Slip Slidin' Away in Argentina

Does President Fernández de Kirchner have a plan to save her foundering currency?    

Last week, Argentina's central bank finally abandoned its hopeless battle to keep the peso at an artificially high exchange rate versus the dollar. Immediately afterward, the Argentine government decided to allow more purchases of foreign currency by its citizens. But the transition from the country's unsustainable currency regime is far from over -- and it could get much worse.

The initial devaluation of the peso came on Thursday, Jan. 23, as the central bank abstained from the purchases it had long used to prop up the currency. A drop of more than 10 percent on Thursday was followed on Friday by a smaller dip, with the peso coming to rest at about 8 to the dollar. It had hit 7 pesos just two days earlier.

Just eight months ago, Cristina Fernández de Kirchner's government had pledged not to devalue the peso. For years, it had been trying to make the central bank's job easier by restricting Argentines' sales of pesos in favor of foreign currencies. But as the bank's reserves dwindled, the risks implied by creating demand for pesos continued to grow. Last week was apparently the end of the line.

A more gradual pullback might have been preferable, but it was healthy to embrace the inevitable sooner rather than later. With the currency falling to its real value in a competitive market, there would be no more need for restrictions on trading. So far, so good, then? Not quite.

The signs of a problem began in the black market for dollars. For the past several years, the black market has operated in plain sight to fill Argentines' demand for dollars. Private traders sell dollars for many more pesos than the official rate to people who need them for travel, to invest, or simply because they think the peso will lose value in the future.

Before Thursday's events, the main black market rate, known as the "blue" dollar, sat at about 11.8 pesos. On Monday, after some ups and downs, it settled around 11.7 pesos. To an outside observer, the gap with the official exchange rate looked smaller, which would have been a sign of progress. But from the point of view of an average Argentine, the gap had barely changed at all.

The reason was in the fine print. The government announced on Monday that households with monthly incomes of at least 7,200 pesos would be allowed to buy $2,000 at the official rate each month, more than enough for most Argentines (or at least those with the requisite income). But there was still a surcharge on many of these transactions. For purchases and withdrawals from businesses and banks abroad, the previous surcharge of 35 percent was lowered to 20 percent. Before, the surcharge resulted in an effective exchange rate of about 7 x 1.35 = 9.5 pesos to the dollar. After the change in policy, the effective rate was 8 x 1.2 = 9.6 pesos.

In this case, no news was bad news. The greater availability of dollars should have reduced the gap between the official and black market rates, but neither really changed. Why not?

Argentines may now be skeptical that, having started the peso's slide, the government can also stop it. As the value of the peso drops, some businesses will be tempted to raise their prices more quickly. But with heightened inflation, a freely floating peso might fall faster as well. In the absence of a credible plan from the government for keeping prices in check -- its existing price controls have hardly done the job -- a downward spiral could ensue. To all appearances, uncertainty about prices and the peso is still generating demand for dollars in the black market.

So far, Fernández's government has done little to combat it. Last week, Axel Kicillof, Argentina's fourth economy minister in five years, and Jorge Capitanich, the cabinet chief, gave conflicting versions of the new rules for trading currencies, citing different surcharges for transactions (dramatized in this cartoon by Javier Rodríguez). On Monday, Jan. 27, Capitanich said the government would publish the names of every purchaser; he later reversed himself. Meanwhile, Kicillof promised to punish businesses that raised prices after the devaluation.

But to stabilize the peso, the government will have to fight inflation with more than rhetoric and threats. The process will not be easy, since inflation in Argentina is like the needle tracks on an addict's arm -- the ugly and unmistakable side effect of a long-term habit. For Fernández, the habit is spending.

During the global boom in commodities, Argentina's central bank printed pesos to buy the foreign currency earnings of the country's exporters. Rather than putting the resulting reserves into a sovereign wealth fund, the Fernández government used them to fund enormous increases in public sector salaries, infrastructure projects, and subsidies for energy and other essentials. These huge injections of cash into the economy did not come with equal growth in the production of goods and services, however, so inflation of more than 20 percent became commonplace.

If the government doesn't rein in its spending, then prices will keep rising while the peso keeps slipping. This process is not always orderly, and any moment of panic can lead to hyperinflation and bank runs. But with less than two years left in her last term, Fernández may be willing to take the risk.


National Security

The True Forever War

Technology, not policy, will make it easier for U.S. leaders to kill people, blow things up, and disrupt computer networks around the world.

In preparation for a recent talk, I spoke to a range of thinkers and practitioners in and out of government about the current relevance and applicability of the 2001 Authorization for the Use of Military Force (AUMF). The AUMF, which was passed by the House and Senate just three days after 9/11, gave the president a narrow mandate to use all necessary and appropriate force against those responsible for the terrorist attacks and to prevent future acts of international terrorism against the United States. Two points of agreement were repeated in my conversations: First, the legislation does not accurately reflect either the military or the political objectives for current counterterrorism operations, nor does it accurately reflect the intention of those who originally drafted and approved the measure in 2001. Second, it is unlikely that the AUMF will be repealed, and any congressional efforts to update its language would most likely result in an even more expansive mandate.

Many correctly highlight that the AUMF does not reflect the scope of the conflict that the United States is now engaged in, and that its elasticity assures that America will remain on a war footing in perpetuity. However, those concerned with the prospects of a "forever war" should be concerned less about the irrelevant post-9/11 legislative mandate, and more about the revolutionary expansion of military assets that have been made available to the president since then. These technologies and processes that have reduced the costs and risks of using force have permanently changed how Americans conceive of military operations. As killing people, blowing things up, and disrupting computer networks will only get easier, it is worthwhile to take stock of where we are today. 

Take for example aerial drones. On 9/11, the United States had 167 drones in its arsenal, only a handful of which were capable of dropping bombs. As of December 2013, the Pentagon and CIA have an estimated 11,000 drones, roughly 350 to 400 of which are armed-capable. Beyond the mere volume of unmanned aerial systems, they are becoming larger and capable of loitering longer, containing vastly improved sensor packages, and carrying a greater variety and number of bombs. Unlike in 2001, America's armed drones can now be controlled by pilots in the United States via dedicated satellite bandwidth, and within three or four years, they will be flown from naval assets, making the need for host nations basing many missions unnecessary.

Subsequently, the inherent advantages that drones provide over all other weapons platforms have made them a first option. And what was developed between 1999 and 2001 to go after one individual, Osama bin Laden, has now been used an estimated 462 times to kill an estimated 3,600 suspected terrorists, militants, and civilians in countries with which the United States is not formally at war. Killing 3,600 people without losing one U.S. service member was unimaginable on 9/11. Now lethal missions by such unmanned systems are entirely routine -- and since President Barack Obama announced that he had "reformed" drone strikes in May 2013, they've gone largely unquestioned in Washington.

Consider also U.S. special operations forces, such as the special mission units of Navy SEALs and Army Delta teams. Since 9/11, U.S. Special Operations Command (SOCOM) has far more than doubled in size and budget from 30,000 troops and $2.2 billion, to 67,000 troops and $10.5 billion. Again, while the growth in numbers matters, the capacity for the relative ease of using special operators on behalf of counterterrorist raids stems from vast improvements in their readiness to deploy, the merging of intelligence community support into planning and operations, and their enhanced integration into the regular military forces that provide the logistical and enabling capabilities that allow special-mission units to be effective. When SOCOM commander Adm. William McRaven, characterized the Osama bin Laden raid in 2011 as "standard and not very sexy," he was not exaggerating very much. 

To realize the improvements in special operations and, for that matter, conventional military forces since 9/11, recall that the CIA was designated the lead command authority for U.S. operations against the Taliban in Afghanistan. When then-Secretary of Defense Donald Rumsfeld asked U.S. Central Command chief Gen. Tommy Franks how long it would take to develop plans for Afghanistan, Franks said "two months." Meanwhile, CIA paramilitary teams were on the ground in Afghanistan within eight days, forging relations with tribal allies, collecting intelligence, and selectively attacking the Taliban. When one team leader asked Henry Crumpton, the CIA official in charge of their operations, "When do the Special Forces join us?" Crumpton replied, "I have no idea. They will catch up when they can." Today, if there were a mission requirement comparable to the 2001 regime change in Afghanistan, the military would be the lead command and undoubtedly deploy much faster.

Finally, consider offensive cyber capabilities. As National Security Agency (NSA) chief Gen. Keith Alexander told the Senate Armed Services Committee in March 2013 about the military's creation of 13 new cyber units, they "are not defensive teams, these are offensive teams that the Defense Department would use to defend the nation." The strategic guidance and supporting doctrine for when these teams will be used remains secret -- or more likely unresolved. Yet the revelations prompted by the documents leaked by former contractor Edward Snowden suggest that U.S. cyberattacks -- far beyond the extent and scope of just intelligence collection or cyber exploitation -- are being conducted with a regularity that few can imagine. One Snowden document revealed that U.S. intelligence services had carried out 231 offensive cyber-operations in just 2011 alone. 

Assuredly, these have been greatly expanded since 2011. And back when 9/11 happened, cyber options were not even presented to President George W. Bush in great detail, either because they were rudimentary or could not be reliably controlled. Today, among the most significant U.S. cyber advancements has been the ability to attribute cyber probes more precisely. As a senior U.S. intelligence official told me last year, "We used to be pretty good at identifying the source of the attack by country, then by city. Now it's by building, and even by desk." In other words, the inability to correctly identify the source of an initial cyberattack was commonly believed to be an inherent limit to employing retaliatory cyberattacks. That restraint is now greatly reduced.

Princeton scholar Gregory Johnsen has an excellent piece capturing the speed and recklessness with which the AUMF was drafted and debated after 9/11. Many policymakers, and even Obama himself, support substantially refining and ultimately repealing it. They find its lack of precision over who can be captured or killed and the limitless geographic scope of potential operations troubling. As if to demonstrate its continued unfortunately-necessary relevance, when U.S. military personnel raided a coastal Somali city in October 2013, the Pentagon announced that it was done "under legal authorities granted to the Department of Defense by the [AUMF]." And in December, incoming top CIA lawyer Caroline Krass told the Senate Select Committee on Intelligence, "I believe that the AUMF as it's currently drafted is sufficient, and… to include associated forces is a legally available interpretation." 

However, even if the AUMF was rescinded tomorrow, does anybody doubt that Obama's lawyers would not come up with new (perhaps classified) legal justifications for conducting the exact same drone strikes, special operations raids, and cyberattacks? Moreover, many forget that the day before Bush signed the AUMF into law he also signed a Memorandum of Notification (MON) that remains in effect to this day. Former long-time CIA counterterrorism lawyer John Rizzo described it as "the most comprehensive, most ambitious, most aggressive, and most risky Finding or MON I was ever involved in. One short paragraph authorized the capture and detention of Al Qaeda terrorists, another authorized taking lethal action against them." 

The public has never seen this 2001 MON, but presumably it could cover all CIA drone strikes, military operations conducted under Title 50 (covert) authorities against al Qaeda affiliates, or NSA cyberattacks against suspected terror groups. And again, for all other authorities or discrete military operations, White House lawyers could produce language that would provide sufficient legal justification to stem off most any opposition from a generally disinterested Congress.

To be sure, the repeal of the AUMF -- however unlikely -- must be pursued as it at least brings a rhetorical end to the post-9/11 counterterrorism framework. Yet it is far more important and consequential that policymakers, officials, and citizens be fully aware of the unprecedented lethal and destructive capabilities that have arisen since 9/11. These technologies greatly change the calculus for civilian officials, and they have lowered the threshold for when presidents authorize the use of force. As these capabilities inevitably improve -- making it even easier and less costly to drop bombs or send damaging packets of data around the world -- future presidents will likely continue to use force against a growing range of perceived national security threats.

Mass Communication Specialist 3rd Class Kevin J. Steinberg//U.S. Navy via Getty Images