Voice

Dollars, Not Bombs

Can we bribe our way to peace in Syria?

How much is peace worth in Syria? If the United States attacks, cruise missiles worth tens of millions of dollars will wing their way toward the war-torn country, adding to the millions already spent on mobilization. There's no guarantee this costly exercise would quicken the end of the conflict. What's more, there's a potentially cheaper way to promote peace in Syria and anywhere else: Buy it.

The United States already spends money on foreign aid and peacekeeping that are supposed to stem conflict and encourage economic growth around the world. But we tend to avoid sending money to countries bogged down by war, since we're afraid it might be wasted. This is a big gap in our foreign policy, and to fill it, we need be more direct. We need to pay for peace explicitly.

There's a market for peace. The seller's price is how much you have to pay for it, and the buyer's price is how much you should be willing to pay. We need to know both of these numbers and ultimately try to balance them.

Why should Americans be buying? It's pretty simple. Peaceful countries are moneymakers for the United States. Most peaceful countries in the world import American goods and services, helping our economy create jobs and putting tax revenue in Washington's coffers. And the more these countries grow, the more they buy.

So here's an idea: a peace bounty paid for by the very tax dollars that peace would generate. Consider the example of Syria. It's a country of 21 million people whose per capita income last year was about $3,300, even with the war. Syrians spent about 38 percent of their income on imports; disruptions to trade may have been balanced by disruptions to domestic production. Next door in Jordan, per capita income was roughly $4,900, and spending on imports measured about 73 percent of that total; in Lebanon, the share was 49 percent of $9,700.

Most American companies can't legally do business with Syria, so imports from the United States are virtually nil at the moment. But about one in nine dollars worth of imports in Lebanon comes from the United States, and in Jordan, it's about one in 16. As a somewhat conservative estimate, a free and peaceful Syria might import about $70 worth of goods and services per person from the United States every year, for a total of $1.5 billion. Of that, something like $300 million might go to Washington in taxes.

The United States government could offer to give this money back to the Syrian people, every year for 20 years or some other fixed period, provided that there is peace. Compared to the status quo, this offer would be budget neutral; we don't get any tax revenue from Syrian imports now, either.

Other countries could sweeten the deal. Major economies in Europe would probably benefit from peace in Syria, too. Right now, none of them are among Syria's top trading partners, despite the European Union's policy of economic engagement in the Mediterranean region. If Europe participated, the annual peace bounty could rise to a billion dollars or more. And if the Syrian people knew that so much money awaited a peaceful and legitimate government, all sides might try harder to find a negotiated settlement.

Of course, making peace is easier said than done. For people whose lives are in peril, fighting back may be the only option. Moreover, the rewards of peace are not so obvious for all parties involved, especially the Assad clan. They could lose everything if their regime falls, and so they need a strong incentive to make peace.

As distasteful as it might be, then, it's worth considering how the peace bounty might be shared with the Assads. It wouldn't be the first time that a former dictator and his family were given a cushy way out of a worsening situation at home in order to smooth the transition of leadership. It would, however, be the first time such a payoff was so explicit and public.

The Syrian people might feel as though they were being robbed again by what has by many accounts been a thoroughly corrupt regime. But negotiating about money is much better than continuing the violence, and surely the Assads would want to haggle for their share. Ending the killing on both sides could be a condition for talks that might be worth tens of millions to them every year.

If peace bounties showed promise, there'd be no need to stop with Syria. From prison states like North Korea to countries hamstrung by civil conflict like the Democratic Republic of the Congo, peace bounties could help to tip the scales away from violence. The best part is that since the bounties would depend partly on population size, bigger bounties would free more people from war and oppression. (To be sure, they would also depend on people's incomes, which is a less attractive attribute.)

One catch here is that the World Trade Organization might see a bounty as an illegal subsidy to a country's imports. To get around the rules, the payments might have to be fixed as lump sums rather than varying annually according to import volumes. Alternatively, if all the WTO's members got together to pay the bounties, there would be no issue. In either case, such technicalities needn't stand in the way of the overall concept.

Back in the 1990s, the peace dividend created by the end of the Cold War brought the United States within a whisker of paying off its entire national debt. Today, thanks to tax cuts and ironically to a couple of new wars, that peace dividend has evaporated. But there's another one ripe for the taking -- as long as we're brave enough to put emotion on hold while we talk about cold, hard cash.

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Daniel Altman

The Great Asian Sell-Off

Why are investors suddenly fleeing markets in South and Southeast Asia?

Don't call it a crisis -- not yet, at least. Investors have been fleeing markets in South and Southeast Asia, and share values and currencies have been tumbling. But some of the drop might not reflect underlying changes in these countries' economies, so bargains may be there for the taking.

The dip in India's rupee has been grabbing headlines lately (including mine last week), but other currencies are on the rocks as well. The Thai baht has slipped by about 10 percent versus the dollar since April, and the Indonesian rupiah is about 12 percent lower. Of course, much of this trend stems from the strengthening of the dollar, with the U.S. Federal Reserve gradually ending its huge purchases of securities and slowing the expansion in the money supply.

Meanwhile, Indonesia's main stock market index has dropped by about 20 percent since May, and Thailand's is down about 17 percent. Stocks in the Philippines had lost 20 percent within a month of their peak in May, but now they have stabilized with losses of about 12 percent. Indian stocks have plunged by more than 10 percent just since July.

Dips in exchange rates and stock indexes don't always go together. All other things being equal, share prices might be expected to rise when currencies lose value. With no change in the real return to capital -- that is, the return generated by companies' assets, adjusted for inflation -- the price of a share to a foreign investor should remain the same. Indeed, these offsetting moves have happened to some extent in Japan under its new inflationary monetary policy; as the yen has slumped, the Nikkei index has shot skyward. (To be sure, the optimism generated by the new policy has helped stocks outpace the currency's decline.)

But this offset doesn't occur when foreign investors suspect that the return to capital is dropping; then the sell-off is all-encompassing. In Asia, investors are first selling their financial assets and then selling the proceeds -- the rupees, baht, rupiahs, and pesos -- for other currencies.

One nagging question arises in the midst of this havoc: Why dump all the countries at once? There's isn't just one explanation for the widespread destruction of value in Asia. Each country has its own issues, just as the crisis in the eurozone had causes that varied from budget deficits to bank failures. Indeed, global investors have supposedly gotten better at distinguishing between emerging markets, thanks to better transparency and access to information. The old fears of "contagion" in financial crises, which became especially notorious during the Latin American crashes starting in the 1980s and the Asian crisis in the late 1990s, have somewhat abated. Yet because many investors put large groups of emerging markets in the same boat, the markets must still sink and sail together.

Investors usually see emerging markets as risky, and on average they are: Corruption, conflict, weak property rights, and other problems are all more common in developing countries. Investors also tend to group emerging markets together in their portfolios, sometimes even combining enormous regions spanning whole continents. Fidelity's EMEA fund, for example, covers "emerging Europe," the Middle East, and Africa. By my count that's about 80 countries, and they could hardly be more diverse. What does Turkey's economic future have in common with Gambia's? Ask Fidelity.

Given this kind of bundling, consider what happens when one emerging market runs into problems, like the steep drop in forecasts for growth in India that I wrote about last week. If investors decide India is riskier than they thought, then they have to reduce risks elsewhere in order to maintain balanced portfolios; in fact, big investors like pension funds are often required to do this. And what's the easiest way to reduce risks? By getting out of emerging markets.

So when one emerging market gives fright to investors, they have a natural tendency to pull back from other emerging markets as well, even if the other markets have little in common with the one having problems. This seems unfair, and it is. Even in this era of unprecedented information and transparency, contagion still occurs, and it does so almost automatically.

It's true that countries in Asia are experiencing some common challenges in the short to medium term. China is a major source of demand in the region, and it has been growing more slowly of late. Japan is also an important trading partner for many of its neighbors, and forecasts for its growth are still anemic despite the country's new economic policy.

But it's hard to believe that the long-term growth paths of Asian countries have taken such a negative turn just in the past few months. The price of an Indonesian share to an American investor, for instance, should be proportional to the value in today's dollars of all the returns generated by the company from now until its dissolution. Has this total really dropped by more than 30 percent just since May? Or was it a bubble in the first place, inflated by hype and investors frustrated with low returns in the West? With an automatic pullback in emerging market portfolios, neither explanation can justify the sell-off completely.

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