimes be justified on certain grounds -- as is the case for the Norwegian SWF's investment policies -- but these types of policies are inappropriate in this case, as they would open up the fund to too much subjectivity in the selection of investment projects.

6. Be accountable: The SWF should be completely transparent and accountable. Its annual and quarterly reports should be made public, as should certain parts of the governing committee's minutes (on a delayed basis). Most importantly, the fund should be subjected to annual internal and external audits.

As Afghans contemplate their mineral bounty, they need to keep these rules in mind. Sadly, the world is littered with examples of countries where natural riches have lined pockets and destroyed lives rather than creating lasting prosperity. Afghanistan has enormous problems already; follow this advice, and the resource curse doesn't have to be one of them.

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