WikiLeaks · GLOBAL VANTAGE Global Perspective STRATEGIC FORECASTING, INC. STRATFOR is the world’s leading private intelligence ﬁrm providing corporations, governments and individuals

GL

OB

AL

VA

NT

AG

EG l o b a l P e r s p e c t i v e

S T R AT E G I C F O R E C A S T I N G , I N C .STRATFOR is the world’s leading private intelligence firm providing corporations, governments and individuals with intelligence and analysis to anticipate the political, economic, and security issues vital to their interests. Armed with powerful intelligence-gathering capabilities and working in close collaboration with STRATFOR’s experienced team of professionals, our clients are better able to protect their assets, diminish risk, and increase opportunities to compete in the global market.

J U N E 2 0 0 5

ii© 2005 Strategic Forecasting, Inc.

J U N E 2 0 0 5

A b o u t S t r at f o r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i i i

G l o b a l P e r s p e c t i v e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

E a s t A s i a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1

E u r o p e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2

F or m e r S o v i e t Un i on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1

L at i n A m e r i c a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 7

M i d d l e E a s t. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 5

S t r at f o r S e r v i c e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5 5

C o n ta c t S t r at f o r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5 7

iii© 2005 Strategic Forecasting, Inc.

J U N E 2 0 0 5

STRATFOR is the world’s leading private intelligence firm providing corporations, governments and indi-viduals with geopolitical intelligence and analysis to manage risk and anticipate the political, economic and security issues vital to their interests. Armed with powerful intelligence-gathering capabilities and work-ing in close collaboration with STRATFOR’s expert team of analysts, clients are better able to protect their assets, diminish risk, compete in the global market and increase opportunities. STRATFOR has an unparal-leled record for accuracy and clarity in its forecasts and has been called “the Shadow CIA” by Barron’s.

Hundreds of Fortune 500 companies and government agencies rely on STRATFOR for unbiased, insightful, actionable analysis of global activities to keep ahead of local, national and international developments to plan strategy and be more confidently informed.

· Hedge Fund Managers use STRATFOR intelligence to identify future market opportunities. · Oil & Gas Executives rely on STRATFOR intelligence to look into the future to determine areas for exploration, investment and market volatility. · Government & Military Personnel utilize STRATFOR intelligence to gain insights on triggers affecting geopolitical events and potential movements around the world. · Manufacturers gain intelligence on emerging markets, resource fluctuations and potential regional threats in the coming years. · Logistics Company Executives use STRATFOR intelligence to be informed on what disruptions could impact their supply chains. · Global Finance, Insurance and Investment Executives use STRATFOR intelligence to be prepared for any market fluctuations that may impact their clients’ businesses.

Unlike news organizations and research firms that are set up to deliver information on what’s already happened — so all you can do is react — STRATFOR was founded in 1996 to deliver insights and fore-casts our clients can use to stay ahead of the curve.

Our services range from online Geopolitical Intelligence & Analysis subscriptions to confidential Custom Intelligence Services. We provide geopolitical and strategic intelligence services focused on international political, economic and security issues; business intelligence on issues ranging from technology to global alliances; and issues analysis and intelligence on public policy issues and the international legislative, legal and regulatory environments that shape those issues.

For more information on how STRATFOR’s services can impact your business, please contact us at:

Strategic Forecasting, Inc.1666 K Street, Suite 600Washington, D.C. 20006

(U.S.) 202.429.1800www.STRATFOR.com

1© 2005 Strategic Forecasting, Inc.

J U N E 2 0 0 5

ay 2005 was one of those rare turning points. The world shifted dramatically, but the change was so fragmented that it was hard to see the immediate pattern. To state things most simply, for the first time since September 2001, the U.S.-jihadist war was not the dominant geopolitical process

in the international system. This is partly because the war has become routinized, partly because the jihadists are now on the strategic defensive and partly, it is simply because events having only tangential connection with the war suddenly came to the fore.

H i g h l i g h t s : • Escalating U.S.-Russian Tensions • China: Complications in International Relations • The European Collapse

Three major processes showed themselves openly — processes that are superseding the jihadist challenge in importance. First, tension between Russia and the United States broke wide open during the V-E Day commemoration in Moscow, marking another of the fundamental — and predictable — shifts in Russian history. Second, China’s international relationships became far more political and far more tense than has been the case for years. Finally, the European project — pivoting around the notion of a European constitution leading to confederation — collapsed. Eurasia, from the Atlantic to the Pacific, shifted dramatically in May, and the repercussions have not even started to show themselves.

Framing Questions for the Month’s Regional Reports • How will growing U.S. influence in Russia’s near abroad affect Moscow’s policies? • How are various political and economic problems in China connected? How will that affect Beijing’s relations with Washington and with other Asian countries? • What is the trajectory of the North Korean nuclear issue? • Will rejection of the European constitution endanger the euro or other EU institutions? • How might the physical decline of Saudi King Fahd affect security and energy issues in the Middle East? • What can be expected in the evolution of the insurgency in Iraq? • How are Bolivia’s political problems linked to the energy industry? Could instability in La Paz spread to other parts of the region?

M


J U N E 2 0 0 5

R u s s i aRussia is a country that historically has shifted wildly between an orientation toward the West and an isolated slavophilism. During its Westernizing swings, Russia tries to emulate the West — certainly seeking economic and cultural stimulation. The project, which always begins with great promise, ends in calamity, with Russia becoming both weaker and poorer. Russia then swings to the other extreme, trying to protect itself from the West by pursuing its own course — and by protecting itself through politico-military means.

The United States is well aware of this tendency. Washington has never fully trusted Russian liberalization and has viewed the period that began in 1989 as an opportunity to permanently constrain Russia so that when it underwent its inevitable shift, it would do so from a much weaker position. The Sept. 11 attacks appeared to interrupt this process, shifting U.S. attention away from Russia toward the Muslim world. But the Muslim world stretches into the former Soviet Union, and the events of Sept. 11, 2001, caused U.S. politico-military influence to stretch into Central Asia — supplementing its influence in the Caucasus, Baltics and Eastern Europe.

The breakpoint came last winter, when pro-liberalization — and pro-Western — forces in Ukraine took control of the government in Kiev. From Moscow’s point of view, American support for democratization in Ukraine was a cover for Washington’s real intentions — to extend U.S. influence deep into the heart of Moscow’s sphere of influence. Serious discussion of the inclusion of Ukraine into NATO was viewed in Moscow as the beginning of an effort to extend NATO’s influence farther into the Russian sphere than Nazi Germany had ever managed to go. So far this year, Moscow has responded with three gestures designed to remind Washington that Russia still could causetremendous problems for the United States.

First, Russia threatened to sell SA-18 surface-to-air missiles to Syria — or in other words, threatened the diffusion of a nightmarish weapon to jihadists. Moscow also threatened to transfer nuclear technology to Iran and to sell Backfire maritime bombers to China — which would menace U.S. naval domination of the Taiwan Straits. It also is offering Venezuela a deal

From Moscow’s point of view, American support for democratization was a cover for Washington’s real intentions — to extend U.S. influence deep into the heart of Moscow’s sphere of influence.


J U N E 2 0 0 5

on Su-27 Flankers — which are long-range, high-performance fighters — and other arms packages designed to strengthen relations with Caracas. Meanwhile, Moscow also took steps to increase its own control over the Russian economy and political system. And President Vladimir Putin stated publicly that the fall of the Soviet Union was the worst geopolitical catastrophe of the 20th century.

The United States responded by accelerating its process of support for what it calls democratic revolutions and what Moscow regards as American puppets. The Bush administration launched an intense attack on Russia’s abandonment of democracy and used the May 6 V-E Day celebrations to aggressively assert its claims within what Russia regards as its sphere of influence. Some of the Baltic states boycotted the V-E Day celebrations, claiming that the fall of Hitler did not signify the end of tyranny but merely set the stage for an even longer tyrannical occupation by the Soviet Union. President George W. Bush stopped in Latvia on his way to Moscow and endorsed this view. After meaningless pleasantries, he left Moscow and stopped off in Georgia, endorsing a regime deeply hostile to the Russians.

The head of Russian intelligence, a few days after V-E Day, charged that the various non-governmental organizations agitating for democracy in the former Soviet states were actually fronts for U.S., British and Saudi intelligence, created to strangle Russia. This represented a turning point in U.S.-Russian relations. The statement, given in the Russian Duma, clearly was made with Putin’s approval. The speaker charged that the United States was intent on destroying Russia by first surrounding it and then fragmenting it. If the Russians believed this, and they clearly did, then they had no choice but to regard themselves as locked in a struggle with the United States — a struggle for their lives.

Shortly after this statement, reports began to filter out that the United States had reached an agreement with Azerbaijan, allowing U.S. forces to be based there. Then Uzbekistan exploded in a wild mixture of clan warfare and an Islamist uprising. Recalling that Russia had charged not only the United States but also Saudi Arabia with plotting against it, the events in Uzbekistan added fuel to the fire. They also indicated that, from the Russian point of view, the U.S.-Saudi confrontation was at an end and that both now were collaborating to crush Russia.


J U N E 2 0 0 5

By the end of May, the formal rhetoric between Washington and Moscow had subsided. Neither side wanted an outright break in relations, but it was clear that neither side viewed the other as it had before. The United States appeared to be moving rapidly to consolidate its gains. The Russians appeared to be preparing a covert counteroffensive.

There are two levels now in the relationship. On the surface, there is a degree of comity; beneath the surface, deepening recognition that the interests of each side are incompatible with the other. Moreover, as Europe appears to be fragmenting, any hope that the Russians might play Europe off against the United States is disappearing. By the end of May, Russia knew that it would be facing the United States alone.

C h i n aIn May, Russia was responding to inherent weakness in its economic system coupled with pressure from the United States. In the broadest sense, that was the situation that China also faced.

Beijing put a brave face on its financial situation in May, arguing that China’s banking system was stabilizing and that bad loans had declined. It was not clear how this was supposedly achieved. The nation’s behavior continued to indicate serious problems. Like Japan in 1989 and East Asia in 1996, China was surging its exports at an astronomical rate, pressing home its price advantage even beyond the advantage provided by lower labor costs. The goal was to maintain cash flow in order to minimize non-performing loans. This was Beijing’s short-term solution to the problem.

China reported astonishing growth figures in May — about 9.5 percent annualized growth. The media took this as a sign of Chinese robustness. The problem, rarely recognized, is that Chinese growth does not track at all with rates of return on capital. In other words, it is possible to grow a business while breaking even or losing money. In the West, where equity-driven economies obtain, this is unlikely, apart from specific

In China, as in other debt-driven economies, there is no long-term discipline on rates of return. Therefore, China’s economy is inherently unbalanced. It can grow extraordinarily without being at all profitable or healthy.


J U N E 2 0 0 5

market bubbles like the dot-com period. In China, as in other debt-driven economies, there is no long-term discipline on rates of return. Therefore, China’s economy is inherently unbalanced. It can grow extraordinarily without being at all profitable or healthy.

The surge in exports, therefore, could not cure China’s long-term problem — misallocated capital — but it could alleviate the short-term problem of non-performing loans. Alleviate, but not cure. The problem with this strategy, as Japan has learned, is that it not only doesn’t solve the problem but generates massive protectionist moves in importing countries — who try to shield their own industries, which are tightly controlled by equity considerations, from aggressive exporting.

Chinese leaders knew this was coming and moved to position China in anticipation. In late April and early May, intense anti-Japanese demonstrations, triggered by Beijing, took place in China. The demonstrations — which actually were closer to riots — were calculated to play on Chinese patriotism and xenophobia. The first target, Japan, was despised in China for atrocities committed during World War II. It took little effort to trigger feelings. China used as the provocation Tokyo’s unwillingness to revise textbooks that minimized Japan’s war crimes in China. This tapped into a deep well of resentment, but resentment was not the primary reason for the demonstrations.

Beijing knew it was going to come under intense international pressure from both the United States and Europe over its economic policies. Chinese leaders also knew that the state’s export surge could not continue indefinitely, for both political and financial reasons. It also was understood that even a slowdown in the growth rate would have unpalatable effects on the banking system and, therefore, on China. In a country where the Communist Party has no ideological legitimacy and prosperity is the only justification for the regime, the logical solution is to resort to patriotism. Chinese leaders spent the first half of the month playing up patriotism — and preparing to blame problems on foreign forces.

In a country where the Communist Party has no ideological legitimacy and prosperity is the only justification for the regime, the logical solution is to resort to patriotism.


J U N E 2 0 0 5

This set up the second half of May, when the United States — backed for the most part by Europe — launched a three-pronged diplomatic offensive against China. First, the United States specifically sought to sanction Chinese textile exports, which it claimed were illegally (under World Trade Organization guidelines) subsidized by the Chinese government. Second, the United States demanded that the yuan be revalued upward, something that China has refused to do for years. Finally, the United States charged that China was developing its military aggressively and out of proportion to any threat the state might face.

All of this amounted to a shot fired across China’s bow. On the trade issue, there are a dozen ways to get around U.S. protectionist measures — such as third-country re-labeling of products. On the yuan, the United States gave China six months to do something about it. And as for the development of the Chinese military, there is little to be done — and China’s actions present no threat to U.S. interests in the near term. Nevertheless, the United States chose in May to directly confront China along a broad spectrum of issues.

Beijing responded with intense hostility. In a sense, the Chinese welcomed the U.S. offensive, since it provides justification for any economic problems they might be experiencing, as well as an excuse for increased security crackdowns in China (which will be vital if China is to come through the cur-rent period of economic turmoil without regime-threatening forces arising).

Ultimately, Beijing will try to placate the United States, but it will not be able to provide meaningful relief without a serious threat to its banking system. In effect, China is now trapped between its economic needs and geopolitical reality, and faces a United States that is increasingly prepared to confront it along both economic and political lines. And here, too, Europe’s fragmentation in May increases China’s geopolitical problems substantially.

E u r o p eA fundamental assumption has been built into the global geopolitical equation in recent years: that Europe was evolving from an economic union into a unified, federal state. The introduction of the euro was seen as the halfway house of European unification. From the adoption of a single

China is now trapped between its economic needs and geopolitical reality.


J U N E 2 0 0 5

currency to the formation of a single state did not appear to be a vast leap. The world had already taken to thinking of Europe as a single entity, referring to “Europe’s” view of this or that, as if it were already a state instead of an instrument of economic convenience.

Two countries were obsessed with economic union. France, which had since the 1950s sought to counterbalance American power, saw in a united Europe — led by Paris — an entity that could achieve this goal. Germany, whose ability to pursue its national interest was severely compromised by the nation’s past, viewed Europe as a mechanism through which it could follow its geopolitical ambitions without appearing to succumb to nationalism. The Paris-Berlin axis was seen as driving the European project.

In May, this decades-long project was shattered. French voters rejected the new European constitution by a clear, if not overwhelming, majority. At about the same time, German Chancellor Gerhard Schroeder suffered a stunning defeat in North Rhineland-Westphalia — a traditional stronghold of his Social Democratic Party (SPD) — and was forced to call an election in the fall by the SPD left wing, which opposed his halting steps toward economic liberalization. By implication, the voters and the SPD leftists both repudiated the extension of market reforms embedded in the idea of Europe and of globalization. Add in a June 1 vote in the Netherlands in which voters overwhelmingly rejected the European constitution, and it became clear that if there was going to be any politico-military unification of Europe, it would not come for a very long time, if at all.

In fact, the political earthquake of May 2005 legitimized serious questions about some of the steps already taken. The role of the Brussels bureaucracy in overriding national sovereignty, the legitimacy of nationalism and even the status of the euro have come up. Europeans have begun to speak openly in the mainstream about what has been obvious for a while. The economic condition of France and Germany is very different from the economic conditions in Ireland. A single currency means a single central bank, and a single central bank means a single monetary policy. Germany and France

For the first time, respectable voices are raising serious questions about the future of the euro.


J U N E 2 0 0 5

are in dire economic straits, with unemployment running at over 10 percent. But other countries are doing quite well.

The European Central Bank is focused on the needs of the three major economies — Germany, France and Italy. The rest of Europe is not only ignored, but is directly harmed by the inability of Germany and France in particular to impose economic discipline on themselves.

It is now clear that economic discipline will not be coming anytime soon. Therefore, France and Germany will continue to drag down the rest of the eurozone. And so, for the first time, respectable voices — i.e., those deemed respectable by the European elite — are raising serious questions about the future of the euro. The issue is not really so much the future of the currency as the fact that, in May, the euro’s future became a reasonable topic of conversation.

As of May 2005, there is no Europe. There is France, Germany, Hungary, Ireland and so on. As sovereign countries, they have entered into a series of important economic agreements. But none of these countries have abandoned their sovereignty. Decisions on war and peace or lesser foreign policy issues remain in their hands, not in those of Brussels. It is unlikely that any broad consensus on any of these issues will be reached by all of Europe, and anyone basing their policies on what “Europe” will do will be as misguided as those basing policies on what “Asia” will do. These are geographic and to some extent cultural expressions. The idea of Europe has no geopolitical meaning.

C o n c l u s i o nUntil now, the central emphasis of the geopolitical system has been on economics. Even after the Sept. 11 attacks, the American obsession with security issues has been seen as idiosyncratic. May 2005 has been decisive in changing the focus of two of the great Eurasian powers.

The events surrounding Russia’s V-E Day celebrations have confirmed a trend that has been under way in Russia for a while. The events in and around China in May made it clear that Beijing’s response to economic challenge will not be confined to the realm of economics: The image of Chinese mobs stoning the Japanese embassy in a government-instigated demonstration is a reminder of the past, not some fanciful future. China is thinking about nationalism and defense build-ups. Russia is thinking about covert operations


J U N E 2 0 0 5

and arms sales. Economics is by no means dead, but neither country can rely any longer on economics alone as the foundation of its international policies.

Both China and Russia face a United States that they regard as increasingly hostile, and which behaves in hostile ways. Their perennial expectation has been that Europe, conflict-averse, would restrain the United States. Suddenly, it is apparent that there is no Europe and that France or Germany — by themselves or allied — do not constitute even a fraction of the counterweight required to restrain the United States. In the end, it was not George W. Bush and Tony Blair who were isolated and weakened, but Jacques Chirac and Gerhard Schroeder.

Normally, this would mean that the Russians and Chinese would be more, rather than less, eager to work with Washington. The problem is that U.S. demands cannot be met. The United States wants to dominate the Russian near-abroad, using democracy as the justification. Whatever the justification, this is not something the Russians can allow. The Americans want the Chinese to dramatically restructure their economy. But revaluing the yuan is not a stand-alone event — it would ripple through the Chinese economy, with potentially catastrophic consequences for the government in Beijing. Even if the Chinese manage a revaluation, they know that it is only the first of a series of U.S. demands to which capitulation is not in their interest. In short, the impulse to align with American power runs counter to the nature of American demands. Those demands may be moderated in the near term, but not the long run — and Russia and China know it. It follows that both Russia and China have a common interest in acting to constrain U.S. power, and they know they cannot count on Europe. Therefore, they have only each other. In reality, they have limited cards to play, and they will play them. North Korea, Iran and Syria are all places where Moscow and Beijing can pose problems that the United States can resolve only with their help. They can charge a price for that help. We expect June to be a time when plans are laid, and the summer to be a time when they are executed.

In the meantime, the U.S.-jihadist war — the main feature of the international system for the past four years — is slipping to secondary status. It is now

In China and Russia, the impulse to align with American power runs counter to the nature of American demands.


J U N E 2 0 0 5

clear that al Qaeda is deeply wounded, if not shattered. In Iraq, the situation is segueing from war alone into something more complex, less internationalized and more manageable. The Sunnis will, in due course, make a deal with the Shia, or the 40,000 predominantly Shiite and Kurdish troops that are descending on Baghdad will deal with them far more harshly than the Americans have. In the meantime, the Americans, apart from transferring security responsibilities to the Iraqis, have now focused on operations west of the Euphrates; these are designed to cut the lines of supply supporting the guerrillas, while their support among the Sunni elders also declines. The U.S. probes into Pakistan continue, both covertly and not-so-covertly. The Pakistanis are turning their captives over to the United States, while the hunt for Osama bin Laden continues.

It is possible that al Qaeda has a massive attack planned. If so, the world will redefine itself again. But barring such an attack, the importance of May 2005 was that it was the month in which the priorities of the international system shifted decisively. The European project hit a brick wall, the Russians declared themselves in a covert war against the United States, and the Chinese cranked up patriotism as an alternative to prosperity. Most months are routine. This May was not.

When the international system undergoes a series of shocks such as we have seen, events tend to move with surprising speed. June may well be a period for the system to catch its breath — but we expect, beneath the surface, to see signs that the Russians and Chinese in particular are drawing conclusions from the events of May. And that would mean that a number of local situations like North Korea and Iran may heat up this month. Particularly with Europe out of the game, the buffer it promised to provide is no longer credible. It will be important to see the connections between apparently disparate events, all flowing from this May’s restructuring of the international system.

Dr. George FriedmanFounder

Strategic Forecasting, Inc.


J U N E 2 0 0 5

hinese tensions dominated a tense region. Beijing argued with the United States about the valuation of the yuan and with the United States and the European Union over Chinese textile exports. Beijing also continued its long-time sparring with Taiwan and Japan. On the Korean Peninsula, South Korea cooled toward Japan

and the United States but warmed toward North Korea, which rang alarm bells throughout the region when North Korea tested a ballistic missile and reportedly prepared to test a nuclear bomb. And in Southeast Asia, Thailand and Myanmar struggled with militants while Indonesia saw its fortunes improve.

T h i s M o n t h ’ s H i g h l i g h t s : I n E v e r y I s s u e : • North Korean Provocations • Trends, Stats and Indicators • Dispute Over the Chinese Yuan • Noteworthy Events • Political War Against Taiwan and Japan • Mixed Fortunes in Southeast Asia • A Banking Crisis and Textile War

C


J U N E 2 0 0 5

ay was marked by military, economic and political tensions.

North Korea tested a short-range surface-to-surface missile and finished removing some 8,000 fuel rods from its nuclear reactor at Yongbyon, a step toward the production of nuclear weapons. Myanmar experienced bombings

and an escalation of militant activity by ethnic minority armies. Thailand saw a continuation of a bombing and shooting campaign in its southern provinces.

On the economic front, Beijing faced dual pressures from the European Union and the United States over the issue of textile exports and the value of the yuan. This confrontation has moved from the economic realm to the political realm, making a common resolution more difficult. And Beijing continues to play up the issue of textile tariffs domestically, tapping into populist sentiments.

Beijing also is facing off with Japan in a political battle of wills, arguing publicly over issues of historical interpretation and visits to war shrines. Underlying the public, popular rhetoric, however, lies a deeper concern — economic and military competition.

Japan is stepping up ties with Taiwan and tightening its defense links with the United States, all while readdressing constitutional constraints on its armed forces and while seeking a permanent seat on the U.N. Security Council. Tokyo and Beijing also are facing off over territorial claims, which are becoming increasingly relevant as China begins exploring for potential oil and gas reserves.

South Korea, too, faces political pressures. It feels ignored, and even betrayed, by the United States. Tokyo said Washington shares intelligence with it that it does not share with Seoul; Tokyo claims Washington does not trust Seoul, and such comments are stirring resentment. Thisresentment is fueling Seoul’s moves toward a more independent policy on North Korea. To this end, South Korea continues to accelerate political and economic ties with the North to reduce tensions and prepare the North for the eventual reunification of the two Koreas. And South Korea feels the United States is doing little to help the situation, but instead is responsible for keeping North Korean tensions high.

Moving into June, the North Korean issue will come to a head, with Washington and Tokyo hinting of a deadline for progress, rumors of a North Korean nuclear test, meetings between North and South Korea and meetings between South Korean President Roh Moo Hyun and his counterparts in the United States and Japan.

ME x e c u t i v e S u m m a r y


J U N E 2 0 0 5

M a y : T h e M o n t h I n R e v i e w

N o r t h K o r e a n P r o v o c a t i o n sMay began with a North Korean missile test, setting the tone for another month of contentious accusations and actions as Pyongyang sought to leverage its position for talks with the United States. The May Day launch of a KN-02 short-range ballistic missile constituted just one in a series of provocative North Korean moves. Pyongyang announced May 11 that it had completed the removal of 8,000 fuel rods from the Yongbyon nuclear reactor — sending the clear message that it could spin down the used fuel rods to extract weapons-grade plutonium for its nuclear program.

Pyongyang’s actions came amid a growing clamor from the United States and Japan warning of an imminent North Korean nuclear test. In accounts apparently first leaked by Tokyo, the United States reportedly spotted possible preparations for an underground nuclear test near the North Korean city of Kilju, including the movement of materials into an old mine and the erection of a reviewing stand, perhaps built to provide North Korea’s leaders and visiting dignitaries a vantage point for an upcoming test. South Korea and China disputed the suggestion that North Korea was preparing a nuclear test, and North Korea denied preparing or planning to test a nuclear device.

Pyongyang did, however, take advantage of the growing rift between Seoul and Washington over proper policy toward North Korea, and Pyongyang invited South Korean officials to Kaesong to restart stalled inter-Korean talks. This further encouraged Seoul to pursue a soft policy of reconciliation and economic assistance and integration — something that left Washington and Tokyo less than pleased. The American and Japanese displeasure became obvious after reports emerged that Japanese Vice Foreign Minister Shotaro Yachi told a group of South Korean lawmakers that Tokyo had plenty of intelligence from Washington on North Korea it could not share with Seoul because Washington did not trust South Korea.

The United States reportedly spo�ed possible preparations for an underground nuclear test near the North Korean city of Kilju.


J U N E 2 0 0 5


J U N E 2 0 0 5

D i s p u t e O v e r t h e C h i n e s e Y u a nBut North Korea was not the only point of contention in the region. China faced increasing pressure from the United States over the value of the yuan and from the United States and the European Union over Chinese textile exports. China made several contradictory remarks regarding the yuan’s valuation amid growing rhetoric from members of the U.S. Congress that Beijing was taking an unfair trade advantage by keeping the yuan pegged artificially low.

Chinese officials alternately claimed Beijing would and would not alter the yuan peg, maintaining that foreign countries should not interfere in this matter. China’s state-run People’s Daily even issued an article — later revoked on grounds of “mistranslation” — reporting that Beijing was preparing to change the yuan peg. Foreign media talked of a May 18 adjustment, leading the Chinese press to gloat May 19 when no change occurred.

Partially related to the yuan issue were increased warnings from Washington and Brussels for China to rectify the growing textile trade imbalance, or face punitive damages including high tariffs. Beijing responded by reminding its accusers that the change resulted from World Trade Organization (WTO) regulations, and so represented a consequence of the free market. In a display of cooperation, Beijing announced new export tariffs for certain goods, but the move clearly fell well below Western expectations, and failed to budge Washington or Brussels. In response, as the month’s end approached and the EU deadline for action neared, Beijing announced the removal of numerous textile export tariffs, including the new tariffs — effectively declaring the trade war open.

P o l i t i c a l W a r A g a i n s t Ta i w a n a n d J a p a nWhile China battled on the economic front with the United States and the European Union, it waged political war with Taiwan – or, more accurately, with Taiwanese President Chen Shui-bian. As May opened, Taiwan’s Nationalist Party (Kuomintang, or KMT) Chairman Lien Chan wrapped up a visit to China that came at the invitation of Chinese President Hu Jintao (in his role as chairman of the Communist Party of China). Soon thereafter, James Soong, chairman of the opposition People First Party, a breakaway faction of the KMT, also visited China and met with Hu.

Chinese officials alternately claimed Beĳing would and would not alter the yuan peg.


J U N E 2 0 0 5

The visits represented Beijing’s way of exploiting political rifts in Taiwan and left Chen scrambling to regain control over the direction of cross-strait ties. Chen’s Democratic Progressive Party still took the majority in May 14 National Assembly elections, but this mainly resulted from low voter turnout and Chen’s pro-independence backers’ superior ability to get their supporters to the ballot box. For his part, Chen tried to counter China’s political jousting by paying an unannounced visit to Fiji, one of the Pacific island nations currently recognizing Beijing instead of Taipei.

While China and Taiwan battled on the political playing field, Beijing sparred with Tokyo. Building on anti-Japanese demonstrations earlier in the year, China’s leadership sought a less internally destabilizing way to demonstrate disdain for Japanese Prime Minister Junichiro Koizumi. Beijing dispatched Vice Premier Wu Yi to Japan to mend fences with Tokyo. But just before her planned meeting with Koizumi, Wu said something had come up back home, and abruptly departed Japan — leaving Japanese politicians fuming at her rudeness. Exacerbating matters, Wu’s emergency apparently ended by the next day, and she traveled to Mongolia.

M i x e d F o r t u n e s i n S o u t h e a s t A s i a In Southeast Asia, a series of explosions in Yangon came at a time of renewed political focus on Myanmar’s military regime. Myanmar’s planned chairmanship of the Association of Southeast Asian Nations (ASEAN) had drawn criticism from the United States and European nations and also resulted in threats of ASEAN meeting boycotts. The bombings underscored ongoing troubles inside Myanmar, and Yangon quickly blamed the attacks on foreign-backed militants operating from neighboring Thailand.

Thailand already had enough troubles of its own, with continued militancy in the south. Prime Minister Thaksin Shinawatra’s policies have thus far failed to stem attacks, which continue to rock Thailand’s southern provinces.

In nearby Indonesia, on the other hand, things are looking up. Jakarta ended its state of emergency in its semiautonomous Aceh province, reopened peace

While China and Taiwan ba�led on the political playing field, Beĳing sparred with Tokyo.

The bombings underscored ongoing troubles inside Myanmar.


J U N E 2 0 0 5

talks with the separatist Free Aceh Movement, and garnered expanded political and military ties with Australia and the United States. Indonesian President Susilo Bambang Yudhoyono traveled to the United States to meet U.S. President George W. Bush and was promised increased military assistance — something Jakarta desperately needs.

Finally, U.N. peacekeepers left Southeast Asia’s youngest nation, East Timor. But Dili found its economic condition little improved, as Australia has devised an energy-resources-rights deal that will leave East Timor dependent on Australian aid, security and assistance for years to come.

K e y I s s u e s

T h e M i d d l e K i n g d o m Ta k e s C e n t e r S t a g eChina, the Middle Kingdom, occupies the epicenter of some of Asia’s most pressing issues — from its domestic economic growing pains to the confrontation over trade and currency issues with the United States and Europe, from the North Korean nuclear crisis to the Taiwan Strait tensions, and from the readjustment of regional political and security ties to the looming question of the “China threat” posited by the United States.

China’s economic troubles are twofold. Internally, Beijing is presiding over an inefficient economic system it is changing in fits and starts in a cautious attempt to maintain economic growth and social stability — all while preserving the political elite. Externally, Beijing has competed with its Asian neighbors, gained accession into the WTO, and now faces strong pressure from the United States and the European Union over its textile exports and the value of the yuan.

A n U n s u s t a i n a b l e E c o n o m i c M o d e lSince the launch of economic reforms more than two decades ago, China has run its economy on two of the least accountable or sustainable economic models — the East Asian model and the communist model. The East Asian economic model, followed early on by Japan, South Korea and the Southeast Asian “tigers” of the early 1990s, is based on the idea of growth for growth’s sake. Growth serves as the primary measure of success, with profitability coming in a distant second. Large, family-based, government-linked conglomerates dominate the landscape, creating such odd mergers as shipbuilding, instant food production and banking.


J U N E 2 0 0 5

In China, this model was only slightly modified with the formation of the state-owned enterprises (SOEs) based on regions and towns, with Communist Party officials at the various SOEs’ helms. Filial piety was replaced by Party loyalty, or more accurately, by loyalty to a specific Party boss. The SOEs created a redundant, unprofitable system of businesses and enterprises supporting entire villages while avoiding competition with other similar industries in other parts of China.

The communist economic model brought two key aspects — strong centralized planning, which undermined creativity and entrepreneurship, and a culture of avoiding the truth. Under this system, the central government handed down quotas, and each successive layer of bureaucracy claimed ever more exaggerated achievements. The factory manager would tell his superior he had met or exceeded quotas, regardless of whether he had. These assurances snowballed up the chain like the whisper game, yielding totally inaccurate figures at the top. This left the central government at first feeling proud and confident, later perturbed with the obvious obsequiousness, and finally frustrated by the lack of any reliable information on which to assess the economy or plan for the future.

Combined, these two systems allowed China to break rapidly into the international marketplace, grow at unnaturally high rates for years (even when Beijing tried to slow things down), suck up foreign investment and blind prospective investors and businesses into believing the miracle was unstoppable. All that is starting to change. Now, the debate has largely shifted from whether the Chinese economy is in trouble to whether the Chinese economy will have a hard or soft landing.

Growth only compounded existing inefficiencies, and by the time the Chinese government started to get a grip on the actual economic condition, massive restructuring clearly was necessary to bring about a more sustainable economic system. Entrenched corruption turned an economic issue into a political one, weakening the already diminished public perception of the Communist Party and its legitimacy. Deng Xiaoping had traded ideology for washing machines and refrigerators, and Jiang Zemin added cars, education abroad and the prospect for entrepreneurs to actually join the Party of the proletariat.

Hu and his premier, Wen Jiabao, face the daunting task of trying to maintain


J U N E 2 0 0 5

the Party’s legitimacy while undercutting economic growth, smashing the “iron ricebowls” of lifetime state support and throwing the entrenched politico-economic elite out on its ear. Hu’s room to maneuver is limited, however, as social unrest is a very real prospect in China, often triggered by economic and social issues. Further complicating matters, Jiang’s claim to fame — China’s WTO entry — limits Hu’s options. Jiang did the easy part — negotiating agreements. Hu has the difficult challenge — putting them into effect.

A B a n k i n g C r i s i s a n d Te x t i l e W a rBeijing already seeks a way out of its commitment to banking reform — even as it seeks foreign investors and partners for its state banks. The WTO regulation requiring China to open its banking system to foreign competition takes effect at the end of this year, but China is nowhere near ready. Foreign banks would undercut the Chinese banks’ ability to attract depositors — thus cutting off the money supply for semiofficial low-cost loans to Chinese SOEs, which prop up the social system — guaranteeing workers redundant jobs to keep them employed and off the streets. If Beijing reneges on its WTO commitments — a very real possibility — it risks bursting the bubble of optimism surrounding Chinese economic prospects — and undercutting the flow of investments and technology into China.


J U N E 2 0 0 5

Beijing is trying to clean out its banks, firing high-ranking banking officials for corruption in an attempt to make things look better for foreign investments and partnerships. It is slowly (and more and more reticently) preparing some of the largest state banks for initial public offerings. And it is looking for loopholes to avoid its WTO deadlines.

At the same time, the United States and the European Union have stepped up pressure on China to reduce textile exports and to revalue the yuan, which is viewed as being some 10 percent to 27 percent too low. Social and political priorities in China, Europe and the United States, however, make any rapid and mutually agreeable solution highly unlikely.

On Jan. 1, quotas on textile imports were lifted after a 10-year waiting period as agreed upon in the Uruguayan round of WTO discussions in 1995. This led to a surge of Chinese textile exports in the first quarter of 2005 — some 19.1 percent year on year. Beijing has argued that several factors caused the spurt in exports, including orders placed in November and December 2004, and the fact that the United States and Europe failed to phase out import quotas over the 10 years granted by the WTO, instead of lifting most of those quotas at once.

Whatever reasons China may have offered, Europe and the United States responded with their own actions. On April 4, Washington announced a 90-day investigation into three categories of Chinese textiles — a move followed two days later by the European Union’s announcement of plans for trade protection measures on a dozen categories of Chinese textiles. On May 13, Washington imposed quotas on three categories of Chinese textile products and said May 18 it would enact more.

On May 20, China responded by raising export tariffs on some 74 products. But as the European Union held out a final chance for informal negotiations with China before starting formal negotiations — which would allow the imposition of new quotas — Beijing reversed course. On May 30, Beijing revoked tariffs on 84 goods, declaring it was safeguarding some 100,000 Chinese jobs and that it was not fair for Chinese companies to be punished twice.

Criticizing the protectionist moves by the leaders of the global free market economy, China responded to the complaints by opening the cheap textile taps. This puts China on a direct course for conflict with Washington and


J U N E 2 0 0 5

Brussels, something Beijing sees as its best option. Beijing sees the European Union entering a serious internal crisis given France’s rejection of the EU constitution. It sees the United States as dependent on Chinese assistance to solve the North Korean nuclear crisis and to maintain stability in the Taiwan Strait. And it sees itself as Asia’s rising political star — the great power to challenge the United States, at least in one region. Whether these perceptions are accurate remains to be seen, but this is the core of the Chinese situation — and the core of Asia’s situation.

China’s spat with Japan over history, its nurturing of economic and defense ties with previous South China Sea rivals such as the Philippines and Indonesia, its growing economic ties to Latin America and expanding relations in Central Asia and India all represent manifestations of Beijing’s attempts to reclaim its Middle Kingdom status. They also represent manifestations of Beijing’s attempts to hold external pressures at bay and to find some way to restructure its domestic social and economic situation without triggering the massive upheaval that often heralds Chinese dynastic changes.

T h e M o n t h A h e a d : F o r e c a s t s f o r J u n e

H i g h l i g h t s : • Quarrels over Territory and Textiles • Warming to the North, Cooling to the East and West • China’s Southeast Asian Charm Offensive • Resurgence of the North Korean Nuke

While May began with a North Korean missile launch, June will begin with fireworks of its own — this time political in nature. Relations between Northeast Asian countries are at a low ebb, with Japan facing the ire of China and the Koreas. Several issues between these nations will come to a head in June. China and Japan continue to bicker over territorial issues, particularly as both nations seek to explore and exploit natural gas and oil deposits in the South China Sea. Seoul has territorial disputes with Tokyo, as well as lingering anger over a Japanese statement that Washington and Tokyo do not trust Seoul with intelligence on North

Given China’s ever-growing need for energy resources, it will not halt exploration activities.


J U N E 2 0 0 5

Korea. And North Korea remains an unsettled issue — one that Washington and Tokyo hinted would come to a head in June.

Q u a r r e l s o v e r Te r r i t o r y a n d Te x t i l e sAs May drew to a close, Beijing and Tokyo agreed the best way to solve their dispute over territorial maritime rights was through dialogue, but that is about as far as they got. Beijing will continue to explore the seabed for oil and gas deposits, and Tokyo will continue to call for China to suspend such activity. More talks can be expected in June, but after the Chinese vice premier left Tokyo abruptly in May, China does not appear ready to give in. Further, given China’s ever-growing need for energy resources, it will not halt exploration activities. Beijing already has struck a deal with the Philippines for joint exploration and will feel out other South China Sea nations in June and beyond for further cooperative deals.

The political bickering between Beijing and Tokyo will not be limited to the maritime border issue, however. Japan continues to increase economic and defense ties with Taiwan — something that infuriates Beijing. Beijing will respond by actively blocking Japan’s expected June bid for a permanent seat on the U.N. Security Council — even as China supports some other nations in their bids for a bigger council.

For Beijing, diatribes against Japan and snubs like the Chinese vice premier’s sud-den departure represent a low-cost mea-sure that stirs populism at home and keeps China’s citizens focused on phantom crises, rather than looking deeply at China’s domestic problems. China will follow this path regarding the EU and U.S. textile issue during June as well. On June 1, Beijing removes export tariffs on several textile products, and has played this up domestically as a way to protect Chinese workers targeted unfairly (and illegally, at least according to Beijing’s reading of WTO accords) by Western nations intent on keeping China down.

While Beijing will play up the textile issue at home, it also will seek a negotiated solution from Brussels and Washington. More talks can be expected in June, though little progress will come of them initially, given the

Snubs like the Chinese vice premier’s sudden departure represent a low-cost measure that stirs populism at home and keeps China’s citizens focused on phantom crises.


J U N E 2 0 0 5

political atmosphere surrounding the issue. A perceived confrontation is fine, but Beijing really wants to keep pressure at a minimum to devote its full attention to the delicate domestic tinkering that is supposed to bring it through its economic troubles without triggering new crises.

Washington has hinted at a six-month delay in truly pressing China, but the U.S. Congress seems intent on pushing a domestically popular China-bashing campaign. And Bush, already the target of media questions regarding his “lame duck” status, also might need to rally behind the populist movement at home.

Wa r m i n g t o t h e N o r t h , C o o l i n g t o t h e E a s t a n d We s tElsewhere, South Korea faces its own problems. Seoul will continue working for closer cooperation and integration with Pyongyang, sending a high-level delegation to Pyongyang in mid-June for the fifth anniversary of the inter-Korean summit and continuing ministerial talks with the North later in June. At the same time, South Korean President Roh Moo Hyun is preparing for a June 9-10 trip to Washington to meet with Bush — a meeting that will be anything but friendly.

Seoul and Washington stand miles apart on the North Korean question and on U.S. military base reform issues, and recent comments from Japan regarding U.S. distrust of Seoul will only fuel the fire. Rather than a meeting of minds, the visit is shaping up to be Roh giving Bush a piece of his mind, and Bush reciprocating. South Korea is anxious to see the six-party talks restart, and reports that investment into South Korea is flagging because of the nuclear crisis only add impetus to a South Korean government already downgrading growth prospects for the year.

Roh also is expected to face off with Koizumi in June to discuss the intelligence-sharing comments and disagreements on border issues (namely, over Dokdo/Takeshima Island), North Korea and divergent interpretations of history. Though Roh seeks to make Korea Asia’s hub, his troubles with Japan are growing. Moreover, as Japanese and U.S. defense ties tighten, South Korean defense ties with the United States are not yet on shaky ground, but certainly face a period of review and massive restructuring.


J U N E 2 0 0 5

C h i n a ’ s S o u t h e a s t A s i a n C h a r m O f f e n s i v eElsewhere in the region, China is set to step up its bilateral economic, political and security relations with various Southeast Asian nations. China long pursued a Pacific policy, buying off the loyalty of various South Pacific nations both to deny Taiwan potential diplomatic recognition and to have, at minimum, an early warning system to better watch the sea lanes from the United States to the Asia-Pacific rim. Beijing recently shifted to a closer ring of nations around the South China Sea, establishing or strengthening economic and military ties with Cambodia, Indonesia, Laos, Myanmar, Papua New Guinea and the Philippines, among others. This process will continue in June, as new frameworks for joint military training are established.

At the same time, Southeast Asian nations will continue to seek strengthened ties not only with China, but with the United States. Few are willing to put their full trust in either nation, as China is a powerful neighbor, while the United States remains the major economic, military and political force worldwide. In late June, Vietnamese Prime Minister Phan Van Khai plans to meet Bush in Washington. It would be the first visit by a Vietnamese prime minister since Vietnam’s reunification, and represents part of Hanoi’s second coming out party, after the first economic opening really failed to take foot.

Indonesia’s president, too, will seek to shore up ties with Washington after a fairly successful visit to the United States in late May. Yudhoyono wants to build on the summit with Bush and have complete military ties restored. But in the meantime, he will also look elsewhere for technology and support. To this end, he will continue looking into missile development with China and naval improvements with South Korea, among others. At the same time, domestically, Jakarta will step up the operations to hunt down foreign militants, particularly those related to the old Hambali cell of Jemaah Islamiyah. Jakarta also will focus on cleaning up the semiautonomous province of Aceh, both from the ravages of the tsunami and from the remnants of the Free Aceh Movement militants — the latter through negotiations and military action.

Southeast Asian nations will continue to seek strengthened ties not only with China, but with the United States.


J U N E 2 0 0 5

R e s u r g e n c e o f t h e N o r t h K o r e a n N u k eAnd finally, June will see a resurgence of diplomacy, warnings and threats surrounding the North Korean nuclear issue. With Washington and Tokyo hinting at a June deadline for North Korean action (and suggesting a North Korean nuclear test is imminent in June), Pyongyang again will rise to the top of the media headlines. Watch for developments on the issue when Roh visits Washington on June 10, at the June 15 inter-Korean summit and at the June 21-24 Korean ministerial meetings. Pyongyang will continue to seek to exploit rifts between Seoul and Washington, and will simultaneously use its burgeoning economic ties with Seoul to leverage its relations with Beijing.

While Pyongyang is eager for a solution to the crisis, it also is learning to live in its new space. As long as the ally system in Northeast Asia is off balance, North Korea can manipulate tense relations between Beijing, Seoul, Tokyo and Washington to its own best advantage. And while another missile test in June is not out of the question, a significant military showdown is unlikely.

Chinese goods by value as they export to China. In short, if China does not play ball by American and European rules, Washington and Brussels would have little trouble launching — and winning — a trade war.

The question, therefore, is how much will the Europeans move? On that issue, they are likely to take their cue from the Bush administration. Europe knows full well it is in a position of strength. It also knows the White House is facing similar pressure from Congress, which has attached an amendment to the Foreign Affairs Authorization Act that charges the executive branch to levy a 27.5 percent tariff on all Chinese imports. The Bush administration is trying to get the Chinese to fix the trade imbalance without trade sanctions by leaking that it wants to see Beijing unilaterally revalue the yuan upward from its current peg by at least 10 percent.

Such an amount would not satisfy Congress, or Europe, but would be a step in the right direction that would buy all parties a bit more time. For now, the issue is in Beijing’s hands and Brussels is content to take a backseat, playing less-bad cop to Washington’s bad cop, and U.S. Congress’ extremely bad cop. Ideally, Brussels would like to see the Chinese unilaterally alter their policies, but it will not shy away from strong action once the United States is on board as well.


J U N E 2 0 0 5

T r e n d s , S tat s a n d I n d i c at o r s

Brunei

Cambodia

China

Indonesia

Japan

Laos

Malaysia

Myanmar

North Korea

Philippines

Singapore

South Korea

Taiwan

Thailand

Vietnam

n/a = not available

All data are provided by the governments of respective countries, unless otherwise noted.

1 2003 from NIS 13 IMF 2004 25 UNCTAD 2003 2 2002 Mekong Capital Ltd. 14 Q1 2005 The Edge Daily 26 Deutsche Bank 2004 estimate 3 April 2005 from Xinhua 15 Q1 2005 National Statistics Coordination Board 27 CIA World Factbook 2004 estimate4 Q1 2005 (NBS) 16 Q1 2005 Phil. National Statistics Coordination Board 28 Asian Development Bank 2004 5 Bank of Korea 17 Jan. 2005 from NEDA 29 AT Kearny Consulting 2003 6 As percentage of 2004 Gross National Income - Bank of Korea 18 April 2005 NEDA 7 Yonhap News (May 31, 2005) 19 2003 SDS 8 2002 World Bank 20 2004 Xinhua 9 Korean Statistical Information System 2005 estimate 21 Jan.- May 2005 10 Q1 2005 MIAC 22 Asian Development Bank 2005 estimate 11 2003 World Bank 23 CIA World Factbook 2005 estimate 12 1997 CIA workbook 24 Q1 2005 year on year

1.5

4.1 1

578.9 4

224.4

5800

2.1

117.7 13

5.1

208 5

22.3 15

109.05

680 5

326

160 26

39.2 11

0.356

13

1.3 bn

211.7

127.7 ‘05 est.

5.7 2003

25.99

48.8

22.7 5

84 22

4 Jun ’04

48.4 6

22.7

65 23

81.3 11

n/a

311

1200

1059

45520

1759 11

4528

105

914 6

975

25,718

14,049

14356

2490

480

n/a

5.3

9.4 4

3.7

5.3 24

5 2003

5.7 14

5.3

2.2 7

4.6 16

3.2 24

4.6 5

3.63 ‘05 est.

5.1 Q4

7.2

2.0 25

87 mn 25

60.628

145.09 mn8

6.325

19.5 mn11

4.728

128.1 mn28

59 mn

57 mn28

11.429

3.829

n/a

1.726

2.1

n/a

2.5

4.2 2004

2.7 2003

4.4 Apr ‘05

5

3.413

4.2 2004

n/a

11.317

3.9

3.9

4.04

1.828

5.628

n/a

1.728

155.94

59.5

138.5 mn

540.8 mn11

143.4

2.5

n/a

34.8 2003

17.7Apr ‘05

23.15

49.4

96.426

20.111

n/a

2.312

139.3

48

116.3

579.5 mn‘04

118.213

1.9

n/a

36.1

15

21.18

47.7

84.9

25.211

n/a

5.9418

1.8 Apr ‘05

6.2

-0.2

10.628

2.7 Q1 ‘05

17.227

n/a

8.518

0.4

3.1

1.61

3.6

7.7

n/a

365 mn

659.1Mar ‘05

n/a

843.6

n/a

74.8

n/a

n/a

16.618

116

37.1

2.526

47.3 mn

n/a

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

sIn

com

ing

FDI

contr

acted

billio

ns US

D

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us

Brunei

Cambodia

China

Indonesia

Japan

Laos

Malaysia

Myanmar

North Korea

Philippines

Singapore

South Korea

Taiwan

Thailand

Vietnam

n/a = not available



1.5

4.1 1

578.9 4

224.4

5800

2.1

117.7 13

5.1

208 5

22.3 15

109.05

680 5

326

160 26

39.2 11

0.356

13

1.3 bn

211.7

127.7 ‘05 est.

5.7 2003

25.99

48.8

22.7 5

84 22

4 Jun ’04

48.4 6

22.7

65 23

81.3 11

n/a

311

1200

1059

45520

1759 11

4528

105

914 6

975

25,718

14,049

14356

2490

480

n/a

5.3

9.4 4

3.7

5.3 24

5 2003

5.7 14

5.3

2.2 7

4.6 16

3.2 24

4.6 5

3.63 ‘05 est.

5.1 Q4

7.2

2.0 25

87 mn 25

60.628

145.09 mn8

6.325

19.5 mn11

4.728

128.1 mn28

59 mn

57 mn28

11.429

3.829

n/a

1.726

2.1

n/a

2.5

4.2 2004

2.7 2003

4.4 Apr ‘05

5

3.413

4.2 2004

n/a

11.317

3.9

3.9

4.04

1.828

5.628

n/a

1.728

155.94

59.5

138.5 mn

540.8 mn11

143.4

2.5

n/a

34.8 2003

17.7Apr ‘05

23.15

49.4

96.426

20.111

n/a

2.312

139.3

48

116.3

579.5 mn‘04

118.213

1.9

n/a

36.1

15

21.18

47.7

84.9

25.211

n/a

5.9418

1.8 Apr ‘05

6.2

-0.2

10.628

2.7 Q1 ‘05

17.227

n/a

8.518

0.4

3.1

1.61

3.6

7.7

n/a

365 mn

659.1Mar ‘05

n/a

843.6

n/a

74.8

n/a

n/a

16.618

116

37.1

2.526

47.3 mn

n/a

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

sIn

com

ing

FDI

contr

acted

billio

ns US

D

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us


J U N E 2 0 0 5

Brunei

Cambodia

China

Indonesia

Japan

Laos

Malaysia

Myanmar

North Korea

Philippines

Singapore

South Korea

Taiwan

Thailand

Vietnam

n/a = not available



1.5

4.1 1

578.9 4

224.4

5800

2.1

117.7 13

5.1

208 5

22.3 15

109.05

680 5

326

160 26

39.2 11

0.356

13

1.3 bn

211.7

127.7 ‘05 est.

5.7 2003

25.99

48.8

22.7 5

84 22

4 Jun ’04

48.4 6

22.7

65 23

81.3 11

n/a

311

1200

1059

45520

1759 11

4528

105

914 6

975

25,718

14,049

14356

2490

480

n/a

5.3

9.4 4

3.7

5.3 24

5 2003

5.7 14

5.3

2.2 7

4.6 16

3.2 24

4.6 5

3.63 ‘05 est.

5.1 Q4

7.2

2.0 25

87 mn 25

60.628

145.09 mn8

6.325

19.5 mn11

4.728

128.1 mn28

59 mn

57 mn28

11.429

3.829

n/a

1.726

2.1

n/a

2.5

4.2 2004

2.7 2003

4.4 Apr ‘05

5

3.413

4.2 2004

n/a

11.317

3.9

3.9

4.04

1.828

5.628

n/a

1.728

155.94

59.5

138.5 mn

540.8 mn11

143.4

2.5

n/a

34.8 2003

17.7Apr ‘05

23.15

49.4

96.426

20.111

n/a

2.312

139.3

48

116.3

579.5 mn‘04

118.213

1.9

n/a

36.1

15

21.18

47.7

84.9

25.211

n/a

5.9418

1.8 Apr ‘05

6.2

-0.2

10.628

2.7 Q1 ‘05

17.227

n/a

8.518

0.4

3.1

1.61

3.6

7.7

n/a

365 mn

659.1Mar ‘05

n/a

843.6

n/a

74.8

n/a

n/a

16.618

116

37.1

2.526

47.3 mn

n/a

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

sIn

com

ing

FDI

contr

acted

billio

ns US

D

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us

Brunei

Cambodia

China

Indonesia

Japan

Laos

Malaysia

Myanmar

North Korea

Philippines

Singapore

South Korea

Taiwan

Thailand

Vietnam

n/a = not available



1.5

4.1 1

578.9 4

224.4

5800

2.1

117.7 13

5.1

208 5

22.3 15

109.05

680 5

326

160 26

39.2 11

0.356

13

1.3 bn

211.7

127.7 ‘05 est.

5.7 2003

25.99

48.8

22.7 5

84 22

4 Jun ’04

48.4 6

22.7

65 23

81.3 11

n/a

311

1200

1059

45520

1759 11

4528

105

914 6

975

25,718

14,049

14356

2490

480

n/a

5.3

9.4 4

3.7

5.3 24

5 2003

5.7 14

5.3

2.2 7

4.6 16

3.2 24

4.6 5

3.63 ‘05 est.

5.1 Q4

7.2

2.0 25

87 mn 25

60.628

145.09 mn8

6.325

19.5 mn11

4.728

128.1 mn28

59 mn

57 mn28

11.429

3.829

n/a

1.726

2.1

n/a

2.5

4.2 2004

2.7 2003

4.4 Apr ‘05

5

3.413

4.2 2004

n/a

11.317

3.9

3.9

4.04

1.828

5.628

n/a

1.728

155.94

59.5

138.5 mn

540.8 mn11

143.4

2.5

n/a

34.8 2003

17.7Apr ‘05

23.15

49.4

96.426

20.111

n/a

2.312

139.3

48

116.3

579.5 mn‘04

118.213

1.9

n/a

36.1

15

21.18

47.7

84.9

25.211

n/a

5.9418

1.8 Apr ‘05

6.2

-0.2

10.628

2.7 Q1 ‘05

17.227

n/a

8.518

0.4

3.1

1.61

3.6

7.7

n/a

365 mn

659.1Mar ‘05

n/a

843.6

n/a

74.8

n/a

n/a

16.618

116

37.1

2.526

47.3 mn

n/a

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

sIn

com

ing

FDI

contr

acted

billio

ns US

D

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us



J U N E 2 0 0 5

Brunei

Cambodia

China

Indonesia

Japan

Laos

Malaysia

Myanmar

North Korea

Philipines

Singapore

South Korea

Taiwan

Thailand

Vietnam

*Closing Rates

Beginning

1.6376

3839.6

8.2762

9511.4

105.06

7613.5

3.7999

5.6033

2.1969

54.445

1.6375

1001.2

31.356

39.531

14051.1

Low

1.6638

3839.6

8.2789

9513.6

108.18

7613.5

3.8004

5.6033

2.1969

54.688

1.6637

1009.9

31.475

40.630

14051.1

High

1.6368

3839.6

8.2738

9416.4

104.42

7613.5

3.7995

5.6033

2.1969

53.982

1.6367

995.70

31.002

39.440

14051.1

End

1.6596

3839.6

8.2738

9477.3

107.99

7613.5

3.8001

5.6033

2.1969

54.486

1.6636

1005.6

31.181

40.630

14051.1

Regional Currency Rates



J U N E 2 0 0 5

N o t e w o r t h y E v e n t s

May 1: North Korea test fires a KN-02 short-range ballistic missile.

May 1: Japanese Prime Minister Junichiro Koizumi announces the end of a seven-year freeze on Japanese loans to Pakistan at the end of a two-day trip to Islamabad.

May 1: Chinese computer manufacturer Lenovo completes an agreement to purchase the personal computer unit of IBM.

May 1: South Korea’s main opposition, the Grand National Party, takes five of six contested National Assembly seats in by-elections, increasing its number of seats to 125 in the 299-member assembly.

May 1: Taiwanese Nationalist Party Chairman Lien Chan visits Xian and Shanghai, China, before returning to Taiwan on May 3. China offers to lift the ban on Chinese travel to Taiwan.

May 1: China celebrates “Golden Week” holiday through May 7.

May 2: Philippine Defense Secretary Avelino Cruz meets with Japanese Self-Defense Forces Chief Yoshinori Ono to increase security cooperation and dialogue between the two countries.

May 3: South Korean media repeat stories that the United States and Japan see signs of a potential North Korean nuclear test as early as June.

May 3: Australian Defense Minister Robert Hill meets the Japanese minister of state for defense in Sydney, Australia, to discuss regional security and possible missile defense collaboration.

May 4: Taiwanese President Chen Shui-bian pays an unannounced visit to Fiji.

May 4: U.S. Deputy Secretary of State Robert Zoellick meets with Thai Foreign Minister Kantathi Suphamongkhon to discuss the Association of Southeast Asian Nations (ASEAN) and Myanmar, among other issues.

May 5: James Soong, chairman of the Taiwanese opposition People First


J U N E 2 0 0 5

Party (PFP), begins a nine-day visit to China at the invitation of Hu Jintao, chairman of the Communist Party and president of China. The PFP visit begins two days after the end of a mainland visit by the chairman of Taiwan’s Nationalist Party.

May 5: Chinese President Hu Jintao and U.S. President George W. Bush hold a telephone discussion on bilateral ties between their two countries and Chinese-Taiwanese relations.

May 5: Pakistani Prime Minister Shaukat Aziz visits Brunei, Malaysia, Singapore and Thailand on a one-week trip ending May 12 to promote Pakistani relations.

May 6: Indonesian Vice President Jusuf Kalla and Malaysian Deputy Prime Minister Najib Razak say that neither of the countries will withdraw its navy patrol ships from a standoff over a petroleum-rich area of the Celebes Sea but that they will negotiate disagreements and ensure the patrols do not create conflict.

May 6: Chinese Deputy Finance Minister Li Yong says Beijing is working hard to revise its exchange-rate system.

May 6: South Korean Foreign Minister Ban Ki-moon meets with Japanese Foreign Minister Nobutaka Machimura on the sidelines of the Asia-Europe Forum.

May 6: The Asia-Europe Forum is held through May 7 in Kyoto, Japan.

May 7: Chinese Foreign Minister Li Zhaoxing and Japanese Foreign Minister Nobutaka Machimura meet in Kyoto, Japan, on the sidelines of the Asia-Europe Forum.

May 7: Explosions at two supermarkets and a Thai trade fair shake Yangon, Myanmar. Eleven people die and 162 more are injured. State television blames the explosion on several ethnic militant groups, including the Karen National Union and the Shan State Army. May 7: An article in the online edition of China’s People’s Daily reports that Beijing will change the yuan-dollar peg in a week. The story is later retracted.


J U N E 2 0 0 5

May 7: South Korea and Russia seek to arrange a meeting between the leaders of each in Moscow within the week to discuss the issue of nuclear weapons on the Korean Peninsula.

May 8: South Korean President Roh Moo Hyun meets Chinese President Hu Jintao in Moscow on the sidelines of the celebration to commemorate the 60th anniversary of the Allied victory in Europe during World War II. The two discuss bilateral relations and the North Korean nuclear weapons issue.

May 8: Chinese President Hu Jintao meets Turkmen President Saparmurat Niyazov in Moscow on the sidelines of the celebration to commemorate the 60th anniversary of the Allied victory in Europe during World War II.

May 8: Pakistani Prime Minister Shaukat Aziz travels to Bangkok, Thailand, to begin a three-day visit. During the visit, Thai Prime Minister Thaksin Shinawatra and Aziz agree to step up economic cooperation, and Thaksin pledges Thailand’s support for Pakistan’s entry into Association of Southeast Asian Nations.

May 8: The State-Owned Assets Supervision and Administration Commission announces 25 state-owned enterprises in China will recruit foreigners and domestic entrepreneurs as senior managerial personnel.

May 8: South Korea’s maritime police will conduct a defense drill May 17 for the eastern islets of Dokdo, the ownership of which is contested with Japan.

May 8-14: Samoan Prime Minister Tuilaepa Sailele Malielegaoi and Chinese Premier Wen Jiabao meet and sign cooperation accords between Samoa and China.

May 9: South Korean President Roh Moo Hyun and Russian President Vladimir Putin meet in Moscow on the sidelines of the celebration to commemorate the 60th anniversary of the Allied victory in Europe during World War II.

May 9: Chinese President Hu Jintao meets with French President Jacques Chirac and Russian President Vladimir Putin in Moscow to commemorate the 60th anniversary of the Allied victory in Europe during World War II.


J U N E 2 0 0 5

May 9: The United States and Malaysia sign the 10-year Acquisition and Cross-Servicing Agreement in Kuala Lumpur, Malaysia.

May 9: Militant group Ansar al-Sunnah Army claims it took a Japanese contractor working in Iraq hostage. Tokyo confirms the kidnapping of a Japanese citizen employed in Iraq by a Cypriot security firm.

May 9: Pakistan confirms a deal with China for the joint production of JF-17 Thunder fighters, with the first four slated for delivery in 2006.

May 9: Indonesian and U.S. officials confirm that U.S. Navy SEALs and Indonesian forces are practicing anti-terrorism drills on islands near Jakarta, Indonesia.

May 9: The Asia-Pacific Economic Cooperation (APEC) forum opens a session in Lima, Peru, which will conclude June 3.

May 11: North Korea finishes removing 8,000 spent nuclear fuel rods from its Yongbyon reactor.

May 11: China’s People’s Daily online edition pulls a May 7 story on the future change of the yuan peg, saying it resulted from erroneous translation.

May 11: Chinese Foreign Minister Li Zhaoxing holds talks with Kyrgyz acting Foreign Minister Roza Otunbayeva during Otunbayeva’s four-day visit to Beijing.

May 12: Three bombs explode in southern Thailand, injuring at least five policemen.

May 12: Six Chinese airlines announce they have ordered 60 Boeing 787 Dreamliners.

May 12: China Southern Airlines agreed to buy 12 Boeing 737-700 aircraft and 33 Boeing 737-800 aircraft in a deal worth up to $3 billion.

May 13: Senior U.S. State Department officials visit North Korea’s U.N. office in New York to discuss the nuclear issue.

May 13: Governor of the Central Bank of China Zhou Xiaochuan denies reports the yuan peg will be appreciated May 18.


J U N E 2 0 0 5

May 13: The Committee for the Implementation of Textile Agreements, chaired by the U.S. Commerce Department, invokes safeguards on the growth of Chinese imports of cotton shirts, cotton trousers and cotton underwear to limit import growth to 7.5 percent per year.

May 14: Taiwan’s ruling Democratic Progressive Party wins 42.52 percent of the vote in National Assembly elections. The opposition KMT wins 38.92 percent, the Taiwan Solidarity Union takes 7.05 percent and the PFP wins 7.05 percent.

May 14: North Korea proposes a meeting with South Korea to discuss Pyongyang’s request for fertilizer supplies.

May 15: Myanmar alleges that militants attacking from Thailand allegedly sponsored by U.S. intelligence are responsible for several bomb attacks in Myanmar.

May 16: FORTUNE Global Forum, a three-day event, opens in Beijing, China.

May 16: Chinese Premier Wen Jiabao tells a U.S. Chamber of Commerce delegation that only China can reform its currency.

May 16-19: North and South Korean officials meet in Kaesong, North Korea.

May 17: The European Union demands that China take immediate action to curb exports of T-shirts and flax yarn to EU countries to an annual rate of 7.5 percent.

May 17: Chinese Vice Premier Wu Yi arrives in Japan for a week-long visit to improve relations between the two countries. Wu later abruptly ends the visit, canceling a planned meeting with Japanese Prime Minister Junichiro Koi-zumi.

May 17: The U.S. Treasury Department, as part of its twice-annual report to Congress, warns China that it could be accused of manipulating its currency to gain an unfair trade advantage over the United States unless Beijing acts swiftly to overhaul its currency system.


J U N E 2 0 0 5

May 17: Japanese Foreign Minister Nobutaka Machimura and Palestinian National Authority (PNA) President Mahmoud Abbas agree to hold bilateral meetings regarding Japanese aid to the Palestinians after PNA parliamentary elections in summer 2005.

May 18: The state of emergency in Indonesia’s semi-autonomous Aceh province is lifted.

May 18: Palestinian National Authority President Mahmoud Abbas meets with Chinese President Hu Jintao and Premier Wen Jiabao during a three-day visit to Beijing.

May 19: China launches a feasibility study regarding a free trade agreement with Iceland — its first such study with a European country.

May 20: China’s Customs Tariff Commission says it will raise export tariffs on 74 kinds of textile products, with a 400-percent increase on most of the products to go into effect June 1.

May 20: The last U.N. peacekeepers withdraw from East Timor. The mission is replaced with the U.N. Office in Timor-Leste, which will operate until May 20, 2006.

May 20: The Duma, Russia’s lower house of parliament, ratifies an agreement signed in October 2004 regarding the eastern border between Russia and China.

May 22: China orders emergency measures to block the spread of bird flu after the discovery that some migratory birds in the western province of Qinghai died from the virus.

May 22: Representatives of Japan and Malaysia reach an in-principle agreement on a free trade agreement.

May 22: Chinese President Hu Jintao meets with Takebe Tsutomu of the Japanese Liberal Democratic Party and Fuyushiba Tetsuzo of the Japanese Komei Party. The three discuss long-term bilateral relations between their two countries.

May 22: Thousands of Indonesian Muslims from 31 Islamic organizations


J U N E 2 0 0 5

protest outside the U.S. Embassy in Jakarta, Indonesia, against the alleged desecration of the Koran by U.S. personnel in Guantanamo Bay, Cuba.

May 22: The chairman of the National Committee of the Chinese People’s Political Consultative Conference meets the Fijian prime minister in Fiji to promote bilateral ties.

May 23: Chinese Defense Vice Minister Gen. Xiong Guangkai and Philippine Defense Undersecretary Antonio Santos meet in Manila. Beijing agrees to transfer $1.2 million of engineering equipment to the Philippines, exchange five military cadets for training and reduce tensions in the South China Sea.

May 23: Chinese Vice Premier Wu Yi cancels a planned meeting with Japanese Prime Minister Junichiro Koizumi.

May 23: Malaysian and Indonesian troops begin joint military exercises in eastern Malaysia.

May 23: The Mongolian prime minister says his country will increase cooperation with China on “quality supervision issues.”

May 23: Philippine President Gloria Macapagal Arroyo meets with Deputy Chief of the General Staff of the People’s Liberation Army of China Xiong Guangkai.

May 24: The U.S. Treasury Department leaks a report that the department has told China to revalue the yuan by at least 10 percent to prevent the passage of protectionist legislation by the U.S. Congress.

May 24: Chinese and European officials meet in Brussels to discuss curbing Chinese textile exports to the European Union.

May 24: Chinese President Hu Jintao meets in Beijing with Park Geun-hye, chairwoman of the South Korean opposition Grand National Party. The two discuss increasing exchanges between their countries and parties to further cooperation between their nations.

May 24: Chinese Vice Premier Wu Yi arrives in Ulan Bator, Mongolia, for a three-day visit to meet with the Mongolian President Nachagyn Bagabandy.


J U N E 2 0 0 5

May 24: Indonesian President Susilo Bambang Yudhoyono travels to the United States where he will meet U.S. President George W. Bush at the beginning of an international tour that will take him to Japan, the United States and Vietnam by June 3.

May 25: Interim Hong Kong Chief Executive Donald Tsang resigns to seek the office of chief executive of Hong Kong in the July 10 elections. Financial Secretary Henry Tang is appointed interim chief executive.

May 25: The European Union warns China that it has until May 31 to reduce surging textile exports of T-shirts and flax yarn before the EU imposes restrictions.

May 25: A spokesman for the Taiwanese Nationalist Party says party Chairman Lien Chan, scheduled to relinquish his post in July, will not seek another term.

May 25: Uzbek President Islam Karimov visits China until May 27. The two nations sign a Treaty on Friendly and Cooperative Partnership.

May 26: Plans for joint counterterrorism and peacekeeping-training programs between the armies of India and China are announced.

May 26: The United States announces renewal of the government sale of some non-lethal defense equipment and services to Indonesia. The U.S. arms embargo against Indonesia is not entirely lifted.

May 26: The U.S. Embassy in Jakarta, along with other U.S government facilities in Indonesia, closes for two days because of an unspecified security threat.

May 26: Talks between Indonesian government negotiators and representatives of the Free Aceh Movement enter a fourth round in Helsinki, Finland.

May 26: The People’s Bank of China says it will maintain the yuan’s stability and will continue gradually to reform China’s exchange rate mechanism.

May 26: U.S. Treasury Secretary John Snow says China needs to move “without delay” to reform its currency system.


J U N E 2 0 0 5

May 26: South Korea urges Japan to take disciplinary measures against Japanese Vice Foreign Minister Shotaro Yachi for remarks he made regarding ties between Seoul and Washington.

May 26: Indonesian police announce they are searching on the island of Borneo for wanted Malaysian militants Azhari bin Husin and Noordin Mohammad Top after receiving tips the two are hiding there.

May 27: North Korea calls U.S. warnings that Pyongyang is preparing to test a nuclear bomb a “fabrication.”

May 27: An Indonesian court sentences a 27-year-old Australian to 20 years of prison on drug charges.

May 27: China announces the decision of its top legislature, the Standing Committee of the National People’s Congress, to ratify the supplementary agreement on a section of China’s eastern border with Russia left unsettled since 1991, when the two sides signed a border treaty. The section under discussion constitutes less than 2 percent of the Chinese-Russian border.

May 27: China grants permission to private- and foreign-funded enterprises to participate in the development and production of Chinese weapons.

May 28: Two improvised explosive devices detonate in a market in the Christian-dominated town of Tentena, on Indonesia’s Sulawesi Island, leaving at least 21 people dead and injuring more than 30.

May 28: China Construction Bank approves the resignation of its two provincial branch heads in Shanxi and Hunan provinces after irregularities in the branches’ books are discovered.

May 28: Militant group Ansar al-Sunnah Army claims it killed a Japanese contractor working in Iraq that the group said it held hostage.

May 29: New Zealand Prime Minister Helen Elizabeth Clark arrives in Beijing to begin her three-day visit to China. Clark is expected to meet with Chinese President Hu Jintao and hold talks with Chinese Premier Wen Jiabao to discuss, among other things, enhancing bilateral ties and a Sino-New Zealand free trade area.


J U N E 2 0 0 5

May 30: China and Japan start a second round of consultations on the East China Sea question in Beijing. They held a first round of consultations in October 2004, when they agreed to resolve disputes over the East China Sea through negotiations.

May 30: China announces it will no longer impose export tariffs on 81 categories of textile products as of June 1 following an EU decision to impose quotas on imports of Chinese textiles and the recent U.S. decision to re-impose restrictions on seven kinds of Chinese textile and clothing imports.

May 30: Japanese Prime Minister Junichiro Koizumi pays tribute at Chidorigafuchi, the Japanese memorial to its unknown soldiers from World War II, without prompting complaints from other Asian countries. Koizumi’s visits to Yasukuni, a Shinto shrine that commemorates Japanese war criminals executed at the end of World War II, have sparked a bitter row with China.

May 31: Japanese and Chinese officials fail to reach an agreement regarding gas exploration in the East China Sea after two days of talks after the Chinese reportedly refuse to halt their exploration of the gas fields and the Japanese reject a Chinese proposal for joint exploration.

May 31: A Chinese Foreign Ministry spokesman said China is considering the possibility of deploying a military base in Kyrgyzstan, saying such a base would help fight three threats — terrorism, separatism and extremism. Kyrgyz Foreign Minister Roza Otunbayeva denies Kyrgyzstan has considered a Chinese base in Kyrgyzstan and says Kyrgyzstan will not become a hub of foreign military bases for various countries.

May 31: Indonesia’s government and the rebel group Free Aceh Movement ended peace talks and scheduled a fifth round of peace talks for July.

May 31: The Chinese government establishes a new national energy office, headed by Ma Kai, minister of the State Development and Reform Commission, to better deal with its energy shortage.

May 31: Thailand opens its national disaster warning center even though the center is still not fully complete, making it the first country to launch such an early warning system following the Dec. 26 tsunami disaster. About 50 stations are expected to be set up in at-risk coastal areas of Thailand.


J U N E 2 0 0 5

May 31: Romanian President Traian Basescu begins a visit to Japan.

J u n e a n d B e y o n d

June 1: Indonesian President Susilo Bambang Yudhoyono to meet, among others, leaders of the Japan International Cooperation Agency and the Japan External Trade Organization, on a trip to Japan. June 1-3: Asia-Pacific Economic Cooperation trade ministers to meet on the South Korean island of Cheju to discuss various trade issues.

June 2: Indonesian President Susilo Bambang Yudhoyono to meet Japanese Prime Minister Junichiro Koizumi to discuss bilateral relations.

June 2: Chinese Foreign Minister Li Zhaoxing, Russian Foreign Minister Sergei Lavrov and Indian External Affairs Minister Natwar Singh to meet informally in Vladivostok, Russia.

June 2-6: Peruvian President Alejandro Toledo Manrique to meet Chinese President Hu Jintao in China.

June 4: Chinese Foreign Minister Li Zhaoxing to attend a summit of the Shanghai Cooperation Organization in Astana, Kazakhstan.

June 9-10: South Korean President Roh Moo Hyun to meet with U.S. President George W. Bush in Washington.

June 15: A South Korean delegation to travel to Pyongyang, North Korea, to celebrate a five-year inter-Korean summit.

June 19-25: Vietnamese Prime Minister Phan Van Khai to visit the United States at the invitation of U.S. President George W. Bush.

June 20: Japanese Prime Minister Junichiro Koizumi and South Korean President Roh Moo Hyun to meet in Seoul.

June 21-24: Cabinet-level meetings to be held in North Korea and South Korea.

June 26: Asian, EU and various European nations’ ministers, among others, to gather in Japan to introduce a bill for the expansion of the U.N. Security Council.


J U N E 2 0 0 5

TBD: Chinese Foreign Minister Li Zhaoxing to visit the Middle East, probably in late June.

C h a n g e s

BruneiPrime Minister, Defense Minister, Finance Minister and Sultan Haji Hassanal Bolkiah announced a major reshuffle of his Cabinet in a televised address May 25, sacking four ministers and creating the post of minister of energy.

New second foreign affairs minister Lim Jock Seng, ethnically Chinese, is a career foreign-service worker and the first non-Muslim to serve in Brunei’s Cabinet. Yahya Bakar will head the newly created Energy Ministry. Since 2001, he served as both deputy secretary and permanent secretary in the Prime Minister’s Office. He is thought to be one of Sultan Bolkiah’s close ad-visers.

New Education Minister Haji Abdul Rahman has previously served as minis-ter for industry and primary resources.

New Communications Minister Abu Bakar bin Haji Apong has previously held several positions in the Education Ministry, including the office of perma-nent secretary since May 1999.

Crown Prince Gen. Haji Al-Muhtadee Billah, 31, was named senior minister in the Prime Minister’s Office, a position second only to the prime minister. He became crown prince in August 1998, putting him in line to succeed his father as sultan. The crown prince was named senior minister just eight months after marrying half-Swiss teenager Sarah Pengiran Salleh in September 2004.

Aside from the military, the background of the new minister of culture, youth and sports, retired Maj. Gen. Dato Seri Pahlawan Awang Haji Mohammad bin Haji Daud, is mainly in the business sector. He previously served as chair-man of the Brunei Economic Development Board.

Hong KongInterim Hong Kong Chief Executive Donald Tsang resigned May 25 to be-come a candidate in the July 10 chief executive elections. Hong Kong Finan-cial Secretary Henry Tang assumes his duties until the elections.


J U N E 2 0 0 5

North KoreaThe North Korean Presidium of the Supreme People’s Assembly issued a de-cree May 30 dividing the Ministry of Metal and Machine-Building Industries into two separate ministries.

South KoreaResults of April 30 South Korean by-elections for six seats in Parliament were announced May 1, when President Roh Moo Hyun’s Uri Party lost its majority in the 299-member National Assembly. The Uri Party now holds 146 seats in the assembly. The opposition Grand National Party won five of the races and now holds 125 seats. An independent candidate won the remaining seat.

TaiwanElections to the 300-seat Taiwanese National Assembly — the body that votes on constitutional changes already approved by the Parliament — were held May 14. The Democratic Progressive Party of President Chen Shui-bian won 127 seats in the assembly, followed by the National Party, which won 117 seats. The Taiwan Solidarity Union won 21 seats, while the PFP took 18 seats. Voter turnout for the election was a record low 25 percent.


J U N E 2 0 0 5

rench voters gave the EU constitution a resounding “no” vote May 29. With the French government in knots, the German government of Chancellor Gerhard Schroeder hanging by a thread and the idea of unity unraveling, Europe is trying to figure out: “What now?” In June, they will not have an answer.

T h i s M o n t h ’ s H i g h l i g h t s : I n E v e r y I s s u e : • EU Constitutional Failure • Trends, Stats and Indicators • The Dollar and the Euro • Noteworthy Events • A New Cold War? • The Month Ahead: France, Germany and the Voters

F


J U N E 2 0 0 5

urope is shaping up for its most dramatic political transformation since German reunification in 1993. The EU constitution, defeated in the May 29 French referendum, is on the rocks; the German government is in crisis and dissolving; and the United Kingdom — among the most euroskeptic of states — is about to take over the reins of EU leadership.

The result is a continent in transition as the dream of a fully united Europe finally gives way to the stark — and dramatically different — realities on the ground. The attitude throughout Europe has become a mix of confusion, resentment and apathy as few citizens understand where the European Union is going, what it means for them, or what the constitution is about in the first place. In the long run the constitution’s failure will not be mourned over too much, but for now its loss will create utter confusion throughout Europe as to both its significance and the path the European Union should take — if any — in the future. Such pensive wandering will persist throughout the rest of 2005.

Against this backdrop, many portions of Europe are independently churning, contributing to the sense of confusion and dawning change. In addition to the German government sliding into dissolution, the French government is losing its mandate to govern and the Basque rebellion in Spain is once again heating up.

Overarching it all, the United States is pushing deep in the Russian sphere of influence, complicating already strained relations between Moscow and a changing Europe.

EE x e c u t i v e S u m m a r y


J U N E 2 0 0 5

M a y : T h e M o n t h I n R e v i e w

U n r a v e l i n g t h e T i e T h a t B i n d sA new Europe is in the making. Dawning political crises in France and Germany combined with a stark rejection of the EU constitution in two referendums will tear apart the foundations of the previous 57 years of European integration. June 2005 will be marked as the point at which Europe as we know it began to change.

On May 29 French voters rejected the EU constitution — an act repeated June 1 by their Dutch counterparts. In doing so the two countries have not only set back the process of inexorable — if exhausting — European integration that began in 1948, but they have set the stage for an unraveling of both common European institutions and the French government itself.

The German government also landed itself in trouble. Facing a party brimming with discontent, German Chancellor Gerhard Schroeder called on his Social Democratic Party (SPD) to bring down his government in a vote that is technically unconstitutional.


J U N E 2 0 0 5

Only in Italy could stability be found. In late April the Italian coalition government descended into internal squabbling and teetered on the brink of collapse. Yet President Silvio Berlusconi managed to pull his disparate partners together and re-forge his government with minimal changes. Berlusconi already is the longest serving Italian prime minister in Italian post-World War II reconstruction history and now perhaps stands to be the only Italian leader of his era to serve out his entire term.

A N e w C o l d W a r ?Europe’s near abroad is undergoing massive changes as well. The United States in May intensified a standing policy that seeks to tease apart the Russian Federation’s final outposts as well as begin to break apart the Russian Federation itself. During U.S. President George W. Bush’s trip to Moscow for V-E Day commemorations, his jet landed long enough only for the president to take in a quick — and nearly hermetically sealed — parade between extended stops in Latvia and Georgia. U.S. policy already is deeply rooted, and Washington is sweeping Europe up in its plots, ready or not.

T h e B a s q u e R e s u r g e n c eOn the opposite end of the Continent the government of Spanish Prime Minister Jose Luis Rodriguez Zapatero attempted to capitalize on the weakening of nationalist Basque forces in regional elections in April by reaching out to the political moderates in the Basque Nationalist Party. That strategy is failing.

A last-minute decision by the outlawed Batasuna party, the political representative of the ETA separatist movement, to throw its support behind a dark horse party resulted in a shuffling of power away from moderate, nonviolent Basque separatists. The extreme nationalists feel completely ostracized by the system and are acting as if they have less to lose. Bombings are again becoming common in Spain’s Basque regions; a May 25 daytime car bomb injured 52 people.

K e y I s s u e s

E u r o p e a n U n i t y a n d t h e F r a n c o - G e r m a n C o r eEuropean unity has always found itself threatened by the Continent’s history of nationalistic clashes and wars, and now is no exception. But the failure to approve the EU constitution not only confirms Stratfor’s 2004 annual forecast


J U N E 2 0 0 5

that the year was actually the high-water mark for European political integration, but also that the underlying idea driving European unity — the goal of a federated super state — is fundamentally unworkable. A “united” Europe has now been rejected by none other than France, the architect of the original concept of a superpower Europe, and there is nowhere to go but down.

Until now the chief driver toward the ideal of a united Europe has been the Franco-German core. Europe pulls together almost by default as the two European heavyweights push ahead with major joint initiatives. That core is breaking up.

On May 22, Schroeder stunned his own party’s Bundestag representatives by announcing his intention to dissolve the Bundestag and call fresh elections. Technically, such an action is illegal under the German Constitution, but the SPD leadership already has backed the chancellor. Barring a mass effort by the socialist rank-and-file to restructure the party leadership, therefore, the standing government is about to pass on. Initial polls indicate that elections will decimate the Socialists and perhaps even grant the Christian Democratic Union (CDU) a majority for the first time in decades.

Schroeder is shaking up politics for two simple reasons. First, the German economy is in the doldrums, and Schroeder — rightly — believes the only way to salvage it is to engage in broad, deep reforms. However, his own party is ideologically hostile to the chancellor’s free-ish market efforts, forcing Schroeder to rely on opposition support in the Bundestag for economic policy. Schroeder wants his party to either issue him a blank check or step out of the way.

Second, Schroeder’s half-hearted attempts to implement reforms over his party’s opposition have landed him in the voters’ dog house. The German populace might realize the country needs reforms, but no one wants to pay for them. In trying to walk such a political tightrope, Schroeder has found himself with the worst of both worlds: enacting sufficient reforms to anger the populace, but not enough to restart growth. With growth perennially sluggish and unemploy-ment at 80-year highs, facing the electorate now would de facto mean a new government. The SPD plans to hold a vote of no confidence — in which

“United” Europe has nowhere to go but down.

Walking a political tightrope, Schroeder finds himself in the worst of both worlds.


J U N E 2 0 0 5

it is recommending its own members vote against the SPD-led government — by July 1.That would have massive implications for the European Union since the Schroeder government has been France’s most reliable and loyal partner in the entire post-World War II era. A German government under the CDU would hardly treat Paris coldly, but its views on everything from the United States to Russia to Turkey are worlds apart from the current broad alignment of interests.

U . S . - E u r o p e a n R e l a t i o n sU.S.-European relations are shifting. The limited warming that began after Bush’s re-election has continued as European leaders resign themselves to dealing with the Bush team for another four years. U.S. Secretary of State Condoleezza Rice’s European trips were received fairly well, and she already is engaging European leaders about the hows and whens of bringing Ukraine into the NATO alliance.

Beneath the headlines, however, two major shifts are brewing in U.S.-European economic relations. The first involves the slow — if jagged — rise in the dollar over the past seven months.

Beneath the headlines, two big shi�s are brewing.


J U N E 2 0 0 5

Europe’s core economic problem is that it does not react well to change — whether in the form of looser labor laws or more shareholder oversight. So the ideal situation for Europe would be a near-fixed exchange rate to eliminate meaningful currency risk. That, however, is not a world in which Europe lives. As a result, the European economy suffers whenever change is in the air and growth slows to a crawl as it has in the post-Sept. 11 period. In that period the falling U.S. dollar has made it difficult to increase exports to the United States, even as the Chinese currency peg (to the U.S. dollar) allows Chinese products to undermine European goods in their home market.

With the tide turning in the currency markets, Europe has a new problem to wrestle with. The one saving grace of the past three years for Europe has been that all crude oil and natural gas contracts are carried out in U.S. dollars, meaning that as the dollar has fallen the relative price of crude oil has not risen overmuch. With the dollar rising, however, the impact of crude oil prices will hit both Europe’s bottom line and its headline inflation — both of which will mitigate the export boom that Europe would otherwise have enjoyed.

The second economic shift affects both U.S. and European trade relations with China. As expected, Chinese textile exports surged in January 2005 as decades-old quota systems were abandoned as part of World Trade Organization (WTO)-mandated policy changes. Also as expected, politicians in both Europe and the United States were caught by surprise and acted with stunned disbelief when Chinese imports, which they had been warned about five years previously, began washing away domes-tic producers.

The question on both sides of the Atlantic is how to deal with the rising deluge of Chinese textiles — a question that dovetails nicely with mounting concern over the flood of Chinese goods in general. EU Trade Commissioner Peter Mandelson, under heavy pressure from the member states, has announced some limited sanctions of Chinese goods while, as of May 23, giving the Chinese only until May 31 to “rectify” the situation. As of June 1, the Chinese have chosen to pursue the nationalist route and instead surge exports — a move that will not impress the Europeans, whose desire for stability has made them long accustomed to robust trade barriers.

Both the United States and European Union are major importers of Chinese goods, but exports to China are but a minor portion of the Western total. In

China’s action is a no-surprise surprise.


J U N E 2 0 0 5

the case of the Europe, the EU-25 import more than 2.5 times as much in Chinese goods by value as they export to China. In short, if China does not play ball by American and European rules, Washington and Brussels would have little trouble launching — and winning — a trade war.

The question, therefore, is how much will the Europeans move? On that issue, they are likely to take their cue from the Bush administration. Europe knows full well it is in a position of strength. It also knows the White House is facing similar pressure from Congress, which is pushing for the executive branch to levy a 27.5 percent tariff on all Chinese imports. The Bush administration is trying to get the Chinese to fix the trade imbalance without trade sanctions by leaking that it wants to see Beijing unilaterally revalue the yuan upward from its current peg by at least 10 percent.

Such an amount would not satisfy Congress, or Europe, but would be a step in the right direction that would buy all parties a bit more time. For now, the issue is in Beijing’s hands and Brussels is content to take a backseat, playing less-bad cop to Washington’s bad cop, and U.S. Congress’ extremely bad cop. Ideally, Brussels would like to see the Chinese unilaterally alter their policies, but it will not shy away from strong action once the United States is on board as well.

R u s s i a n - W e s t e r n R e l a t i o n sRelations between the West and Russia are staggering under a broad Western geopolitical offensive into the former Soviet Union (FSU). The United States, with enthusiastic support from Central European EU members, is pushing deep into the former Soviet Union. Some, such as Poland, have helped draw countries such as Ukraine and Georgia away from the Russian orbit. Others, such as Latvia, are taking a more direct bead and are pursuing territorial claims against Russia itself.

As such the FSU-European border regions are turning into geopolitical pressure cookers. • Neither the Estonian nor Lithuanian leadership deigned to attend V-E Day celebrations in Moscow, and the Latvian president only attended to raise a fuss about how V-E Day for the Baltics marked the beginning — not the end — of a life under tyranny.

Europe is in a position of strength vis-à-vis China.

Central European EU members back the U.S. push.


J U N E 2 0 0 5

• The Baku-Tbilisi-Ceyhan pipeline, which will transport Caspian crude directly to the Eastern Mediterranean where it will be loaded onto tankers bound for the Eastern United States and Southern Europe, was inaugurated May 25. It was designed explicitly to avoid Russian territory. • The Bush administration and several European allies have formally put the government of Belarus in their sights and actively are calling for a Ukrainian-style revolution. • Bulgaria and Romania were both officially invited to join the European Union in late April. Their admission — in 2007 or 2008 — will geographically block all Russian influence into the Balkans. Both states are already NATO members. Bulgaria confirmed May 14 that it would be offering the United States the use of three of its military bases as part of Washington’s new “lily pad” strategy.

In general, the European states are broadly on board with the U.S. effort, mostly because they have no desire to live under threat of a nuclear war again; Central European states, having lived directly under Moscow’s yoke, are among the most supportive.

That has not gone unnoticed in Moscow, particularly among those in the security services, who (correctly) view the effort as nothing less than an attempt to destroy Russia as a geopolitical power. So far the Kremlin has withheld all but purely rhetorical responses, but barring a decision in Moscow to simply lie down and die this cannot last forever. If Russia is going to attempt to survive — much less restore its power — sooner or later it must act, and that will affect Europe’s entire eastern edge. The first meaningful action probably will involve Russia changing the amount it charges for its natural gas exports, for which most European states have no sufficient alternative suppliers.

For Russia to survive it must act – sooner or later.


J U N E 2 0 0 5

The euro is at a seven-month low.


H i g h l i g h t s : • Dealing With Constitutional Failure • French Presidential Campaign Begins • Auf Wiedersehen to Schroeder

June is going to be an extremely awkward month in Europe. With the failed EU referendums hanging like a pall over the Continent, the obvious question is: “What now?” Ever since French opinion polls began to report a less than enthusiastic mood, sources throughout the Continent have reported intense discussions at multiple levels as to how to answer that question. Though the sources made it all sound sophisticated, measured and cultured, the core response can most aptly be distilled down to an embarrassed, “We have no [expletive deleted] idea.”

L i f e B e y o n d t h e C o n s t i t u t i o nThe lack of an “idea” will dominate European news for the next month as politicians, citizens and market players all slowly digest precisely what it means when France rejects Europe. Those on both sides of every ideological divide will carry on endlessly about how their causes have been irrevocably supported or damaged by the lack of a constitution.

The markets and the euro will suffer — in no small part from European leaders saying that they would like to convince the French to vote “yes” — from the perceived lack of a European future, particularly when pundits begin to hypothesize about whether this is the beginning of the end of the Union. Already the euro is at a seven-month low. Stratfor fully expects the markets to finally take all of the atrocious data — from lackluster gross domestic product growth to sobering unemployment statistics — that Europe has produced over the past six months more seriously.

Beyond Europe the reaction to the constitution’s failure will be weak and extremely disjointed. The world has had more than a half century to get used to the idea of a slowly uniting Europe, and more than a decade to


J U N E 2 0 0 5

acclimatize to the current incarnation of that ideal. As of the time of this printing, the world has had only two days to get used to the idea that “Europe” is neither united nor is it inevitable. Global reactions to its gathering fall will be sporadic. Reinforcing that lack of activity are the simple facts that “Europe” has not been particularly effective at engaging others in foreign policy, and that few powers have the capacity to influence the development of the European Union.


J U N E 2 0 0 5

The holder of the EU presidency, Luxembourg will bring no clarity to this agony as Prime Minister Jean-Claude Juncker inadvertently has been a force for exposing and widening splits within the EU during the first five months of his six-month term. After rubbing most European leaders the wrong way on issues such as Croatia’s potential accession, reforming the Stability and Growth Pact and relations with the United States and Russia, Juncker is perhaps the worst EU head of government to be responsible for picking up the pieces after the French and Dutch rejections.

Perhaps the second worst is British Prime Minister Tony Blair — who takes over Juncker’s position July 1. Blair will be the first British leader since Winston Churchill to have a realistic chance of changing Europe’s direction, and the United States will seize on its partner’s coming term to make its own impact felt. But that is a forecast for another month.

This month will see quite a load of fallout from the vote. The United Kingdom already has made it (unofficially) clear that its own referendum will be delayed indefinitely, and the Poles are musing about whether to follow suit. But what is most notable is not what will happen in the as-yet misty months of 2006 when the constitution was supposed to be fully ratified, but what the Europeans will do about the constitutional crisis in June.

We expect nothing. Absolutely nothing.

There is little reason to feel so optimistic to think that damage will be limited to the constitution. A fate of the entire raft of other potential EU policies must be viewed in the context of the constitutional debate. Everything from the services directive (which would allow services firms the ability to freely compete across borders within the European Union) to the Lisbon Agenda (which aimed to im-prove European competitiveness) to pres-suring Croatia on participating with the International Criminal Tribunal for the former Yugoslavia (a precondition to membership talks) is shriveling on the vine due to a lack of attention. Now that the EU constitution has flopped, there will be even less attention to go around. Those who were hoping for something other than a bureaucracy stuck on autopilot will be grossly disappointed.

Tony Blair will take over the EU presidency.

The damage will not be limited to the EU constitution


J U N E 2 0 0 5

The constitution, despite all its flaws, might have made the Union more transparent, more functional and more accountable. No such luck. Instead, Stratfor fully expects June of 2005 to be the month that history ultimately pegs as the beginning of the end of Europe’s political union.

F r a n c e S t a l l sIn the meantime, the political chaos will be most acute in France, the country largely responsible for “Europe” in the first place as well as the vote that killed its constitution. Already the defeat has claimed the head of Prime Minister Jean-Pierre Raffarin. His replacement, Dominique de Villepin, is an ally of French President Jacques Chirac ideologically and personally and will implement nothing that varies from his predecessor.

After a few days of hand wringing the focus will shift from Europe and back to things closer to home such as the upcoming 2007 presidential elections. After the splitting of both the left and the right over the failed constitution, Chirac is a lame duck. In June, the French presidential campaign will unofficially kick into high gear.

The result is that Europe — at the EU level at least — is stalled. The European Commission is not at this point even trying to get back to business as usual, since doing so would require some of Europe’s major powers to at least pay attention. Instead, they all are occupied with their own concerns.

The best bet the Europeans have of resurrecting the constitution process involves letting political events in France run their course. The EU already has trotted out all of its top representatives — many of them French — in an ultimately failed effort to tease a “oui” out of the country that was until recently Europe’s greatest champion. What failed was not the EU as an institution or even the constitution as a document, but the French belief that the European Union is actually in its best interests.

France long championed the idea of a united Europe because Paris always assumed it would be able to lash the rest of the European states together into a platform from which it could punch above its weight in the international arena. But between the mass desertion from the common European (read:

European powers are occupied with their own concerns.


J U N E 2 0 0 5

Franco-German) position during the Iraq war and then the admittance of a gaggle of former Soviet states and satellites — that are both anti-Russian and pro-American — into the European Union in 2004, France found it driven home that the EU may be a supranational entity, but it is not one in which it can dictate its desires. In fact, under the constitution, a large enough majority of EU states could have forced policies on the Franco-German bloc.

That is the realization the French had to deal with May 29. If the EU constitution is going to have a future, one of two things must happen: either France must abandon all pretensions of international influence, or it must come to believe that at some point in the future it will be able to steer a Europe of 27 members as easily as it once steered a Europe of six. Either way, the decision must be made by the French in France, and either conclu-sion involves such heavy cultural implications that it could not possibly be resolved in 30 days.

In fact, the situation is even worse (for the constitution) than it appears. Much of the European populace — and governments — take extended vacations in July and August, making arranging a meeting, much less brokering agreement on any plan of action, extremely difficult. Also consider that on July 1 the United Kingdom, perhaps the country least inclined to ratify the constitution, takes on the EU presidency and chances are the entire constitutional issue is about to be put on ice.

S u n s e t a n d D a w n i n G e r m a n yBeyond the fallout from the constitutional debate, Germany will be the place to watch. Constitutional or not, the German government will vote itself out of power in a no confidence motion in June, paving the way for the Bundestag to be formally dissolved.

The one development that might forestall such German instability would be a capitulation in favor of economic reforms by the SPD’s left wing. If Schroeder succeeds in getting a blank check of support from his wayward party members, he will be able to suffer through the rest of his term. If not, the only questions left will be how deep will the German left split? And for how long? We will know the answer to the first question by the end of July. The second could well remain unanswered for years.

Now a decision with cultural implications must be made in France.


J U N E 2 0 0 5


Albania

Austria

Belgium

B-H 24

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Iceland

Ireland

Italy

Latvia

Lithuania

Luxembourg

Macedonia

Malta

Netherlands

Norway

Poland

Portugal

Romania

S & M 25

Slovakia

Slovenia

Spain

Sweden

Switzerland

United Kingdom

n/a = not available

4.41 10

291.9

351.5

5.07 10

19.9 10

28.19

11.4 10

107

241.8

9.1

185.9

2010.4

2703.1

205.2

99.7

12.16

181.7

1677.9

3.93 Q4 ‘04

6.32 Q1 ’05

31.7

4.7

5.37

579.0

250.1

241.6

167.7

36.0

14.9

41.2

25.4

991.7

346.0

358.8

2124.5

3.14

8.14

10.4

4.14 10

7.80

4.42 2003

0.73

10.21

5.40

1.35

5.22

59.90

82.53

11.04

10.12

0.29

4.03

57.89

2.32

3.44

0.45

2 10

0.4

16.26

4.55

38.19

10.41

21.71

8.16

5.4 10

2 10

42.34

8.97

7.36

59.67

$1,392 10

$35,860

$33,810

$1,225

$2,551

6,377

15607.89

10478.38

44797.69

6735.75

35615.07

33562.21

32752.26

18585.27

9854.99

41,865

45112.59

28985.18

1695.41

1833.48

70194.86

2350

13431.99 19

35613.24

54939.26

6326.16 20

16113.38

1658.12

1826.43

7629.63

12700

23419.36

38548.52

48722.86

35602.31

6.0 10

2.0

1.8

2.7 10

5.4 Q1

3.6 Q4

3.0 Q4 '04

4.2 Q4 '04

2.9

5.9 Q4 '04

2.0

2.3 Q4 '04

1.1

4.2 Q4 '04

3.9 Q4 '04

5.2

2.7 Q4 '04

-0.2

8.6 Q4 '04

5.6

3.8 Q4 '04

3.4 2003

2.3 Q4 '04

-0.3

2.9 Q4 '04

3.9 Q4 '04

0.6

4.3

8.0

5.8 Q4 '04

3.4 Q4 '04

2.7 Q4 '04

2.6 Q4 '04

1.2 Q4 '04

2.8

341

4001 11

3009 12

367 13

2500

1076

0.49 10

1007 Feb-Mar '04

2751.3 16

730 17

3299.3

47025.5

12878.4

661.6

2287

379.4

26912.6

16435.8

540 17

481.9

3009 18

150.1

0.29 10

19349.3

2632.4

7860

962.7

4100

996 21

678

-0.13 10

7187

2528.8

16565.7

14573.8

6.9 2003

4.6

8

n/a

11.9

18.7 Apr '05

5.1

8.3

5.4

7.9

8.3

9.8

9.8

10.5

6.3

3 Q1

4.3

8

9.4

8.6

4.5

n/a

6.8 7

4.6

4.4

18.1

6.9

7.1

n/a

15.9

5.8

10.2

6.3

4.3

4.7 Jan '05

1.23 Q1 '05

15

40.8

0.66 Jan-Apr '05

2.73 Q1

2.78 Jan-Apr '05

0.1

9.4

10

0.8

8

55.3

119.1

1.9

7.1

0.67

13

40.7

0.6

1.2

2.1

1.67

0.3

48

30.7 Q4

10.6

4.4

18.8

3.8

3.6

2.1

22.9

15.7

150 10

41.8

0.42 Q1 '05

14.8

40.4

2.89 Jan-Apr '05

3.6 Q1

5.74 15

0.7

9.1

9.2

1

6.5

59.5

92.7

6.4

7.6

0.83

8.3

44.3

0.9

1.5

2.6

2.9

0.4

42.8

20.7 Q4

11.3

6.5

24.7

11.75

3.8

2.2

33

12.9

n/a

57.4

-0.3 Apr '05

-0.3 Apr '05

0.2

0.6 14

1.1 Apr '04

-0.2 Apr

1.1

0.3

0.5

0.5

0.3

0.2

0

0.8

0.7

-0.5 May '05

0.6

0.8

1.1

0.3

0.7

1.2 2003

3.6 9

0.2

0.5

0.4

0.7

n/a

10.8

12.5

-0.1 22

1.4

0.2

0

1.9 Apr '05

1040

12700

14400

1800

6830

8190

3450

27000

38000

1380

11200

70800

96800

5800

12800

819

4150

63300

1540

3450

311

935

n/a

21400

37700

34000

12800

9450

4468.5 Apr '05

12100

8600

26800

22200

72.18 23

46100

All data are provided by the governments of respective countries, unless otherwise noted.1 OECD, 20042 Eurostat/US Bureau of the Census, 20043 at current market exchange rates4 Eurostat, Q1 '055 2003 OECD Mn $US unless otherwise specified. Some numbers in Euros.6 Eurostat, March 2004, billions of Euros7 Eurostat, Feb 20058 Eurostat, Feb 2005, billions of Euros9 Eurostat, April 200510 2003 World Bank11 EIU '0412 OECD '04 (Jan. - June) 24 Bosnia-Herzegovina 25 Serbia and Montenegro

13 State Dept. '04 (Jan.-Sept.)14 April 2005 - BiH Federal Office of Statistics15 Jan-Apr 2005 State Statistics Bureau16 2003 OECD17 Mn Euros '04 Unibank18 pooled FDI with Belgium19 2004 Malta NSO20 World Bank21 National Bank of Serbia '0422 2003 - Deutsche Bank Research23 Mn USD; April 2005, Swiss National Bank, Monthly Statistical Bulletin, May 2005

GDP

bil

lions

USD

at 20

04 m

arke

t pric

esPo

pula

tion

millio

ns

GDP

per

cap

ita

billio

ns U

SD at

2004

mar

ket p

rices

G

DP g

row

th

% ch

ange

from

year

prev

ious

Inco

min

g FD

I co

ntra

cted b

illion

s USD

Unem

ploy

men

t % Ex

port

sbil

lions

USD

Fore

ign

Curr

ency

Res

erve

s

billio

ns U

SD

Impo

rts

billio

ns U

SD

Infla

tion

CPI %

chan

ge fr

om m

onth

prev

ious

Albania

Austria

Belgium

B-H 24

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Iceland

Ireland

Italy

Latvia

Lithuania

Luxembourg

Macedonia

Malta

Netherlands

Norway

Poland

Portugal

Romania

S & M 25

Slovakia

Slovenia

Spain

Sweden

Switzerland

United Kingdom

n/a = not available

4.41 10

291.9

351.5

5.07 10

19.9 10

28.19

11.4 10

107

241.8

9.1

185.9

2010.4

2703.1

205.2

99.7

12.16

181.7

1677.9

3.93 Q4 ‘04

6.32 Q1 ’05

31.7

4.7

5.37

579.0

250.1

241.6

167.7

36.0

14.9

41.2

25.4

991.7

346.0

358.8

2124.5

3.14

8.14

10.4

4.14 10

7.80

4.42 2003

0.73

10.21

5.40

1.35

5.22

59.90

82.53

11.04

10.12

0.29

4.03

57.89

2.32

3.44

0.45

2 10

0.4

16.26

4.55

38.19

10.41

21.71

8.16

5.4 10

2 10

42.34

8.97

7.36

59.67

$1,392 10

$35,860

$33,810

$1,225

$2,551

6,377

15607.89

10478.38

44797.69

6735.75

35615.07

33562.21

32752.26

18585.27

9854.99

41,865

45112.59

28985.18

1695.41

1833.48

70194.86

2350

13431.99 19

35613.24

54939.26

6326.16 20

16113.38

1658.12

1826.43

7629.63

12700

23419.36

38548.52

48722.86

35602.31

6.0 10

2.0

1.8

2.7 10

5.4 Q1

3.6 Q4

3.0 Q4 '04

4.2 Q4 '04

2.9

5.9 Q4 '04

2.0

2.3 Q4 '04

1.1

4.2 Q4 '04

3.9 Q4 '04

5.2

2.7 Q4 '04

-0.2

8.6 Q4 '04

5.6

3.8 Q4 '04

3.4 2003

2.3 Q4 '04

-0.3

2.9 Q4 '04

3.9 Q4 '04

0.6

4.3

8.0

5.8 Q4 '04

3.4 Q4 '04

2.7 Q4 '04

2.6 Q4 '04

1.2 Q4 '04

2.8

341

4001 11

3009 12

367 13

2500

1076

0.49 10

1007 Feb-Mar '04

2751.3 16

730 17

3299.3

47025.5

12878.4

661.6

2287

379.4

26912.6

16435.8

540 17

481.9

3009 18

150.1

0.29 10

19349.3

2632.4

7860

962.7

4100

996 21

678

-0.13 10

7187

2528.8

16565.7

14573.8

6.9 2003

4.6

8

n/a

11.9

18.7 Apr '05

5.1

8.3

5.4

7.9

8.3

9.8

9.8

10.5

6.3

3 Q1

4.3

8

9.4

8.6

4.5

n/a

6.8 7

4.6

4.4

18.1

6.9

7.1

n/a

15.9

5.8

10.2

6.3

4.3

4.7 Jan '05

1.23 Q1 '05

15

40.8

0.66 Jan-Apr '05

2.73 Q1

2.78 Jan-Apr '05

0.1

9.4

10

0.8

8

55.3

119.1

1.9

7.1

0.67

13

40.7

0.6

1.2

2.1

1.67

0.3

48

30.7 Q4

10.6

4.4

18.8

3.8

3.6

2.1

22.9

15.7

150 10

41.8

0.42 Q1 '05

14.8

40.4

2.89 Jan-Apr '05

3.6 Q1

5.74 15

0.7

9.1

9.2

1

6.5

59.5

92.7

6.4

7.6

0.83

8.3

44.3

0.9

1.5

2.6

2.9

0.4

42.8

20.7 Q4

11.3

6.5

24.7

11.75

3.8

2.2

33

12.9

n/a

57.4

-0.3 Apr '05

-0.3 Apr '05

0.2

0.6 14

1.1 Apr '04

-0.2 Apr

1.1

0.3

0.5

0.5

0.3

0.2

0

0.8

0.7

-0.5 May '05

0.6

0.8

1.1

0.3

0.7

1.2 2003

3.6 9

0.2

0.5

0.4

0.7

n/a

10.8

12.5

-0.1 22

1.4

0.2

0

1.9 Apr '05

1040

12700

14400

1800

6830

8190

3450

27000

38000

1380

11200

70800

96800

5800

12800

819

4150

63300

1540

3450

311

935

n/a

21400

37700

34000

12800

9450

4468.5 Apr '05

12100

8600

26800

22200

72.18 23

46100



GDP

bil

lions

USD

at 20

04 m

arke

t pric

esPo

pula

tion

millio

ns

GDP

per

cap

ita

billio

ns U

SD at

2004

mar

ket p

rices

G

DP g

row

th

% ch

ange

from

year

prev

ious

Inco

min

g FD

I co

ntra

cted b

illion

s USD

Unem

ploy

men

t % Ex

port

sbil

lions

USD

Fore

ign

Curr

ency

Res

erve

s

billio

ns U

SD

Impo

rts

billio

ns U

SD

Infla

tion

CPI %

chan

ge fr

om m

onth

prev

ious


J U N E 2 0 0 5

Albania

Austria

Belgium

B-H 24

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Iceland

Ireland

Italy

Latvia

Lithuania

Luxembourg

Macedonia

Malta

Netherlands

Norway

Poland

Portugal

Romania

S & M 25

Slovakia

Slovenia

Spain

Sweden

Switzerland

United Kingdom

n/a = not available

4.41 10

291.9

351.5

5.07 10

19.9 10

28.19

11.4 10

107

241.8

9.1

185.9

2010.4

2703.1

205.2

99.7

12.16

181.7

1677.9

3.93 Q4 ‘04

6.32 Q1 ’05

31.7

4.7

5.37

579.0

250.1

241.6

167.7

36.0

14.9

41.2

25.4

991.7

346.0

358.8

2124.5

3.14

8.14

10.4

4.14 10

7.80

4.42 2003

0.73

10.21

5.40

1.35

5.22

59.90

82.53

11.04

10.12

0.29

4.03

57.89

2.32

3.44

0.45

2 10

0.4

16.26

4.55

38.19

10.41

21.71

8.16

5.4 10

2 10

42.34

8.97

7.36

59.67

$1,392 10

$35,860

$33,810

$1,225

$2,551

6,377

15607.89

10478.38

44797.69

6735.75

35615.07

33562.21

32752.26

18585.27

9854.99

41,865

45112.59

28985.18

1695.41

1833.48

70194.86

2350

13431.99 19

35613.24

54939.26

6326.16 20

16113.38

1658.12

1826.43

7629.63

12700

23419.36

38548.52

48722.86

35602.31

6.0 10

2.0

1.8

2.7 10

5.4 Q1

3.6 Q4

3.0 Q4 '04

4.2 Q4 '04

2.9

5.9 Q4 '04

2.0

2.3 Q4 '04

1.1

4.2 Q4 '04

3.9 Q4 '04

5.2

2.7 Q4 '04

-0.2

8.6 Q4 '04

5.6

3.8 Q4 '04

3.4 2003

2.3 Q4 '04

-0.3

2.9 Q4 '04

3.9 Q4 '04

0.6

4.3

8.0

5.8 Q4 '04

3.4 Q4 '04

2.7 Q4 '04

2.6 Q4 '04

1.2 Q4 '04

2.8

341

4001 11

3009 12

367 13

2500

1076

0.49 10

1007 Feb-Mar '04

2751.3 16

730 17

3299.3

47025.5

12878.4

661.6

2287

379.4

26912.6

16435.8

540 17

481.9

3009 18

150.1

0.29 10

19349.3

2632.4

7860

962.7

4100

996 21

678

-0.13 10

7187

2528.8

16565.7

14573.8

6.9 2003

4.6

8

n/a

11.9

18.7 Apr '05

5.1

8.3

5.4

7.9

8.3

9.8

9.8

10.5

6.3

3 Q1

4.3

8

9.4

8.6

4.5

n/a

6.8 7

4.6

4.4

18.1

6.9

7.1

n/a

15.9

5.8

10.2

6.3

4.3

4.7 Jan '05

1.23 Q1 '05

15

40.8

0.66 Jan-Apr '05

2.73 Q1

2.78 Jan-Apr '05

0.1

9.4

10

0.8

8

55.3

119.1

1.9

7.1

0.67

13

40.7

0.6

1.2

2.1

1.67

0.3

48

30.7 Q4

10.6

4.4

18.8

3.8

3.6

2.1

22.9

15.7

150 10

41.8

0.42 Q1 '05

14.8

40.4

2.89 Jan-Apr '05

3.6 Q1

5.74 15

0.7

9.1

9.2

1

6.5

59.5

92.7

6.4

7.6

0.83

8.3

44.3

0.9

1.5

2.6

2.9

0.4

42.8

20.7 Q4

11.3

6.5

24.7

11.75

3.8

2.2

33

12.9

n/a

57.4

-0.3 Apr '05

-0.3 Apr '05

0.2

0.6 14

1.1 Apr '04

-0.2 Apr

1.1

0.3

0.5

0.5

0.3

0.2

0

0.8

0.7

-0.5 May '05

0.6

0.8

1.1

0.3

0.7

1.2 2003

3.6 9

0.2

0.5

0.4

0.7

n/a

10.8

12.5

-0.1 22

1.4

0.2

0

1.9 Apr '05

1040

12700

14400

1800

6830

8190

3450

27000

38000

1380

11200

70800

96800

5800

12800

819

4150

63300

1540

3450

311

935

n/a

21400

37700

34000

12800

9450

4468.5 Apr '05

12100

8600

26800

22200

72.18 23

46100



GDP

bil

lions

USD

at 20

04 m

arke

t pric

esPo

pula

tion

millio

ns

GDP

per

cap

ita

billio

ns U

SD at

2004

mar

ket p

rices

G

DP g

row

th

% ch

ange

from

year

prev

ious

Inco

min

g FD

I co

ntra

cted b

illion

s USD

Unem

ploy

men

t % Ex

port

sbil

lions

USD

Fore

ign

Curr

ency

Res

erve

s

billio

ns U

SD

Impo

rts

billio

ns U

SD

Infla

tion

CPI %

chan

ge fr

om m

onth

prev

ious

Albania

Austria

Belgium

B-H 24

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Iceland

Ireland

Italy

Latvia

Lithuania

Luxembourg

Macedonia

Malta

Netherlands

Norway

Poland

Portugal

Romania

S & M 25

Slovakia

Slovenia

Spain

Sweden

Switzerland

United Kingdom

n/a = not available

4.41 10

291.9

351.5

5.07 10

19.9 10

28.19

11.4 10

107

241.8

9.1

185.9

2010.4

2703.1

205.2

99.7

12.16

181.7

1677.9

3.93 Q4 ‘04

6.32 Q1 ’05

31.7

4.7

5.37

579.0

250.1

241.6

167.7

36.0

14.9

41.2

25.4

991.7

346.0

358.8

2124.5

3.14

8.14

10.4

4.14 10

7.80

4.42 2003

0.73

10.21

5.40

1.35

5.22

59.90

82.53

11.04

10.12

0.29

4.03

57.89

2.32

3.44

0.45

2 10

0.4

16.26

4.55

38.19

10.41

21.71

8.16

5.4 10

2 10

42.34

8.97

7.36

59.67

$1,392 10

$35,860

$33,810

$1,225

$2,551

6,377

15607.89

10478.38

44797.69

6735.75

35615.07

33562.21

32752.26

18585.27

9854.99

41,865

45112.59

28985.18

1695.41

1833.48

70194.86

2350

13431.99 19

35613.24

54939.26

6326.16 20

16113.38

1658.12

1826.43

7629.63

12700

23419.36

38548.52

48722.86

35602.31

6.0 10

2.0

1.8

2.7 10

5.4 Q1

3.6 Q4

3.0 Q4 '04

4.2 Q4 '04

2.9

5.9 Q4 '04

2.0

2.3 Q4 '04

1.1

4.2 Q4 '04

3.9 Q4 '04

5.2

2.7 Q4 '04

-0.2

8.6 Q4 '04

5.6

3.8 Q4 '04

3.4 2003

2.3 Q4 '04

-0.3

2.9 Q4 '04

3.9 Q4 '04

0.6

4.3

8.0

5.8 Q4 '04

3.4 Q4 '04

2.7 Q4 '04

2.6 Q4 '04

1.2 Q4 '04

2.8

341

4001 11

3009 12

367 13

2500

1076

0.49 10

1007 Feb-Mar '04

2751.3 16

730 17

3299.3

47025.5

12878.4

661.6

2287

379.4

26912.6

16435.8

540 17

481.9

3009 18

150.1

0.29 10

19349.3

2632.4

7860

962.7

4100

996 21

678

-0.13 10

7187

2528.8

16565.7

14573.8

6.9 2003

4.6

8

n/a

11.9

18.7 Apr '05

5.1

8.3

5.4

7.9

8.3

9.8

9.8

10.5

6.3

3 Q1

4.3

8

9.4

8.6

4.5

n/a

6.8 7

4.6

4.4

18.1

6.9

7.1

n/a

15.9

5.8

10.2

6.3

4.3

4.7 Jan '05

1.23 Q1 '05

15

40.8

0.66 Jan-Apr '05

2.73 Q1

2.78 Jan-Apr '05

0.1

9.4

10

0.8

8

55.3

119.1

1.9

7.1

0.67

13

40.7

0.6

1.2

2.1

1.67

0.3

48

30.7 Q4

10.6

4.4

18.8

3.8

3.6

2.1

22.9

15.7

150 10

41.8

0.42 Q1 '05

14.8

40.4

2.89 Jan-Apr '05

3.6 Q1

5.74 15

0.7

9.1

9.2

1

6.5

59.5

92.7

6.4

7.6

0.83

8.3

44.3

0.9

1.5

2.6

2.9

0.4

42.8

20.7 Q4

11.3

6.5

24.7

11.75

3.8

2.2

33

12.9

n/a

57.4

-0.3 Apr '05

-0.3 Apr '05

0.2

0.6 14

1.1 Apr '04

-0.2 Apr

1.1

0.3

0.5

0.5

0.3

0.2

0

0.8

0.7

-0.5 May '05

0.6

0.8

1.1

0.3

0.7

1.2 2003

3.6 9

0.2

0.5

0.4

0.7

n/a

10.8

12.5

-0.1 22

1.4

0.2

0

1.9 Apr '05

1040

12700

14400

1800

6830

8190

3450

27000

38000

1380

11200

70800

96800

5800

12800

819

4150

63300

1540

3450

311

935

n/a

21400

37700

34000

12800

9450

4468.5 Apr '05

12100

8600

26800

22200

72.18 23

46100



GDP

bil

lions

USD

at 20

04 m

arke

t pric

esPo

pula

tion

millio

ns

GDP

per

cap

ita

billio

ns U

SD at

2004

mar

ket p

rices

G

DP g

row

th

% ch

ange

from

year

prev

ious

Inco

min

g FD

I co

ntra

cted b

illion

s USD

Unem

ploy

men

t % Ex

port

sbil

lions

USD

Fore

ign

Curr

ency

Res

erve

s

billio

ns U

SD

Impo

rts

billio

ns U

SD

Infla

tion

CPI %

chan

ge fr

om m

onth

prev

ious

Albania

Austria

Belgium

B-H 24

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Iceland

Ireland

Italy

Latvia

Lithuania

Luxembourg

Macedonia

Malta

Netherlands

Norway

Poland

Portugal

Romania

S & M 25

Slovakia

Slovenia

Spain

Sweden

Switzerland

United Kingdom

n/a = not available

4.41 10

291.9

351.5

5.07 10

19.9 10

28.19

11.4 10

107

241.8

9.1

185.9

2010.4

2703.1

205.2

99.7

12.16

181.7

1677.9

3.93 Q4 ‘04

6.32 Q1 ’05

31.7

4.7

5.37

579.0

250.1

241.6

167.7

36.0

14.9

41.2

25.4

991.7

346.0

358.8

2124.5

3.14

8.14

10.4

4.14 10

7.80

4.42 2003

0.73

10.21

5.40

1.35

5.22

59.90

82.53

11.04

10.12

0.29

4.03

57.89

2.32

3.44

0.45

2 10

0.4

16.26

4.55

38.19

10.41

21.71

8.16

5.4 10

2 10

42.34

8.97

7.36

59.67

$1,392 10

$35,860

$33,810

$1,225

$2,551

6,377

15607.89

10478.38

44797.69

6735.75

35615.07

33562.21

32752.26

18585.27

9854.99

41,865

45112.59

28985.18

1695.41

1833.48

70194.86

2350

13431.99 19

35613.24

54939.26

6326.16 20

16113.38

1658.12

1826.43

7629.63

12700

23419.36

38548.52

48722.86

35602.31

6.0 10

2.0

1.8

2.7 10

5.4 Q1

3.6 Q4

3.0 Q4 '04

4.2 Q4 '04

2.9

5.9 Q4 '04

2.0

2.3 Q4 '04

1.1

4.2 Q4 '04

3.9 Q4 '04

5.2

2.7 Q4 '04

-0.2

8.6 Q4 '04

5.6

3.8 Q4 '04

3.4 2003

2.3 Q4 '04

-0.3

2.9 Q4 '04

3.9 Q4 '04

0.6

4.3

8.0

5.8 Q4 '04

3.4 Q4 '04

2.7 Q4 '04

2.6 Q4 '04

1.2 Q4 '04

2.8

341

4001 11

3009 12

367 13

2500

1076

0.49 10

1007 Feb-Mar '04

2751.3 16

730 17

3299.3

47025.5

12878.4

661.6

2287

379.4

26912.6

16435.8

540 17

481.9

3009 18

150.1

0.29 10

19349.3

2632.4

7860

962.7

4100

996 21

678

-0.13 10

7187

2528.8

16565.7

14573.8

6.9 2003

4.6

8

n/a

11.9

18.7 Apr '05

5.1

8.3

5.4

7.9

8.3

9.8

9.8

10.5

6.3

3 Q1

4.3

8

9.4

8.6

4.5

n/a

6.8 7

4.6

4.4

18.1

6.9

7.1

n/a

15.9

5.8

10.2

6.3

4.3

4.7 Jan '05

1.23 Q1 '05

15

40.8

0.66 Jan-Apr '05

2.73 Q1

2.78 Jan-Apr '05

0.1

9.4

10

0.8

8

55.3

119.1

1.9

7.1

0.67

13

40.7

0.6

1.2

2.1

1.67

0.3

48

30.7 Q4

10.6

4.4

18.8

3.8

3.6

2.1

22.9

15.7

150 10

41.8

0.42 Q1 '05

14.8

40.4

2.89 Jan-Apr '05

3.6 Q1

5.74 15

0.7

9.1

9.2

1

6.5

59.5

92.7

6.4

7.6

0.83

8.3

44.3

0.9

1.5

2.6

2.9

0.4

42.8

20.7 Q4

11.3

6.5

24.7

11.75

3.8

2.2

33

12.9

n/a

57.4

-0.3 Apr '05

-0.3 Apr '05

0.2

0.6 14

1.1 Apr '04

-0.2 Apr

1.1

0.3

0.5

0.5

0.3

0.2

0

0.8

0.7

-0.5 May '05

0.6

0.8

1.1

0.3

0.7

1.2 2003

3.6 9

0.2

0.5

0.4

0.7

n/a

10.8

12.5

-0.1 22

1.4

0.2

0

1.9 Apr '05

1040

12700

14400

1800

6830

8190

3450

27000

38000

1380

11200

70800

96800

5800

12800

819

4150

63300

1540

3450

311

935

n/a

21400

37700

34000

12800

9450

4468.5 Apr '05

12100

8600

26800

22200

72.18 23

46100



GDP

bil

lions

USD

at 20

04 m

arke

t pric

esPo

pula

tion

millio

ns

GDP

per

cap

ita

billio

ns U

SD at

2004

mar

ket p

rices

G

DP g

row

th

% ch

ange

from

year

prev

ious

Inco

min

g FD

I co

ntra

cted b

illion

s USD

Unem

ploy

men

t % Ex

port

sbil

lions

USD

Fore

ign

Curr

ency

Res

erve

s

billio

ns U

SD

Impo

rts

billio

ns U

SD

Infla

tion

CPI %

chan

ge fr

om m

onth

prev

ious



J U N E 2 0 0 5

Albania

Austria

Belgium

B-H 24

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Iceland

Ireland

Italy

Latvia

Lithuania

Luxembourg

Macedonia

Malta

Netherlands

Norway

Poland

Portugal

Romania

S & M 25

Slovakia

Slovenia

Spain

Sweden

Switzerland

United Kingdom

n/a = not available

4.41 10

291.9

351.5

5.07 10

19.9 10

28.19

11.4 10

107

241.8

9.1

185.9

2010.4

2703.1

205.2

99.7

12.16

181.7

1677.9

3.93 Q4 ‘04

6.32 Q1 ’05

31.7

4.7

5.37

579.0

250.1

241.6

167.7

36.0

14.9

41.2

25.4

991.7

346.0

358.8

2124.5

3.14

8.14

10.4

4.14 10

7.80

4.42 2003

0.73

10.21

5.40

1.35

5.22

59.90

82.53

11.04

10.12

0.29

4.03

57.89

2.32

3.44

0.45

2 10

0.4

16.26

4.55

38.19

10.41

21.71

8.16

5.4 10

2 10

42.34

8.97

7.36

59.67

$1,392 10

$35,860

$33,810

$1,225

$2,551

6,377

15607.89

10478.38

44797.69

6735.75

35615.07

33562.21

32752.26

18585.27

9854.99

41,865

45112.59

28985.18

1695.41

1833.48

70194.86

2350

13431.99 19

35613.24

54939.26

6326.16 20

16113.38

1658.12

1826.43

7629.63

12700

23419.36

38548.52

48722.86

35602.31

6.0 10

2.0

1.8

2.7 10

5.4 Q1

3.6 Q4

3.0 Q4 '04

4.2 Q4 '04

2.9

5.9 Q4 '04

2.0

2.3 Q4 '04

1.1

4.2 Q4 '04

3.9 Q4 '04

5.2

2.7 Q4 '04

-0.2

8.6 Q4 '04

5.6

3.8 Q4 '04

3.4 2003

2.3 Q4 '04

-0.3

2.9 Q4 '04

3.9 Q4 '04

0.6

4.3

8.0

5.8 Q4 '04

3.4 Q4 '04

2.7 Q4 '04

2.6 Q4 '04

1.2 Q4 '04

2.8

341

4001 11

3009 12

367 13

2500

1076

0.49 10

1007 Feb-Mar '04

2751.3 16

730 17

3299.3

47025.5

12878.4

661.6

2287

379.4

26912.6

16435.8

540 17

481.9

3009 18

150.1

0.29 10

19349.3

2632.4

7860

962.7

4100

996 21

678

-0.13 10

7187

2528.8

16565.7

14573.8

6.9 2003

4.6

8

n/a

11.9

18.7 Apr '05

5.1

8.3

5.4

7.9

8.3

9.8

9.8

10.5

6.3

3 Q1

4.3

8

9.4

8.6

4.5

n/a

6.8 7

4.6

4.4

18.1

6.9

7.1

n/a

15.9

5.8

10.2

6.3

4.3

4.7 Jan '05

1.23 Q1 '05

15

40.8

0.66 Jan-Apr '05

2.73 Q1

2.78 Jan-Apr '05

0.1

9.4

10

0.8

8

55.3

119.1

1.9

7.1

0.67

13

40.7

0.6

1.2

2.1

1.67

0.3

48

30.7 Q4

10.6

4.4

18.8

3.8

3.6

2.1

22.9

15.7

150 10

41.8

0.42 Q1 '05

14.8

40.4

2.89 Jan-Apr '05

3.6 Q1

5.74 15

0.7

9.1

9.2

1

6.5

59.5

92.7

6.4

7.6

0.83

8.3

44.3

0.9

1.5

2.6

2.9

0.4

42.8

20.7 Q4

11.3

6.5

24.7

11.75

3.8

2.2

33

12.9

n/a

57.4

-0.3 Apr '05

-0.3 Apr '05

0.2

0.6 14

1.1 Apr '04

-0.2 Apr

1.1

0.3

0.5

0.5

0.3

0.2

0

0.8

0.7

-0.5 May '05

0.6

0.8

1.1

0.3

0.7

1.2 2003

3.6 9

0.2

0.5

0.4

0.7

n/a

10.8

12.5

-0.1 22

1.4

0.2

0

1.9 Apr '05

1040

12700

14400

1800

6830

8190

3450

27000

38000

1380

11200

70800

96800

5800

12800

819

4150

63300

1540

3450

311

935

n/a

21400

37700

34000

12800

9450

4468.5 Apr '05

12100

8600

26800

22200

72.18 23

46100



GDP

bil

lions

USD

at 20

04 m

arke

t pric

esPo

pula

tion

millio

ns

GDP

per

cap

ita

billio

ns U

SD at

2004

mar

ket p

rices

G

DP g

row

th

% ch

ange

from

year

prev

ious

Inco

min

g FD

I co

ntra

cted b

illion

s USD

Unem

ploy

men

t % Ex

port

sbil

lions

USD

Fore

ign

Curr

ency

Res

erve

s

billio

ns U

SD

Impo

rts

billio

ns U

SD

Infla

tion

CPI %

chan

ge fr

om m

onth

prev

ious

Albania

Austria

Belgium

B-H 24

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Iceland

Ireland

Italy

Latvia

Lithuania

Luxembourg

Macedonia

Malta

Netherlands

Norway

Poland

Portugal

Romania

S & M 25

Slovakia

Slovenia

Spain

Sweden

Switzerland

United Kingdom

n/a = not available

4.41 10

291.9

351.5

5.07 10

19.9 10

28.19

11.4 10

107

241.8

9.1

185.9

2010.4

2703.1

205.2

99.7

12.16

181.7

1677.9

3.93 Q4 ‘04

6.32 Q1 ’05

31.7

4.7

5.37

579.0

250.1

241.6

167.7

36.0

14.9

41.2

25.4

991.7

346.0

358.8

2124.5

3.14

8.14

10.4

4.14 10

7.80

4.42 2003

0.73

10.21

5.40

1.35

5.22

59.90

82.53

11.04

10.12

0.29

4.03

57.89

2.32

3.44

0.45

2 10

0.4

16.26

4.55

38.19

10.41

21.71

8.16

5.4 10

2 10

42.34

8.97

7.36

59.67

$1,392 10

$35,860

$33,810

$1,225

$2,551

6,377

15607.89

10478.38

44797.69

6735.75

35615.07

33562.21

32752.26

18585.27

9854.99

41,865

45112.59

28985.18

1695.41

1833.48

70194.86

2350

13431.99 19

35613.24

54939.26

6326.16 20

16113.38

1658.12

1826.43

7629.63

12700

23419.36

38548.52

48722.86

35602.31

6.0 10

2.0

1.8

2.7 10

5.4 Q1

3.6 Q4

3.0 Q4 '04

4.2 Q4 '04

2.9

5.9 Q4 '04

2.0

2.3 Q4 '04

1.1

4.2 Q4 '04

3.9 Q4 '04

5.2

2.7 Q4 '04

-0.2

8.6 Q4 '04

5.6

3.8 Q4 '04

3.4 2003

2.3 Q4 '04

-0.3

2.9 Q4 '04

3.9 Q4 '04

0.6

4.3

8.0

5.8 Q4 '04

3.4 Q4 '04

2.7 Q4 '04

2.6 Q4 '04

1.2 Q4 '04

2.8

341

4001 11

3009 12

367 13

2500

1076

0.49 10

1007 Feb-Mar '04

2751.3 16

730 17

3299.3

47025.5

12878.4

661.6

2287

379.4

26912.6

16435.8

540 17

481.9

3009 18

150.1

0.29 10

19349.3

2632.4

7860

962.7

4100

996 21

678

-0.13 10

7187

2528.8

16565.7

14573.8

6.9 2003

4.6

8

n/a

11.9

18.7 Apr '05

5.1

8.3

5.4

7.9

8.3

9.8

9.8

10.5

6.3

3 Q1

4.3

8

9.4

8.6

4.5

n/a

6.8 7

4.6

4.4

18.1

6.9

7.1

n/a

15.9

5.8

10.2

6.3

4.3

4.7 Jan '05

1.23 Q1 '05

15

40.8

0.66 Jan-Apr '05

2.73 Q1

2.78 Jan-Apr '05

0.1

9.4

10

0.8

8

55.3

119.1

1.9

7.1

0.67

13

40.7

0.6

1.2

2.1

1.67

0.3

48

30.7 Q4

10.6

4.4

18.8

3.8

3.6

2.1

22.9

15.7

150 10

41.8

0.42 Q1 '05

14.8

40.4

2.89 Jan-Apr '05

3.6 Q1

5.74 15

0.7

9.1

9.2

1

6.5

59.5

92.7

6.4

7.6

0.83

8.3

44.3

0.9

1.5

2.6

2.9

0.4

42.8

20.7 Q4

11.3

6.5

24.7

11.75

3.8

2.2

33

12.9

n/a

57.4

-0.3 Apr '05

-0.3 Apr '05

0.2

0.6 14

1.1 Apr '04

-0.2 Apr

1.1

0.3

0.5

0.5

0.3

0.2

0

0.8

0.7

-0.5 May '05

0.6

0.8

1.1

0.3

0.7

1.2 2003

3.6 9

0.2

0.5

0.4

0.7

n/a

10.8

12.5

-0.1 22

1.4

0.2

0

1.9 Apr '05

1040

12700

14400

1800

6830

8190

3450

27000

38000

1380

11200

70800

96800

5800

12800

819

4150

63300

1540

3450

311

935

n/a

21400

37700

34000

12800

9450

4468.5 Apr '05

12100

8600

26800

22200

72.18 23

46100



GDP

bil

lions

USD

at 20

04 m

arke

t pric

esPo

pula

tion

millio

ns

GDP

per

cap

ita

billio

ns U

SD at

2004

mar

ket p

rices

G

DP g

row

th

% ch

ange

from

year

prev

ious

Inco

min

g FD

I co

ntra

cted b

illion

s USD

Unem

ploy

men

t % Ex

port

sbil

lions

USD

Fore

ign

Curr

ency

Res

erve

s

billio

ns U

SD

Impo

rts

billio

ns U

SD

Infla

tion

CPI %

chan

ge fr

om m

onth

prev

ious



J U N E 2 0 0 5

Albania

Austria

Belgium

B-H 1

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Iceland

Ireland

Italy

*Closing Rates1 Bosnia-Herzegovina2 Serbia and Montenegro

Beginning

96.700

0.7776

0.7776

1.5210

1.5167

5.7255

0.4524

23.609

5.7911

12.1572

0.7776

0.7776

0.7776

0.7776

196.02

63.249

0.7776

0.7776

Low

96.180

0.7730

0.7730

1.5119

1.5097

5.6524

0.4479

23.178

5.7552

12.0458

0.7730

0.7730

0.7730

0.7730

193.16

63.249

0.7730

0.7730

High

100.09

0.8018

0.8018

1.5683

1.5673

5.8690

0.4616

24.437

5.9686

12.5561

0.8018

0.8018

0.8018

0.8018

203.53

66.758

0.8018

0.8018

End

100.09

0.8018

0.8018

1.5683

1.5673

5.875

0.4616

24.437

5.9686

12.5511

0.8018

0.8018

0.8018

0.8018

203.53

64.566

0.8019

0.8018

Latvia

Lithuania

Luxembourg

Macedonia

Malta

Netherlands

Norway

Poland

Portugal

Romania

S & M 2

Slovakia

Slovenia

Spain

Sweden

Switzerland

United Kingdom

Beginning

0.5411

2.6822

0.7776

47.7501

0.3339

0.7776

6.3249

3.3135

0.7776

28161

63.3236

30.615

186.41

0.7776

7.1579

1.198

0.5274

Low

0.5355

2.6576

0.7730

47.4646

0.3312

0.7730

6.2652

3.197

0.7730

27979

63.1649

30.041

185.19

0.7730

7.0854

1.1928

0.5250

High

0.5583

2.7702

0.8018

49.2342

0.3476

0.8018

6.4675

3.3424

0.8018

28958

65.8937

31.389

192.05

0.8018

7.3611

1.2389

0.5493

End

0.5584

2.7691

0.8018

49.2342

0.3476

0.8018

6.3941

3.3222

0.8018

28958

65.8937

31.348

192.05

0.8018

7.3611

1.2389

0.5484




J U N E 2 0 0 5


May 3: Unemployment in the 12-nation eurozone increases from 8.8 percent in February to a seven-month high of 8.9 percent in March. Germany contributed the most to the higher figure, with unemployment rising from 9.7 percent to 9.8 percent.

May 5: An explosion occurs outside the British Consulate in New York City; no injuries are reported.

May 5: In Spain, Prime Minister Jose Luis Rodriguez Zapatero meets with Basque regional President Juan Jose Ibarretxe to discuss Basque separatist group ETA and the general situation in the northern region following elections April 17. The talks come as Ibarretxe, whose Basque Nationalist Party won the elections but failed to achieve a majority in the 75-seat legislature, attempts to form a new regional government.

May 5: Britain’s Labor Party wins a parliamentary majority, returning Prime Minister Tony Blair to office for a third term. Labor took 356 parliamentary seats, while the Conservative Party won 197, the Liberal Democrats got 62 and other parties won 30 seats. Labor’s majority is harshly trimmed to 67 seats, down from 167 after elections in 2001. A poll shows that 46 percent of voters said Blair should step down within a year, and 72 percent want him to quit by 2008.

May 6: Greek Defense Minister Spilios Spiliotopoulos accuses Turkey of violating international law and endangering the region’s stability after planes from the Turkish air force allegedly entered Greek airspace without clearance May 4 and 5. A Greek army general staff source said interceptors engaged the Turkish planes in mock dogfights three times.

May 6: In Poland, President Aleksander Kwasniewski refuses to accept the resignation of Prime Minister Marek Belka, who had promised to lead a caretaker government for a year. Kwasniewski opts to keep the prime minister on for several more months to avoid a power vacuum during the May 16-17 Council of Europe summit in Warsaw.

May 10: Foreign Minister Gianfranco Fini says Italy will pull its 3,000 troops out of An Nasiriyah, Iraq, only after elections scheduled for December are conducted. Fini adds that the pullout decision depends on security conditions and will be made in cooperation with coalition and Iraqi troops.


J U N E 2 0 0 5

May 10: The United States and Spain make plans for joint task forces to investigate and combat international terrorism. The groups also will investigate funding sources for terrorist cells.

May 10: Russia and the European Union clinch “roadmap” agreements covering the economy; freedom, security and justice; external security; and research, education and culture. Russian President Vladimir Putin hails the deal, saying a strategic Russian-EU alliance is vital for Moscow and that the agreement will make a “greater Europe.”

May 10: The European Court of Justice says it expects a speedy conclusion to a three-year legal battle over rights to the word “feta” in labeling cheese.

May 11: Austria’s lower house of Parliament votes 182-1 to ratify the EU constitution. The ruling People’s Party says the constitution will give small countries more influence within the EU.

May 11: Bulgaria’s Parliament ratifies the accession treaty with the EU, with 230 of the 233 legislators voting in favor. Entry could be delayed until 2008 if Bulgaria fails to abide by its reform promises.

May 11: In France, security sources disclose the May 9 arrest of an Algerian Islamist believed to have supplied forged identification cards to volunteers seeking to fight U.S. forces in Iraq. The man does not appear to have links to other French jihadist networks broken up in April and May, though he could have ties to Tunisian Islamists based in southern France, investigators said.

May 12: Foreign ministers of France, Britain and Germany, along with EU foreign policy chief Javier Solana, warn that they will end negotiations and back a U.S. call to refer the issue of Tehran’s nuclear program to the U.N. Security Council if Iran resumes uranium enrichment.

May 12: A U.S. Senate report claims that British Parliament member George Galloway and former French Interior Minister Charles Pasqua collected profits from Iraqi oil sales as a reward from Saddam Hussein, though no evidence is provided. Galloway and Pasqua deny the allegations.

May 12: In Rome, figures from the Istat statistics office show Italy is in recession. Gross domestic product contracted 0.5 percent in the first quarter, following a 0.4 percent drop in fourth-quarter 2004. It is the second recession for Italy — Europe’s fourth-largest economy — in the last two years.


J U N E 2 0 0 5

May 12: A senior EU delegation places conditions on lifting an arms embargo against China, saying Beijing must make progress on human rights in four areas: release of the Tiananmen Square prisoners, ratification of the U.N. convention on political and civil rights, reform of China’s re-education-through-labor penal system and easing of media censorship.

May 13: The United States supplies new evidence to a German court where Moroccan Mounir al-Motassadeq is on trial. The six-page report consists of information gained through two captured al Qaeda members, Ramzi bin Al-Shibh and Mohamedou Ould Slahi. The United States rejected requests from Germany for additional information regarding accused Sept. 11 plotter Zacarias Moussaoui.

May 13: In the Czech Republic, Parliament votes 101-99 on a confidence motion to keep in power the center-left government of Prime Minister Jiri Paroubek, who was appointed April 25 as the state’s third prime minister in the span of nine months. May 14: Bulgaria will offer the United States the use of three military bases, which are yet to be chosen. The move is subject to parliamentary approval, with a final decision expected by year’s end. May 15: Bulgarian President Georgi Parvanov plans to visit Libya to discuss the case of five Bulgarian nurses facing death sentences after being convicted of intentionally transmitting HIV to hundreds of Libyan children.

May 15: Four small bombs targeting chemical plants, a paint factory and a metal works facility explode in the Guipuzcoa province of Spain’s Basque region. No serious damage is reported. May 15: Finance ministers meeting in Luxembourg on May 15 fail to agree on the format of a new EU budget for 2007-2013. France, the United Kingdom, Austria, the Netherlands and Sweden resist increasing their con-tributions from 1.0 percent of national income to the 1.4 percent recommended by the European Commission.

May 16: Britain’s former minister for European affairs, Denis MacShane, says Britain — which assumes the rotating EU presidency in July — should take responsibility “in shaping Europe’s destiny” if France rejects the EU constitution.


J U N E 2 0 0 5

May 16: Tassos Tzionis, head of the Cypriot president’s diplomatic office, meets with U.N. officials in Cyprus to restart unification talks, which fell apart in 2004.

May 16: Protests over the ending of a public holiday on Pentecost Monday disrupt the transportation and education sectors in France. The government sought to increase tax revenues by $2.5 billion by declaring the additional working day. May 16: Foreign Minister Miodrag Vlahovic says Montenegro will call a referendum on its status within the union of Serbia and Montenegro in February 2006.

May 16: Japanese Foreign Minister Nobutaka Machimura says Japan, Germany, Brazil and India will propose changes to the U.N. Security Council — including adding four permanent members and six rotating members — in June.

May 16-17: The Council of Europe meets in Warsaw, Poland.

May 17: In Spain, Parliament votes to restart talks with ETA if the separatist group renounces violence. May 17: A court in Britain rules that Babar Ahmad, a British subject alleged to have facilitated Internet fundraising for the Taliban, could be extradited to the United States, following assurances that he will not be executed or subjected to a military tribunal there.

May 17: British Foreign Minister Jack Straw meets with U.S. Secretary of State Condoleezza Rice in Washington.

May 17: To protect European textile producers, the EU demands that China take immediate action to curb exports of T-shirts and flax yarn to EU countries.

May 17: In Cuba, airport officials expel two center-right Polish members of the EU Parliament who have come to attend a meeting of Cuban opposition activists. The action prompts calls for renewed EU sanctions against Havana.


J U N E 2 0 0 5

May 18: Spain completes ratification of the EU constitution, with 225 of the country’s 232 senators voting in favor. The lower house of Parliament ratified the constitution on April 28, and 77 percent of the public voted in favor in a February referendum. May 18: Right- and left-wing groups in the United Kingdom launch campaigns opposing the EU constitution to influence the outcome of the May 29 referendum in France. The British referendum has not yet been scheduled.

May 18: Pakistan signs a deal enabling it to buy military hardware from the United Kingdom. Officials also agree to facilitate technology transfers and to hold joint military exercises, exchange observers and cooperate to fight terrorism. May 18: The German Cabinet approves legislation making it mandatory for Germany’s top 1,000 public companies to reveal pay levels for their executives. The law would replace a system of voluntary disclosure, under which only 20 percent to 30 percent of companies listed on the benchmark DAX index pledged to divulge the amounts. Companies refusing to make the information public include DaimlerChrysler AG, BASF AG and Porsche AG.

May 18: EU Commission Chief Jose Manuel Durao Barroso says the EU constitution draft will not be renegotiated if the charter is rejected by France on May 29. May 18: In Romania, both houses of Parliament unanimously ratify the country’s EU accession treaty. Romania is scheduled to take full membership Jan. 1, 2007.

May 18: An EU official in South Korea says the EU sees itself as a diplomatic buffer between the United States and North Korea and should have a role in helping to resolve the nuclear standoff.

May 18: Officials from the EU-3 (Britain, France and Germany) meet in Luxembourg with ministers from the Economic Community of West African States (ECOWAS).

May 19: Foreign Secretary Jack Straw says Britain might suspend plans for a referendum on the EU constitution if French voters reject it May 29.


J U N E 2 0 0 5

May 19: Officials in Belarus expel the first secretary at Poland’s embassy in Belarus, after Poland ejects the counselor of the Belarusian Embassy in Warsaw. May 19: In Belgium, the lower house of Parliament votes 118-18-1 to adopt the EU constitution; the upper house approved the charter in April. Approval from Belgian federated entities is required to complete the ratification pro-cess.

May 19: In France, opposition leader Francois Hollande of the Socialist Party says discontent with President Jacques Chirac is turning his party’s voters against the EU constitution.

May 19: Officials in Cyprus set the parliamentary vote on the EU constitu-tion for a special session June 30. All but one of the political parties, which holds 20 of the 56 parliamentary seats, are expected to vote in favor of the treaty.

May 19: NATO ambassadors vote to assist the African Union with planning, coordination, communications and training for peacekeepers in the Darfur region of Sudan. May 20: The governments of Germany, Italy, Poland and the Czech Re-public, along with EU officials, repudiate the expulsion by Cuba of two EU legislators — Sen. Karel Schwarzenberg of the Czech Republic and German Deputy Arnold Vaatz — who were banned from the country along with six Polish nationals over plans to meet with pro-democracy dissidents in Havana. Cuba also detained an Italian journalist in the same matter.

May 20: In Athens, Greece, anti-racism demonstrators protesting plans for a meeting of far-right European parties in September clash with police, and 100 people are arrested. Meanwhile, Molotov cocktails are thrown at three banks in central Athens, and 14 cars at a local Mercedes-Benz dealership are smashed. Several storefronts and parked cars also are damaged.

May 20: New statistics in France show the economy grew 0.2 percent in the first quarter of 2005 compared to the final quarter of 2004, when the coun-try posted revised growth of 0.7 percent. Compared to the first quarter of 2004, the economy grew 1.7 percent — the first time annualized growth has fallen below 2 percent since the fourth quarter of 2003.


J U N E 2 0 0 5

May 20: Danish Prime Minister Anders Fogh Rasmussen visits Washington, D.C.

May 22: In Germany, the conservative Christian Democratic Union — the largest opposition party — wins regional elections in North Rhine-Westphalia, taking 45 percent of the vote to 37.2 percent for the ruling Social Democratic Party.

May 22: EU leaders release a joint emergency statement calling for the ratification process to continue if France rejects the EU constitution.

May 22: Three Romanian journalists and their local translator, held captive in Iraq since March 28, are rescued.

May 23: The EU General Affairs and External Relations Council of Ministers meets in Belgium.

May 23: The EU demands that Microsoft reach compliance with EU antitrust laws — which include stipulations that competitors be provided with software source code — by the end of May 2005 or face fines and sanctions. The EU already has fined Microsoft $624 million; antitrust talks continue. May 23: Officials in Portugal say the country’s budget deficit will reach 6.83 percent of gross domestic product in 2005 — more than twice the EU limit of 3 percent — but acknowledge that the deficit-cutting package that will follow comes at a bad time. Portugal entered its third recession in three years in the fourth quarter of 2004.

May 23: In Germany, Chancellor Gerhard Schroeder meets with President Horst Koehler to discuss calling an early national election, following the Social Democratic Party’s defeat in North Rhine-Westphalia. Under the constitution, Schroeder must lose a confidence vote in the Bundestag before new elections can be called. Social Democratic Party Chairman Franz Muentefering says his party will call a confidence vote by July 1.

May 23: British Prime Minister Tony Blair plans to visit leaders in Italy, France, Germany, Russia and the United States to build support for agreements on Africa and climate change. He also plans to host video conferences with the prime ministers of Canada and Japan ahead of a G-8 summit in July.


J U N E 2 0 0 5

May 24: Italy’s budget deficit tops EU limits, reaching 3.2 percent of gross domestic product in 2003 and 2004.

May 24: The Organization for Economic Cooperation and Development reduces its estimates of economic growth among member states for 2005-2006, noting rising energy prices and a deepening slowdown in Europe. Growth for 2005 is now projected at 2.6 percent rather than 2.9 percent, and at 2.8 percent for 2006 — down from 3.1 percent. May 24: The head of the Dutch Labor Party says the Netherlands might consider a second referendum if voters reject the EU constitution June 1; the decision hinges on whether other countries have already rejected the constitution at that time.

May 24: The ZEW center for European Economic Research says investor confidence in Germany fell to a six-month low in May. The center’s index of institutional and analyst sentiment fell to 13.9 from 20.1 in April. May 24: The Christian Democratic Union (CDU) in Germany plans to block Turkey’s efforts to enter the EU if the CDU wins elections later in this year. Party leader Angela Merkel favors a privileged partnership, rather than full Turkish membership, with the union because of cultural differences. EU members must unanimously approve the negotiating strategy to be used with Ankara before membership talks begin Oct. 3.

May 24-25: The NATO Euro-Atlantic Partnership Council (Partnership for Peace) meets in Sweden.

May 26: EU and Andean Community ministers meet in Luxembourg.

May 26: EU-3 officials meet in Luxembourg with Central American foreign ministers, continuing the San Jose Process dialogue.

May 26: EU-Chile Association Council summit in Luxembourg.

May 26: EU and Mercosur state ministers meet in Luxembourg. May 26: Meeting of the EU-Mexico Joint Council in Luxembourg.

May 27: British Prime Minister Tony Blair to meets in Rome with Italian Prime Minister Berlusconi, ahead of the July 6-8 G-8 summit.


J U N E 2 0 0 5

May 27: Germany’s upper house of parliament, the Bundesrat, ratifies the EU constitutional treaty. The lower house, the Bundestag, ratified it May 12.

May 29: French voters reject the EU consitution.

May 30-June 15: Conference on Disarmament (Second Session) in Switzerland.

May 30-31: The 7th Euro-Mediterranean Conference in Luxembourg.

May 31: French President Jacques Chirac accepts the resignation of Prime Minister Jean-Pierre Raffarin and the appointment of his replacement, Dominique de Villepin.

May 31: The German center-right opposition, the Christian Democratic Union, announces that Angela Merkel will be its candidate for chancellor in early national elections expected in September.


June 1: The Netherlands’ referendum on the EU constitution. June 2-3: EU Justice and Home Affairs Council of Ministers meets in Luxembourg.

June 5: Referendum on Switzerland’s participation in the EU’s Schengen/Dublin association agreements, which permit the free movement of people between EU members, and make asylum granted in one EU country apply for all other members.

June 6: Presidential election in Hungary.

June 6-7: EU Competitiveness Council of Ministers meets in Luxembourg.

June 6: EU Economic and Financial Affairs Council of Ministers meets in Luxembourg.

June 9-10: NATO defense ministers’ meeting in Belgium.


J U N E 2 0 0 5

June 13-14: EU General Affairs and External Relations Council of Ministers meets in Luxembourg.

June 13: EU-Ukraine Cooperation Council meets in Belgium.

June 13-17: IAEA Board of Governors meets in Austria.

June 14: Ministers from the EU and European Economic Area meet in Luxembourg.

June 16-17: European Council (EU summit) in Belgium.

June 20: EU–U.S. summit in Washington, D.C.

June 24-25: The 30th session of the EC-ACP Council of Ministers meets in Luxembourg.

June 25: Parliamentary election in Bulgaria.

June 26-29: German Chancellor Gerhard Schroeder begins visit to United States; scheduled to meet with President George W. Bush on June 27.

June 27-28: EU Transport, Telecommunications and Energy Council of Ministers meets in Luxembourg.

June 30: Luxembourg’s term as EU president ends.

July 1: The United Kingdom assumes the EU presidency through Dec. 31.

TBD: British Prime Minister Blair to meet with U.S. President George W. Bush ahead of the G-8 summit (July 6-8). Blair also will meet separately with French President Jacques Chirac and German Chancellor Gerhard Schroeder, likely in the first half of June. He also plans to meet with Russian President Vladimir Putin and via teleconference with Japanese Prime Minister Junichiro Koizumi.


J U N E 2 0 0 5

C h a n g e s

LithuaniaLithuanian Finance Minister Zigmantas Balcytis is a member of the country’s Social Democratic Coalition party and is taking over the office of minister of finance after serving nearly four years as the minister of transport and communications. In 1976, Balcytis completed his studies of finance and accounting at Vilnius State University and began working for Lithuania’s R&D Bureau under the Ministry of Food Industry. He further developed his political career by joining the Young Communist League, managing the Trade-Union Affairs and Training Center, serving as deputy governor of Vilnius County and first deputy director of Lithuanian-Hungarian JSC. He first got elected into the Lithuanian Parliament in October 2000, where he continues to serve.

United KingdomNew British Secretary of State for Defense John Reid is a senior member of the Labor Party and has held several Cabinet positions, including minister of state for defense, minister for transport, secretary of state for Scotland, secretary of state for Northern Ireland (the first Catholic to hold the position), sinister without portfolio (Labor Party chairman), leader of the House of Commons, lord president of the council and health secretary since he entered Parliament in 1987. He replaces Geoff Hooff. Reid began as a research officer for the Labor Party (1979-1983), then acted as a political adviser to Neil Kinnock (1983-1985) and organized Scottish Trade Unionists for Labour (1986-1987). He also is a former member of the Communist Party of Great Britain. He has a reputation as a tough fighter and shrewd negotiator.

Bosnia-HerzegovinaIvo Miro Jovic has been appointed as the Croat member of the country’s rotating tripartite presidency. Until his recent appointment he was a little-known politician serving in the lower house of Parliament. He is a member of the Croatian Democratic Community (HDZ) and was nominated for the presidency by the HDZ head. His nomination was strongly supported by the Bosnian Muslim Party and by the Party of Democratic Action, which is part of the ruling coalition with the HDZ.


J U N E 2 0 0 5

s the United States continued its geopolitical offensive into the former Soviet Union (FSU), the region moved into the spotlight in May when Russia hosted ceremonies commemorating the 60th anniversary of V-E Day. The anniversary celebration held much geopolitical significance: Russian President Vladimir Putin and U.S. President

George W. Bush met but failed to make improvements in their countries’ relations; Putin reached out to potential allies; and countries from around the world used the celebration as an opportunity to pick at Russia and open old wounds. Meanwhile, Ukraine faced an energy crisis, armed violence erupted in Central Asia, and leaders throughout the region began to see an acceleration of the U.S. geopolitical push into the FSU — a development that could prompt Putin to start pushing back.

T h i s M o n t h ’ s H i g h l i g h t s : I n E v e r y I s s u e : • Diplomacy and Disrespect on V-E Day • Trends, Stats and Indicators • Energy and Disunity in Ukraine • Noteworthy Events • Unrest in Central Asia • Power Struggles Throughout the FSU • The West Strengthens in the Caucasus • The Month Ahead: Outside Players, Internal Strife and New Alliances

A


J U N E 2 0 0 5

elebrations surrounding the 60th anniversary of V-E Day dominated the former Soviet Union (FSU) in May. The V-E Day ceremonies in Moscow, attended by major world leaders, became a venue for other countries to hurl accusations at Russia. This further alienated Russia — which is in critical condition geopolitically, but not dead — and

created the potential for a Russian backlash against its real and perceived enemies. Russian President Vladimir Putin and U.S. President George W. Bush met on the sidelines of the V-E Day celebrations, but the leaders failed to make improvements in relations. Putin also used the ceremonies as an opportunity to strengthen ties with those nations that could help Russia resist Washington’s geopolitical offensive into the FSU.

Another major event, the Ukrainian energy crisis, revealed a power struggle between the country’s president and prime minister — a conflict likely to hurt Ukraine internally and externally. May also saw an armed uprising in Uzbekistan’s volatile Fergana Valley — shockwaves from which will be felt across Central Asia, especially in Kyrgyzstan and Tajikistan — and two U.S. victories in the Caucasus as the Baku-Tbilisi-Ceyhan pipeline opened and Russia agreed to withdraw its military bases from Georgia (though that move probably will lead to more instability in Georgia).

The region faces three key issues: the continued U.S. geopolitical offensive and Moscow’s response; an intensifying power struggle inside Russia as political movements pulling the country in opposite directions could merge with social protests; and players other than Russia and the United States — most notably, China and Iran — entering the region with major ambitions.

In June, Stratfor forecasts rising tensions between Washington and Moscow as Russia moves indirectly to counter the U.S. push into the region. Rather than confront Washington outright, Russia will help other countries challenge U.S. policies. The Kremlin probably will turn east and south in its search for strategic allies, with its focus on developing partnerships with China and India by delivering energy to these Asian giants. June also will see continuing power struggles inside Russia, more Russian success against Chechen insurgents, further unrest in Central Asia, more insecurity in the Caucasus and several FSU regimes choosing between following the Bush administration’s line and standing their ground.

CE x e c u t i v e S u m m a r y


J U N E 2 0 0 5

M A Y : T H E M O N T H I N R E V I E W

V- E D a y : P u t i n H o s t s W o r l d L e a d e r sThe 60th anniversary of V-E Day was a prominent event for the former Soviet Union (FSU); after all, during World War II, every country in the region was part of the Soviet Union — which suffered the greatest casualties and which turned the tide against Nazi Germany — and leaders from around the world attended the V-E Day ceremonies in Moscow.

For Russia itself, the anniversary was bittersweet, as it became clear that 60 years after Russia’s greatest geopolitical triumph — the end of World War II — the country is still recovering from what Russian President Vladimir Putin called the century’s greatest geopolitical catastrophe — the collapse of the Soviet Union. The V-E Day celebrations confirmed that the post-World War II world order has ended and a new order, in which the outcome of World War II bears little importance, has begun.

Events surrounding the V-E Day celebrations reminded Russia all too well of the pressure it has faced to give back what the Soviet Union gained after World War II. Latvia refused to sign a border treaty with Russia without attaching a unilateral declaration on its territorial claim to Russia. Georgia, concerned about the withdrawal of Russian military bases from its territory, did not send a delegation to Moscow for the celebrations. Japanese Prime Minister Junichiro Koizumi talked with Putin as if World War II made no difference and insisted that Tokyo will not cooperate with Moscow until Moscow cedes the four southern Kuril Islands to Japan. Nations — particularly small nations — treat a giant neighbor this way if they feel the giant is chronically, perhaps terminally, ill. Russia’s current condition means Putin will continue to face pressure from countries wanting to benefit from Russia’s weakness. The United States is first on this list.

U.S. President George W. Bush and Putin made no breakthrough during their summit on the sidelines of the celebrations; Putin neither confronted Bush nor made any concessions. Bush, perhaps feeling that too much outright pressure would not help the situation, softened his rhetoric toward Russia by telling Washington’s anti-Russian allies in the FSU — eager to please the United States and advance their own interests under U.S. protection — to deal with Russia at the negotiating table to settle disputes. Putin’s actions after the

Russia is still recovering from the collapse of the Soviet Union.


J U N E 2 0 0 5

summit showed that he will stay his course of Westernizing Russia while making independent policy moves to avoid subjugation to Western powers.

Putin used the celebrations to try to forge closer ties with countries that could help Russia fend off the U.S. geopolitical offensive into the FSU: France, Germany, China and India. Essentially, these countries told Putin they do not want a weak ally; rather, if Putin wants them in his corner, he should get tougher with Washington, thereby proving Russia’s strength and earning allies’ respect.

U k r a i n e ’ s E n e r g y C r i s i s R e v e a l s P o w e r S t r u g g l eUkraine was plunged into a major energy crisis, with large-scale oil shortages and skyrocketing gasoline prices. Ukrainian President Viktor Yushchenko and Ukrainian Prime Minister Yulia Timoshenko took opposite views on the crisis.

Timoshenko, known for radicalism in every field she enters, tried accusing Russian oil companies of fomenting the crisis. This contradicted two facts: first, the crisis began when Timoshenko arbitrarily imposed tariffs on oil imports from Russia; and second, some of the companies in question are Western-affiliated, such as TNK-BP, part of the BP energy empire. The West did not support Timoshenko; on the contrary, Europe appeared uneasy about Kiev employing government regulations instead of pursuing open market policies as the new regime promised. Yushchenko had to correct his maverick prime minister by blaming the government she leads for the problem and canceling the tariffs she imposed.

U z b e k U p r i s i n g S e n d s S h i v e r s A c r o s s C e n t r a l A s i aThe May 12-15 armed uprising — which media wrongly called “protests” — in Uzbekistan not only shook up the country but also sent shivers through all of Central Asia and the rest of the FSU. Confusion prevails about who took up arms and why in the city of Andijan, located in the volatile Fergana Valley. Stratfor’s view, based on intelligence received thus far, is that the unrest was a well-organized uprising against President Islam Karimov’s government.

The crisis began when Timoshenko imposed tariffs on Russian oil.


J U N E 2 0 0 5

Participating in the rebellion were moderate Islamists wanting to set up an “Islamic” democracy, radical Islamists trying to establish Islamist authoritarian rule in Uzbekistan, pro-Western business interests and youths attempting a “revolution” mirroring those in other FSU states, and criminal syndicates, especially drug-trafficking groups trying to undermine the regime and secure the free flow of drugs from Afghanistan through Uzbekistan and into Russia and Europe. The uprising apparently was led by the Fergana power clan, a group that the Karimov-led Samarkand clan and its ally the Tashkent clan constantly sidelined and deprived of power and wealth.

Uzbekistan’s unrest surely was influenced and inspired by the “Tulip Revolution” that overthrew the regime in neighboring Kyrgyzstan. The Andijan rebellion set in motion a slew of forces throughout Central Asia. Instability ensued in southern Kyrgyzstan, with ethnic tensions growing between Kyrgyz and Uzbeks and with drug barons and Islamists stepping up militant activities there. Turkmenistan, showing its concern, conducted major military exercises in May for the first time in several years. Kyrgyz and Uzbek leaders looked around to see which major foreign powers might lend them support.

T h e C a u c a s u s : W e s t e r n S u c c e s s Ve r s u s G r o w i n g I n s t a b i l i t yThe U.S.-led West and its allies scored two significant victories in the Caucasus in May. First and foremost, the Baku-Tbilisi-Ceyhan (BTC) pipeline was inaugurated, with the first crude expected to get through from the Caspian to Turkey in late fall. The BTC — which has higher costs than competing pipelines — has become a geopolitical choice because it bypasses Russia while delivering oil from the Caspian to the West, thus nullifying Russian influence over energy flow to Europe while increasing U.S. influence in the strategically important Caucasus.

The second Western victory in the region is Russia’s de facto agreement (the legally binding agreement is expected this June) to withdraw its bases from Georgia in 2008. Moscow previously insisted its withdrawal would take up to 15 years. Currently, Russia’s bases — operating in a hostile environment,

A diverse collection of forces took part in the Andĳan uprising in Uzbekistan.

The BTC pipeline increases U.S. influence in the Caucasus.


J U N E 2 0 0 5

with Georgians threatening to blockade the bases and Russians not daring to strike out at the U.S.-backed Tbilisi — play no role in Moscow’s force projection in the Transcaucasus or the Middle East. Rather, the few thousand Russian troops in Georgia are like hostages who would become the first casualties should Russo-Georgian relations become highly confrontational.

In spite of these successes, Washington has much to worry about in the Caucasus, starting with Georgia, because of worsening security and political instability there. Bush’s visit to Tbilisi was soured after the discovery of a hand grenade that landed close to where Bush stood during a speech, and which the FBI said was active. This, coupled with Georgian President Mikhail Saakashvili’s quickly fading popularity — caused mainly by the failing economy, which he pays little attention to — likely will lead to cooling relations between Washington and Tbilisi. Saakashvili’s reputation has also been hurt by his hard-line nationalist policies that allow abuse of minorities in the country (in May, some non-Georgians in the country were victims of ethnically motivated murders).

K E Y I S S U E S

T h e U . S . G e o p o l i t i c a l O f f e n s i v e a n d M o s c o w ’ s R e s p o n s eAs the world’s only superpower, the United States has begun advancing its forces, interests and allies deep into the FSU. The Bush administration’s strategic decision to make its geopolitical offensive into the FSU and Russia proper one of its top priorities makes Russia’s position untenable. The way the recent V-E Day celebrations in Moscow were met — and the way Russia was treated in the process — underscores Russia’s perils. Bush sandwiched his trip to Moscow between visits to his two most anti-Russian allies, Latvia and Georgia, where he spoke more about Russia as an occupying force after World War II than about Russia’s contribution to the Allied victory in Europe.

If Moscow does not react decisively — and quickly — Russia could slide into geopolitical, and perhaps historic, oblivion. In May, Russia toughened its response to Washington, yet Moscow continued to lose ground in its near abroad. Felix Kulov, a pro-Russian candidate for the Kyrgyz presidency, decided to withdraw

The United States has begun a geopolitical advance deep into the FSU.


J U N E 2 0 0 5

from the July presidential race — which he stood a good chance of winning — and serve as prime minister to the pro-U.S. Kurmanbek Bakiyev, who will likely win the Kyrgyz election. Furthermore, Russia agreed to almost all of Georgia’s demands on the issue of withdrawing its bases from Georgian soil — an issue in which Russia had the upper hand only several months ago.

Russia has yet to make large moves beyond rhetoric in standing up to Washington. For example, Russian Federal Security Service Director Nikolai Patrushev said May 13 that foreign intelligence services — including U.S., British, Kuwaiti and Saudi services — are planning further uprisings along the lines of Ukraine’s “Orange Revolution,” aimed at undermining Russian influence in the FSU. Yet after Patrushev’s statement, Moscow failed to take any action to stem the tide of these “revolutions.”

R u s s i a : G r o u p s F i g h t O v e r D r i v e r ’ s S e a tMuch of Russia’s response to the U.S.-led Western geopolitical offensive will depend on the outcome of its internal power struggles. Three major camps are vying for power in Russia, with each pursuing a different course inside the country and toward the West.

The first group consists of Russian national security agencies’ members and their affiliates. Contrary to conventional wisdom, this camp no longer defends Russia’s national interests. The members of this group — people from Putin’s inner circle — are mercenaries who consider their economic interests first and the country second; those who think otherwise are sidelined. This group wants to Westernize the country while remaining in power. This means that following Washington on major policies would not suit them; they believe if that happens, Washington could easily replace them with leaders who are openly and genuinely pro-Western, almost to the point of servility. Some Russian oligarchs belong to this first camp.

The failure of the Gazprom-Rosneft merger in May shows this group’s strength in Moscow. Rosneft CEO Sergei Bogdanchikov did not care to cede power to Gazprom CEO Alexei Miller, even though both men hail from St. Petersburg. Bogdanchikov and deputy head of the presidential administration Igor Selchin derailed the merger in an effort to consolidate Rosneft’s economic power, thus depriving Russia of the rare opportunity to

Russia must move beyond rhetoric to counter the U.S. push into the region.


J U N E 2 0 0 5

create the world’s largest energy company — a force capable of promoting Russian interests in the near and far abroad. Rosneft’s independence is good news for Putin — neither he, nor any Russian ruler, would have been able to control an energy giant the likes of which would have come from the Gazprom-Rosneft merger. When the merger fell through, Miller was kept from a position that could threaten Putin’s power.

The second group competing for influence in Russia comprises openly pro-Western liberals and oligarchs inside and outside the government. Members of this group keep strong positions in economic agencies — hence the steady ultra-liberal course of Russian reforms under Putin lately. The group has yet to choose a leader who would be a viable alternative to Putin. The meeting of the Union of Rightist Forces — Russia’s largest pro-U.S. political party — in May indicated that Anatoly Chubais, head of Russia’s United Energy Systems and one of the most powerful oligarchs, is gaining ground in the struggle for leadership of this camp; his crony Nikita Belykh has been chosen to lead the party.

Too impatient to wait until the 2008 presidential elections, and encouraged by the successful “revolutions” in the FSU and by U.S. support, this camp is preparing a pro-Western “revolution” in Russia itself. The first strike against the Kremlin probably will come in ethnic minority areas such as Bashkortostan, a Muslim-dominated area in the Middle Volga region that saw “revolution”-type protests in April and May.

The third group consists of national interests-minded Russian professionals who, despite Putin’s purges, still hold many low- and mid-rank positions in the government, especially in the military and intelligence. Though sidelined at the moment, they know their ideas of a Russian revival are very popular among the masses.

Protests against austerity and the current government’s monetarist policies — including cutting social benefits — continued across Russia through May, showing that the Russian public is slowly but surely awakening to become a force in determining Russia’s fate.

Rosne�’s independence is good news for Putin.


J U N E 2 0 0 5

O t h e r P l a y e r s A c c e l e r a t e E n t r y I n t o T h e F S UThe U.S.-Russian geopolitical struggle is no longer the only major external influence affecting the region. Seeing Russia’s weakness — and feeling concern about the deep U.S. penetration into the region — other major powers are entering the scene.

Europe usually sides with Washington when it comes to supporting pro-Western and often anti-Russian “revolutions” in the FSU, but May saw the first signs that Europe — perhaps because it has realized that ruining Russia would not serve its interests — would work to moderate the U.S. geopolitical offensive. Europeans have criticized Georgia’s pro-U.S. Saakashvili lately and told pro-U.S. Ukrainian leaders that they should maintain working relations with Russia because entering the European Union is not in Kiev’s foreseeable future. The most active outsiders in the FSU, however, are China and Iran.

China is very concerned with what it perceives as the long-term U.S. strategy to surround China with bases, forces and satellite states. Indeed, the movement of U.S. military forces and facilities into Central Asia at the beginning of the Afghan war in 2001 has put Americans right on China’s western border, where Beijing never expected them to be. The generally pro-U.S. “revolution” in Kyrgyzstan in April and Uzbekistan’s uprising in May multiplied those worries.

Beijing’s response has been — and probably will continue to be — forging closer security ties with FSU nations to create some buffer against U.S. troops or counter the U.S. presence. In particular, Beijing is talking with neighboring Kyrgyzstan about basing Chinese troops in the country, given the instability there and Bishkek’s likely inability to provide for security. Beijing also signed an agreement with Belarus, the strongest opponent of U.S. penetration into the FSU, to strengthen military cooperation. Uzbekistan’s Karimov — facing the West’s criticism and internal opposition and feeling that Russia is too weak or timid to rely on — signed a strategic partnership agreement in Beijing that envisions multiple lines of collaboration, including security, with China seeing Uzbekistan as a reliable barrier against the West.

Iran is another player to watch, as it has recently strengthened its influence in the Caucasus. Fearing that U.S. forces — which will move into Azerbaijan

The most active outsiders in the FSU are China and Iran.


J U N E 2 0 0 5

in accordance with an agreement Washington and Baku reached in principle — will use Azerbaijan’s territory to attack Iran, Tehran signed a nonaggression pact with its northern neighbor. The pact means that neither Azerbaijan nor Iran will let a third party use its territory to attack the other. Earlier, Iran reached out to Georgia, a major U.S. ally, and signed a number of economic accords with Tbilisi in an effort to counter Washington’s influence there and thus somehow limit U.S. ability to use Georgian territory and assets should the Bush administration decide to attack Iran.


H i g h l i g h t s : • Tension Between Moscow and Washington • Instability and Power Struggles • Continued Russian Victories in Chechnya • Russia’s Geopolitical Counteroffensive • Asian Giants Joining Forces

U . S . - R u s s i a n Te n s i o n s a n d R u s s i a ’ s P o w e r S t r u g g l eTwo major trends — unrelenting U.S. pressure on Russia and Moscow’s toughening stance against Washington’s geopolitical offensive — will result in growing tensions in June. The May 31 sentence handed down to Mikhail Khodorkovsky, the Yukos CEO and major shareholder who challenged Putin’s power, will set the scene for Washington and Moscow to deepen their rivalry.

The sentence — nine years in prison for Khodorkovsky, and the same term for Khodorkovsky’s associate, billionaire Platon Lebedev — is Putin’s first firm response to Washington’s attack. The Bush administration, rightly seeing Khodorkovsky as a pro-U.S. alternative to Putin, will encourage anti-Putin propaganda regarding this issue and try to make Putin force the judges

Iran has moved to counter U.S. influence in the Caucasus.

Khodorkovsky’s prison sentence is Putin’s first firm response to Washington.


J U N E 2 0 0 5

to soften the sentences. Whether Putin gives in will be a litmus test for his resolve to stand up to Bush not only in rhetoric but also in policy. We expect Putin to hold firm in June. U.S. and Russian officials have no scheduled meetings in June to discuss improving their countries’ relations.

Putin’s mid-May order to the Russian government to draft legislation limiting foreign investment into Russia’s strategic sectors — including defense, infrastructure, mining, railways, oil and natural gas — looks like a response to the West. However, the order has more to do with Putin’s desire to please various groups within Russia. Private sector oligarchs support limiting foreign investment because those limits enable them to control the domestic market. The nationalist siloviki, who constitute part of Putin’s support base and resent his recent concessions to Western interests, also support such measures, as do the Russian people. The only people affected by the proposed legislation are those who hoped Russia would break wide open for foreign control — something that was never a substantial possibility. Portfolio investment from abroad will still be an option in Russia, as illustrated by Gazprom’s plan to sell shares after the government acquires a controlling stake in the company.

The U.S.-Russian struggle over Khodorkovsky will facilitate internal political struggle in Russia. Pro-U.S. circles will step up their protests against Putin and try to unify to achieve eventual success, while some leftist and patriotic opposition groups will join the ranks of protesters, seeing common action as the only way to defeat Putin, whom some see as a dictator. These political protests could merge with the impoverished populace’s social protests — large demonstrations are expected, and violence is not out of the question. Putin should prepare for a hard time ahead, but he should cruise through June relatively safely; high oil prices will help Putin keep Russia’s economy afloat.

R u s s i a O p t s f o r I n d i r e c t R e s p o n s eIf the Putin government’s May actions are any indicator, the Kremlin will prefer to counter the U.S. geopolitical offensive indirectly, by making it more difficult for Washington to confront its other rivals and foes. Particularly, Moscow will continue and could even step up its arms sales to U.S. rivals.

Venezuela, for instance, is looking to purchase SU-27 Flanker fighters from Russia instead of the less-capable MiG-29SMT Fulcrums it previously considered. Putin knows selling SU-27s to Venezuela would create serious


J U N E 2 0 0 5

problems for the U.S. Navy and its aircraft should a conflict arise between Venezuela and the United States — a development that is not impossible. Sources in the Russian defense sector say several high-ranking delegations representing the top Russian military industrial complex will solicit buyers for Russian military hardware, including its latest arms systems, throughout the summer and early fall.

R u s s i a T u r n s E a s t , S o u t h i n S e a r c h o f A l l i e sAs its European partners face internal problems (French President Jacques Chirac’s failure to get the EU constitution endorsed in France and the threat of early elections for German Chancellor Gerhard Schroeder), Moscow will focus on forging close ties with China and India. In the past, such ties were based on security and defense cooperation, but Russia, China and India are trying to fill their alliances with real “meat” to make sure they are functional and meaningful. In June, they likely will discuss energy cooperation, given how energy-hungry the Chinese and Indian economies are.

The Russian, Chinese and Indian foreign ministers were meeting in Vladivostok, Russia, June 1-2 to specify economic cooperation issues and further business contacts; in particular, they planned to discuss the expansion of oil and gas exports from Russia to its two giant Asian partners. Later in June, Putin and Chinese President Hu Jintao will meet in a major push to build their countries’ partnership across the board. Energy will be very high on the agenda; Putin is expected to confirm that Yuganskneftegaz, a former production arm of Yukos that is now part of state-owned Rosneft, will help Rosneft not only fulfill but also increase oil deliveries to China. Future major gas deliveries to China will be discussed and probably agreed upon.

R u s s i a W i n s C a m p a i g n i n C h e c h n y a B u t N o t W a r — Y e tChechnya has long been a thorn in Russia’s side, with Moscow quietly suspecting that its foes — from Washington to Saudi Arabia to Middle Eastern Islamist militants — have used the Chechen conflict to their advantage, as it has over-bled Russia and its army and contributed to Russia’s long-term weakness. Finally realizing that further procrastination

Putin knows selling fighter planes to Venezuela could create problems for Washington.

Energy will be a high priority for Russia’s relations with China and India.


J U N E 2 0 0 5

could lead to Russia’s disintegration and perhaps death, Putin ordered a decisive offensive that resulted in the death of rebel Chechen President Aslan Maskhadov and other prominent leaders. This, in turn, led to less effective militant operations against Russia in the North Caucasus. Russians also succeeded in preventing major attacks in Moscow and across Russia.

Russian forces are expected to deal heavy blows to the militants in the North Caucasus in June, killing top commanders and launching strikes against underground cells before they can launch attacks. The Russian Command plans several tightly focused operations specifically targeting top Islamist militant commanders not only in Chechnya but also in neighboring Dagestan and Ingushetia in June.

Though the Chechen war is far from over, these Russian successes could diminish the militants’ capabilities to the extent that the militants will no longer pose a deadly threat to the Russian state. Yet, desperate to reverse the tide, the militants surely are preparing new attacks meant to inflict high casualties — and there is no guarantee the Russians will pre-empt all such attacks in June.

T h e “ R e v o l u t i o n s ” T h r e a t P o l a r i z e s t h e R e g i o nFacing the imminent threat of being overthrown by West-supported “revolutions,” FSU regimes will try to counter that threat. There are two ways to do this: Either get tougher on the opposition, thus inviting the West’s anger, or change policies to completely suit the West and especially the Bush administration, which now has such “revolutions” as its main geopolitical weapon to advance its interests in the region.

In May, some FSU regimes showed signs of bending under pressure and moderating their policies to stave off U.S.-supported regime changes. On May 24, Kazakh President Nursultan Nazarbayev signed agreements in Baku to link Kazakhstan with the Washington-supported BTC pipeline. Nazarbayev also has ordered significantly increased social spending in June to minimize his largely impoverished population’s support for pro-Western opposition. Left in the cold after the BTC launch, Armenia is trying to maneuver between the United States and Russia, with Russian Defense Minister Sergei Ivanov visiting Armenia in June. Yerevan probably will gradually become pro-U.S. unless Russia’s position in the region dramatically strengthens — something not likely to happen this month.

Governments in the FSU will choose whether to follow U.S. policy or face the threat of ‘revolutions.’


J U N E 2 0 0 5

Other regimes — including Turkmenistan, Belarus and Uzbekistan — will choose to fight off the U.S.-led offensive. Effectively, they have no choice; their leaders know Washington is not likely to agree to their continued stay in power, because their policies already have angered the Bush administration. Belarus remains Russia’s staunchest ally and will take new steps to synchronize its defense with Russia’s in June. Turkmenistan’s Saparmurat Niyazov rules his country with an iron fist, does not want foreigners to have a major say in how to use his mineral riches, and courts China. Uzbekistan’s Karimov withdrew from a pro-U.S. FSU organization, GUUAM, on May 5.

The trouble ahead for those FSU regimes opposing Washington does not mean that those readily following the U.S. line will enjoy peace and quiet this June. On the contrary, internal instability will worsen, as will political struggles and economic and social woes. Azerbaijan will probably see more demonstrations and violence.

Georgia likely will see more suspicious deaths and more fighting. If the pro-Western Georgian elites can put forth a viable alternative, Saakashvili could be removed down the road. However, Saakashvili will try his best to stay in power despite the odds — possibly by heating up low-intensity

Pro-U.S. regimes will not avoid conflict in June.


J U N E 2 0 0 5

conflicts with breakaway regions Abkhazia and South Ossetia, thereby distracting Georgians from the failing economy and attracting Washington’s sympathies as he goes up against the Russian-allied regions.

Ukraine’s May energy crisis — and its resolution — is merely the tip of an iceberg. The country’s looming economic troubles and power struggles, if left unchecked, could have a dramatic impact on the country’s economy, political stability and international image. The behind-the-scenes struggle between Yushchenko and Timoshenko will continue, accompanied by an open struggle between the new regime and eastern Ukraine’s opposition. The kinds of suspicious deaths seen previously in Georgia could begin occurring in Ukraine, and law enforcement agencies could persecute opposition leaders.

U z b e k i s t a n a n d C e n t r a l A s i a : M o r e F i g h t i n g I n J u n eCentral Asia is indeed the region to watch in June and beyond, with a variety of parties — international and local Islamists, local strongman regimes, Russia, the United States, China, Iran, Turkey, Pakistan and India — working to make the energy-rich region “theirs.” The May uprising in Andijan is not an isolated event; more attacks by rebel forces (with Islamist militants among them) are expected, probably in June, though full-scale war will not break out. Guerrilla attacks against government troops, pro-guerrilla demonstrations, government reprisals against demonstrators and guerrillas, and the West’s condemnation of government actions will be the likely causes of violence. Stratfor also agrees with the U.S. State Department’s warning about possible jihadist attacks in Central Asia. More unrest is very likely in Uzbekistan, rather likely in Kyrgyzstan and possible in Tajikistan. Clashes between Uzbeks and Kyrgyz are likely in Kyrgyzstan’s Osh region.

The United States, European Union and NATO will issue new official protests regarding Uzbekistan’s crackdown on its opponents. To counter the West’s pressure, Chinese delegations will visit Uzbekistan at Karimov’s invitation this summer; one such visit is expected in June.


J U N E 2 0 0 5


Armenia

Azerbaijan

Belarus

Georgia

Kazakhstan

Kyrgyzstan

Moldova

Russia

Tajikistan

Turkmenistan

Ukraine

Uzbekistan

n/a = not available


1 IMF, 2004 2 World Bank's World Development Indicators Online, 2002 3 International Labour Organization, 2002 4 International Labour Organization, 2004 5 World Bank's Data at-a-glance sheet, 2003

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

sIn

com

ing

FDI

contr

acted

billio

ns US

D

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us

2.80

7.14

17.5

3.99

29.7

1.91 1

1.96

433

1.55

6.20

49.5

9.95

3,055,630

8,233,000

9,880,963

5,126,000

14,900,000

5,052,000

4,237,600

143,000,000

6,304,700

4,863,500

48,400,000

25,600,000

916.34

867.24

1771.08

778.38

1993.29

378.07

462.53

3027.97

245.85

1274.80

1022.73

388.67

13.91

11.20

6.78

11.09

9.20

6.67

6.29

7.35

10.20

16.90

9.40

4.40

155.00

3285.0

171.00

338.00

2068.0

25.000

58.000

1144.0

32.000

100.00

1424.0

70.000

9.6

1.1

2.0 1

12.02

7.9 1

n/a

7.3 3

7.2 4

n/a

n/a

6.1 4

n/a

0.5520

1.9730

7.8020

0.8470

15.147

0.5820 1

0.7900

133.16 1

0.7910

3.4420

21.516

1.9140

1.1440

2.5820

12.016

1.3240

9.3550

0.7120 1

1.4030

63.031 1

0.8810

2.5040

23.476

2.4520

-0.9392 Feb.

0.0062 4

1.0000 Feb.

0.0016 4

0.5675 Mar.

0.0000 Feb.

1.0995 Jan.

1.2580 Feb.

16.300 5

5.6000 5

2.4000 Dec. ‘04

30.400 5

589.23

1002.7

959.38

380.82

8478.2

527.17

461.25

133,651

176.23

2673.0 5

11736

1743.0 5


J U N E 2 0 0 5

Armenia

Azerbaijan

Belarus

Georgia

Kazakhstan

Kyrgyzstan

Moldova

Russia

Tajikistan

Turkmenistan

Ukraine

Uzbekistan

*Closing Rates

Beginning

561.00

4908.0

2149.0

2.0400

131.57

43.750

12.601

27.783

2.7804

5200.2

5.0150

969.36

Low

561.00

4908.0

2149.0

2.0400

130.49

43.750

12.591

27.782

2.7804

5200.2

5.0125

969.36

High

561.00

4908.0

2149.1

2.0400

132.60

43.750

12.602

28.239

2.7804

5200.4

5.0700

969.36

End

561.00

4908.0

2149.1

2.04.00

132.60

43.750

12.602

28.239

2.7804

5200.3

5.0500

969.36




J U N E 2 0 0 5


May 2: Turkmenistan agrees to sell 7 billion cubic meters (bcm) of natural gas in 2005 and 10 bcm in 2006, ending a 17-week standoff with Russia and energy giant Gazprom.

May 5: Russia plans to cut one or two strategic rocket divisions each year for the next five years to comply with the Russian-U.S. Strategic Offensive Reductions Treaty. Russia has about 6,000 warheads now.

May 6: In Russia, the Strategic Rocket and Space Forces says it plans to build a new cosmodrome in the southern Ural Mountains region. The base also could be used for commercial space activities.

May 7: U.S. President George W. Bush meets in Latvia with President Vaira Vike-Freiberga, Lithuanian President Valdas Adamkus and Estonian President Arnold Ruutel.

May 8-9: Commonwealth of Independent States members sign a declaration of humanitarian cooperation at a summit in Russia. Georgia does not attend.

May 8-10: Russia hosts ceremonies commemorating the 60th anniversary of V-E Day. Major world leaders attend the commemoration, held in Moscow.

May 8: U.S. President George W. Bush and Russian President Vladimir Putin meet to discuss the Middle East and terrorism. Talks reportedly are amicable, despite Bush’s earlier remarks calling Russian domination of Eastern Europe a historical wrong and the Baltic countries an example of democracy for Russia.

May 9: In Russia, approximately 1,000 members of the Communist Party, the Rodina Party and radical youth groups clash with police during the V-E Day commemoration ceremony in Moscow. Some 200 demonstrators are arrested.

May 9: Indian Prime Minister Manmohan Singh and Russian President Vladimir Putin meet to discuss cooperation in the areas of defense, energy security and information technology.

May 9: Chinese President Hu Jintao meets with Russian President Vladimir Putin.


J U N E 2 0 0 5

May 9: U.S. President George W. Bush meets with Russian President Vladimir Putin to discuss the development of democracy in Russia.

May 9: Representatives of the Middle East Quartet — Russia, the United States, the United Nations and the European Union — meet in Moscow to discuss conditions for Israel’s withdrawal from Gaza and the West Bank and ways to improve the socio-economic situation in the Palestinian territories.

May 10: U.S. President George W. Bush says he supports Georgia’s peaceful efforts to regain control of separatist South Ossetia and Abkhazia, but he declines to press Russia to remove its military bases from Georgia.

May 10: At least 1,000 men and women gather in the Fergana Valley city of Andijan, Uzbekistan, at a protest reportedly organized by the families of 23 young men convicted of engaging in Islamist extremism.

May 10: Georgian President Mikhail Saakashvili proposes the formation of an Eastern European association — to include Georgia, Ukraine and Romania — that would seek the peaceful overthrow of the government in Belarus.

May 10: Russia and the European Union agree to strategic cooperation in four key areas: the economy; freedom, security and justice; external security; and research, education and culture.

May 10: A grenade lands, but does not explode, near U.S. President George W. Bush as he gives a speech in Tbilisi, Georgia.

May 11: Turkmenistan’s President Saparmurat Niyazov says he plans to outfit Turkmen military forces with sophisticated weaponry with financial help from Georgia and Ukraine.

May 12: Russia downgrades Japan to a second-tier diplomatic priority in Asia, following stalemated negotiations over disputed islands and a decline in Japanese investment in Russia.

May 12: Russia says it will send nuclear fuel to Iran by the end of 2005 under the supervision of the International Atomic Energy Agency, calling Iran’s nuclear ambitions “legitimate.”


J U N E 2 0 0 5

May 13: In Kyrgyzstan, pro-Russian leader Felix Kulov rejects the Dignity Party’s nomination as its presidential candidate after making a deal with his political rival, acting President Kurmanbek Bakiyev, to allow him to become prime minister if Bakiyev wins the election.

May 13: Russian prosecutors plan to add money-laundering to the charges of tax evasion and fraud already filed against former Yukos CEO Mikhail Khodorkovsky.

May 13: Security forces fire at protesters, including women and children, gathered outside the regional administration building in the main square of Andijan, Uzbekistan, after negotiations with protest leaders disintegrate. Nine people are killed and 34 wounded in the clashes.

May 15: Belarus sends a delegation of 70 officials from Parliament and the presidential administration to Abkhazia, a breakaway region of Georgia.

May 16: Russian forces kill four rebels in Chechnya — including a man believed to be the republic’s former vice president, Vakha Arsanov — outside Grozny. In Cherkessk, a city in the southern Caucasus region, Russian forces kill six suspected militants serving under Chechen warlord Shamil Basayev and Achimez Gochiyayev, another alleged rebel.

May 16: The U.S. Senate Subcommittee on Investigations reports that Saddam Hussein gave Russian President Vladimir Putin’s Presidential Council more than 90 million barrels of oil in return for supporting Iraq before the U.N. Security Council prior to the 2003 war. Putin is not accused of profiting from the deal.

May 16: In Azerbaijan, Foreign Minister Elmar Mamedyarov claims Armenia is prepared to return seven occupied areas surrounding the breakaway region of Nagorno-Karabakh that collectively amount to 14 percent of Azerbaijani territory. The Armenian government claims ignorance of such a deal. May 17: Trial commences in Russia’s North Ossetia province for Nurpashi Kulayev, the only surviving suspect from the Beslan school hostage crisis in September 2004.


J U N E 2 0 0 5

May 17: A delegation from the Mercosur trading bloc holds talks with leading officials from Russia, including Prime Minister Mikhail Fradkov, in Moscow, marking their first-ever meeting.

May 17: Security services kill Alash Daudov, a prominent Chechen rebel who was believed to be planning poisonings in the North Caucasus and other large population centers in Russia. Daudov was tied to the 2002 seizure of a Moscow theater, attacks against police in Grozny and Nazran in 2004 and the Beslan school hostage crisis in September 2004.

May 17: Kyrgyzstan announces that various transnational militant groups seeking to create a global Islamic caliphate are being activated in Central Asia. The Kyrgyz border service reports that militants from Afghanistan have been gathering near the Kyrgyz borders, more foreign nationals have been entering Kyrgyzstan and militants have been entering the country using forged documents.

May 17: An opposition party in Uzbekistan claims government forces killed 745 people — 542 in Andijan and 203 in Pakhtabad — during recent political violence.

May 18: The U.N. high commissioner for human rights calls for an independent inquiry into reports of mass killings in eastern Uzbekistan.

May 18: Former Yukos CEO Mikhail Khodorkovsky is convicted on one count of fraud in Russia, but must wait on a verdict on 10 other counts.

May 20: In Makhachkala, the capital of Russia’s Dagestan Republic, government official Zagir Arukhov is killed by a bomb at his apartment building. Arukhov was minister of national policy, information and external relations.

May 24: Russian President Vladimir Putin and Indian President Abdul Kalam meet in Moscow to discuss key international issues, bilateral contracts and military-technical cooperation, among other topics.

May 24: The brother of former Georgian Prime Minister Zurab Zhvania claims the FBI has evidence Zhvania did not die in the apartment where his body was found in February, and that Tbilisi was behind Zhvania’s death. Georgian President Mikhail Saakashvili denies the accusations.


J U N E 2 0 0 5

May 25: Russian Industry and Energy Minister Viktor Khristenko says criminal or terrorist activity was not responsible for an explosion at a Moscow electricity substation. The ensuing blackout has affected up to 2 million people, stalled public transportation, shut down the stock exchange and threatened cell phone service.

May 25: The presidents of Azerbaijan, Turkey, Georgia and Kazakhstan, along with numerous other regional and industry leaders, inaugurate the Baku-Tbilisi-Ceyhan pipeline in Baku.

May 25: In Russia, the prosecutor-general’s office plans to summon Unified Energy System (UES) CEO Anatoly Chubais for questioning in connection with massive power outages in Moscow. Chubais faces criminal charges of negligence and abuse of power, and officials seek to investigate other UES executives deemed responsible for the “stable supply of electricity.”

May 26: An international conference on the future of the U.N. Special Program for Economies of Central Asia (SPECA) begins in Astana, Kazakhstan. The agenda includes proposals for forming a Central Asian free trade area and inviting Afghanistan into SPECA, which comprises Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan.

May 26: In Russia, Yuganskneftegaz Deputy Director Sergei Burov is shot while exiting a company car. Burov also was head of the Nefteyugansk branch of the United Russia Party.

May 27: The Duma rejects a Rodina party proposal for discussions about dismissing Anatoly Chubais, head of the Unified Energy System monopoly, in relation to Moscow’s May 25 blackout. The Duma is still expected to request the formation of a working group to further investigate the blackout in Russia.

May 27: Neftegaz Ukrainy Co. and the State Oil Co. of Azerbaijan agree to draft documents for a joint stock company that would purchase and transport oil to Europe. The papers likely will be signed during Ukrainian President Viktor Yushchenko’s scheduled visit to Azerbaijan in July.

May 27: The Kyrgyz Interior Ministry says people believed to have organized protests in Andijan, Uzbekistan, have been arrested on Kyrgyz


J U N E 2 0 0 5

soil. Some 20 suspects were arrested out of a group of more than 500 Uzbek refugees who fled the disturbances earlier in May in Uzbekistan.

May 27: A Chechen warlord claims responsibility for the May 25 power outage in Moscow, Russia.

May 29: Russia agrees to cancel 73 percent of the debts owed by Syria — a total of $13.4 billion — so long as Damascus repays an outstanding $3.6 billion.

May 30: In Caracas, senior government officials and businessmen from Russia and Venezuela explore opportunities for economic cooperation and joint investment, including a possible aluminum processing plant to be set up in the Latin American state.

May 30: Algeria sends the chief of its army general staff to Russia to discuss prospects of purchasing Russian weapons.

May 31: In Russia, the Sakhalin Energy consortium signs a long-term contract to sell 70 percent of its liquefied natural gas (LNG) to Japanese firm Hiroshima Gas Co. Ltd.

May 31: Venezuela and Russia agree to establish “strategic alliances” in diverse economic and commercial areas.

May 31: Reports surface in China that Beijing is thinking of deploying a military base in Kyrgyzstan to help fight terrorism, separatism and extremism. The Kyrgyz foreign minister says nothing of the sort has been discussed, and that Kyrgyzstan will not become a basing hub for foreign military forces.

May 31: In China, Defense Minister Cao Gangchuan says Beijing will expand bilateral military ties with Belarus.


June TBD: Russian Defense Minister Sergei Ivanov will travel to Armenia.

June TBD: Russian President Vladimir Putin will meet with Japanese Prime Minister Junichiro Koizumi to discuss the status of the Kuril Islands (or “northern territories”) and energy development.


J U N E 2 0 0 5

June 1: Government ministers in Ukraine are set to receive a large pay raise, with top officials’ salaries climbing to about $1,000 U.S. per month.

June 1-2: The foreign ministers of Russia, India and China will meet in Vladivostok to specify economic cooperation issues and further business contacts. The governments of these countries feel they could pool their natural resources to benefit economically.

June 3: Russian Prime Minister Mikhail Fradkov will meet with counterpart Yulia Timoshenko of Ukraine to sign a document on a ministerial economic committee to serve as part of the Putin-Yushchenko interstate commission.

June 7-8: Ukrainian President Viktor Yushchenko will visit Turkey.

June 13: The Ukraine-EU Cooperation Council will meet in Luxembourg to discuss the Ukraine-EU Action Plan for 2005.

June 15: Deadline for expelled Polish diplomat Marek Bucko to leave Belarus.

June 17: Lithuanian Ambassador to Belarus Jonas Paslauskas, recalled following a decree signed by Lithuanian President Valdas Adamkus, will wrap up his duties in Minsk.

June 19: Parliamentary elections are scheduled in the unrecognized Republic of Nagorno-Karabakh in Azerbaijan.

June 23: Annual meeting of Yukos general shareholders in Russia. Late June: Chinese President Hu Jintao will pay an official visit to Russia.

Late June: Officials from Georgia and Abkhazia will discuss the dispersal of police along their borders.

C h a n g e s

UkraineFacing a fuel crisis, Ukraine’s Parliament passed a law canceling import duties on high-octane gas and diesel May 17. Prime Minister Yulia Timoshenko says Russian oil companies cut off supplies to Ukraine — an allegation the oil companies deny. Ukrainian President Viktor Yushchenko


J U N E 2 0 0 5

approved the legislation May 18. The law allows countries other than Russia to profitably import fuel into Ukraine. The import taxes had prompted oil companies including TNK-BP, LUKoil and Tatneft to cut the portion of output exported to Ukraine.

RussiaThe Russian State Duma voted 307-80, with two abstentions, to approve a border agreement between Russia and China on May 20. The treaty supplements the agreement signed in October 2004 and settles disputes in the areas near the Tarabarov and Bolshoi Ussuriisky islands. Russia also signed a treaty with Estonia to formally demarcate the countries’ land and maritime borders May 18. The parliaments of both countries must approve the treaties.

Russian President Vladimir Putin nominated incumbent Vasily Bochkarev as governor of Penza Region on May 11. The local legislative assembly confirmed him May 14. Putin also nominated incumbent Oleg Korolev as head of administration of Lipetsk Region on May 24. On May 28, the local Council of People’s Deputies confirmed his appointment.

KazakhstanOn May 19, Kazakh President Nursultan Nazarbayev met with Belarusian President Aleksandr Lukashenko in Astana and concluded three new bilateral agreements calling for cooperation in information technology and energy and for cultural exchanges. On May 24, Nazarbayev signed agreements in Baku to link Kazakhstan with the Baku-Tbilisi-Ceyhan oil pipeline. The line connects to the Kazakh port at Aktau on the Caspian Sea.

Two of the country’s three deputy prime minister positions — held by Birganim Aytimova and Karim Masimov — were eliminated. Aytimova retains her position as education and science minister, and Masimov remains presidential adviser for international and economic affairs.

Zagipa Balieyeva became minister of justice. Baliyeva was born in Zhalanash, a village in the Alma-Ata region. From 1992 to 1994, Baliyeva worked as head of the legal department of the Almaty municipal administration. From 1994 to 1995, she was deputy chairwoman of the Committee of the Supreme Council of the Republic of Kazakhstan on economic reforms. In March 1995, she was named secretary of the Central Election Commission and became the commission’s chairwoman in January 1996.


J U N E 2 0 0 5

AzerbaijanIran and Azerbaijan signed a nonaggression pact May 16 barring each country from allowing a third party to use its soil to launch an attack against the other.

KyrgyzstanSherkozi Mirzakarimov, who previously served as first deputy interior minister, became interior minister.

Prime Minister Kurmanbek Bakiyev named Toygonbek Kalmatov, a former member of parliament from the southwestern Dzhalal-Abad Region, head of the Ministry of International Integration and Cooperation. Taalay Kadyrov took over as first deputy foreign minister. He previously worked for the Foreign Ministry and recently worked in the representative office of the International Organization for Migration.

Kadyrbek Sarbayev, previously a representative for Kyrgyzstan at the Shanghai Cooperation Organization, was appointed deputy foreign minister. He will be responsible for countries outside the CIS.

TurkmenistanMinister of Power Engineering and Industry Atamurat Berdiyev took the post of deputy chairman of the Cabinet of Ministers, replacing Yolli Gurbanmuradov, who was arrested on corruption charges. Yusup Davudov took over Berdiyev’s portfolio.

Deputy Minister of Water Economy Tekebay Altuyev was promoted to minister of water economy.


J U N E 2 0 0 5

s Bolivian President Carlos Mesa’s government drew closer to collapse, the country’s political turmoil was disrupting regional investment plans in oil and gas ventures and aggravating an energy shortage in Argentina, Uruguay and Chile. Venezuelan President Hugo Chavez has finally acknowledged his country’s oil production shortages and is bearing down hard on foreign investors. U.S. President George

W. Bush is responding, backing a U.S.-friendly candidate to lead the Organization of American States in hopes the organization will crack down on anti-democratic movements such as the one Chavez is leading.

T h i s M o n t h ’ s H i g h l i g h t s : I n E v e r y I s s u e : • Upheaval in Bolivia • Trends, Stats and Indicators • Cracks in the Southern Cone • Noteworthy Events • Stumbling in Colombia • Militarizing Venezuela While PDVSA Collapes • Washington’s New Moves

A


J U N E 2 0 0 5

SE x e c u t i v e S u m m a r y

ecurity- and energy-related issues garnered the most attention in Latin America during May. The promulgation in Bolivia of a new Hydrocarbons Law on May 17 triggered protests in La Paz by thousands of indigenous peasants and left-leaning groups that demanded the resignation of President Carlos Mesa, the immediate

dissolution of Congress and the nationalization of the oil and gas industry. The armed forces, which declared its full support for the president, are keeping Mesa in power for now. Military support for Mesa could be less than full, however, given demands by two rebellious army lieutenant colonels for the establishment of a popular government in Bolivia led by a military figure like Venezuelan President Hugo Chavez. Bolivia’s political crisis continues to disrupt regional investment plans in oil and gas ventures, and is aggravating a structural energy shortage that affects Argentina, Brazil and Chile.

In Venezuela, private oil economists released new data in May that confirms Petroleos de Venezuela (PDVSA) has lost about 1 million barrels per day of net crude oil production capacity since the end of 1998. Chavez denied these reports but acknowledged a slight drop in PDVSA’s production, which he blamed on sabotage by the CIA. At the same time, the Chavez government intensified its attacks against foreign oil companies, charging them with violating their contracts with PDVSA, evading taxes willfully and supporting efforts by opposition groups to destabilize the government.

Bolivia will continue to experience instability in June. Nicaragua also could experience more instability. Chavez will lash out more aggressively at the U.S. government as Venezuela’s internal oil production and economic difficulties become more obvious to Venezuelan voters.

The Bush administration moved on several fronts during May to re-engage with Latin America and the Caribbean. Former Chilean Interior Minister Jose Miguel Insulza, elected secretary-general of the Organization of American States (OAS) in Washington, has indicated he will support U.S. efforts to reform the OAS Democratic Charter to create mechanisms to monitor democratic governance in Latin America and the Caribbean. The proposal is part of a broader regional U.S. strategy aimed at isolating Chavez, whose growing alignment with Cuba on economic, political and security issues is perceived by the Bush administration as a potential threat to U.S. strategic interests and democratic governance in Latin America.

The Bush administration also launched lobbying efforts to win more congressionally approved security assistance for Colombia, and to build a bipartisan consensus to ensure congressional approval of the U.S.-Central America/Dominican Republic Free Trade Agreement before the summer congressional recess in August.


J U N E 2 0 0 5

M a y : T h e M o n t h i n R e v i e w

U p h e a v a l i n B o l i v i aBolivia’s Congress approved a controversial new Hydrocarbons Law during May and sent it to President Carlos Mesa for his signature and promulgation. Instead, Mesa returned the law unsigned to Congress, saying it would cut off new foreign direct investment in Bolivia. The president of Congress, however, stepped in to promulgate the law, which increases royalties on oil and gas production to 18 percent and sets the income tax rate at 32 percent.

Spokesmen with foreign oil companies Petroleo Brasileiro SA (Petrobras) and Spain’s Repsol YPF SA warned that the new law likely will cause a suspension of planned investments. They also warned that the law is unconstitutional and violates existing contracts and international agreements with other governments. Foreign oil companies likely will sue in Bolivia’s Constitutional Court to have the law nullified, though they probably will lose. More than half the country’s population — the largely indigenous and poor — believe the new law is too weak in its fiscal treatment of foreign oil companies and the defense of Bolivian sovereignty.

The new law’s May 17 promulgation by the president of Congress coincided with renewed protests against the Mesa government in La Paz. Since mid-May, thousands of indigenous peasants, miners, union workers, coca growers, university students and other left-leaning groups have maintained almost daily demonstrations in La Paz to force a change of government. These protesters are demanding Mesa’s resignation, the dissolution of Congress and the nationalization of Bolivia’s hydrocarbons industry without any compensation to the foreign oil companies. The protesters also oppose intensifying efforts by wealthy lowland departments, mainly Santa Cruz and Tarija, to break away from the central government and establish autonomous regional governments.

Frequent clashes have broken out between groups of protesters and police forces armed with tear gas and water cannons surrounding the congressional and presidential buildings in Murillo Plaza in downtown La Paz. Some injuries and arrests have occurred. As of May 31, however, no major eruption of violence had taken place and the protests had not spread from La Paz to

Since mid-May, thousands of Bolivians have staged almost-daily protests in La Paz in an effort to force a change of government.


J U N E 2 0 0 5

other cities — likely because the armed forces warned May 22 that it would deal promptly and harshly with anyone involved in a violent or disruptive attack. Bolivia’s military leaders also warned they would stop any efforts to Balkanize the country. Additionally, the military’s top generals and admirals declared their full support for the Mesa government.

The military’s public façade of internal unity cracked May 25, however, when two renegade army lieutenant colonels read a statement on a private television station calling for Mesa to resign immediately so a military government of the people could be established. Separately, Jaime Solares, president of the Bolivian Workers Central, called for the immediate installation of a people’s government led by a military figure like Venezuelan President Chavez.

Both officers were swiftly expelled from the army with bad conduct discharges, and military spokesman issued assurances that there was no risk of a military rebellion or coup against Mesa. Separately, senior government officials also called for the arrest of Solares and other opposition leaders on charges of sedition and inciting revolt. However, Stratfor highly doubts the military’s assurances that all is well within the armed forces. Bolivia’s military is suffering the same divisions visible between the country’s civilian highland and lowland inhabitants.

C r a c k s i n t h e S o u t h e r n C o n eThe regional impact of the Bolivian crisis worsened in May. The Hydrocarbons Law forced investors in Brazil and Argentina to suspend plans to build a new natural gas pipeline linking Bolivia to northeast Argentina, and to construct a $1 billion petrochemicals facility near the border between Bolivia and Brazil. Bolivia, however, is only one factor in a growing natural gas shortage that is affecting economic growth in Argentina, Chile and Uruguay. During May, Argentina suspended natural gas exports to Chile to ensure that Argentina’s electric utilities and industries have enough gas to meet their needs. Argentina’s growing domestic gas-supply shortage is due to insufficient investment in new production capacity since 2001, combined with the government’s refusal to allow local increases in consumer rates.

A growing natural gas shortage is affecting economic growth in Argentina, Chile and Uruguay. Argentina’s gas shortage is becoming critical.


J U N E 2 0 0 5

Argentina’s domestic gas-supply shortage is becoming critical, although a national energy shortage likely will not significantly impact Argentine economic output until 2007. Chile’s gas-supply difficulties are more immediate, however. It cannot count on gas supplies from Argentina, and Bolivia refuses to export natural gas to Chile because of a century-old territorial dispute. Bolivia also has warned Peru against selling any Peruvian natural gas to Chile or else no Bolivian natural gas will be exported through Peruvian pipelines and seaports. If Chilean producers are forced to switch from natural gas to other costlier fuels for their energy needs, higher production costs could bite into the economy’s performance, affect export competitiveness and slightly slow the economy’s growth.

The Bolivian political crisis also is affecting regional economic integration efforts that form part of Brazil’s strategy of turning the Mercosur South American Customs Union into a political union modeled after the European Union. Besides affecting future regional natural gas supplies, Bolivia’s political crisis also is disrupting plans to build a regional network of highways and cargo transportation systems linking the Atlantic and Pacific coasts of South America. These regional highway links are critical to Brazil’s efforts to develop competitive export markets in Asia.

The Bolivian crisis, however, is only part of a larger economic crisis with political implications in Mercosur-member countries Argentina and Uruguay. Argentina’s economic recovery is standing on spindly pillars and is not sustainable over the medium term. Uruguay also is at risk of a financial crisis that could hurt the new socialist government of President Tabare Vasquez.

Separately, Brazilian President Luiz Inacio “Lula” da Silva on May 10-11 hosted in Brasilia the first summit of the Arab League and the South American Community of Nations, which was created in 2004. By hosting the summit, da Silva aimed to enhance Brazil’s international profile as a regional power, develop new commercial relations with Arab countries and raise his own global image as Latin America’s leading socialist statesman. Da Silva lost control of the event, however, when Chavez joined various Arab delegations in berating Israel and the United States. Also, no breakthrough in trade occurred. S t u m b l i n g i n C o l o m b i aAfter several years of optimistic official U.S. reports that the war on drugs was being won in Colombia, U.S. government officials acknowledged in May that coca cultivation is increasing in that country despite intensive aerial fumigation efforts financed by U.S. taxpayers.


J U N E 2 0 0 5

At the same time, new opinion polls showed that President Alvaro Uribe Velez is losing popularity among voters who are starting to question official claims that the Revolutionary Armed Forces of Colombia is being defeated. For the first time, it appears that Uribe’s re-election in the 2006 presidential campaign is no longer a sure bet. Uribe’s government has asked the United States for $130 million in additional aid for fiscal 2005 to expand aerial fumigation activities in Colombia — a request the U.S. Congress likely will approve. Colombia under Uribe is the Bush administration’s strongest strategic ally in Latin America, and Washington will seek to keep that alliance intact.

M i l i t a r i z i n g Ve n e z u e l a W h i l e P D V S A C o l l a p s e sThe Chavez government has claimed officially since 2003 that Venezuela is producing more than 3.2 million barrels per day (bpd) of crude oil, though it has never published independently audited figures to confirm the claims. Stratfor has been saying since 2003, however, that Venezuela’s oil production levels were significantly inflated. Chavez finally acknowledged publicly in May that Venezuela’s oil production is running about 100,000 bpd below its official Organization of the Petroleum Exporting Countries quota of 3.1 million bpd, though he blamed the slowdown on sabotage committed by unnamed individuals working for the CIA.

Independent oil economists in Caracas, including a former director of the central bank’s economic research division, however, issued new figures showing that Petroleos de Venezuela (PDVSA) has lost 1 million bpd of net crude oil production capacity since the end of 1998. Chavez became president of Venezuela in January 1999. The true extent of PDVSA’s oil-out-put collapse has been disguised by rising production of foreign oil companies involved in strategic associations with PDVSA and oilfield operating contracts that the government suspended in March 2005. These foreign companies

For the first time, it appears that Colombian President Alvaro Uribe Velez’s re-election in 2006 is not a sure bet.

The true extent of PDVSA’s oil-output collapse has been disguised by the rising production of foreign oil companies involved in strategic associations with the Venezuelan oil company.


J U N E 2 0 0 5

now account for more than 1 million bpd of Venezuela’s total oil produc-tion, which totals only 2.3 million bpd and not more than 3.2 million bpd as claimed earlier by the Chavez government.

Venezuelan voters have not yet felt the collapse in PDVSA’s production, mainly because oil prices remain high. Venezuela’s average export price as of the week ending May 27 was nearly $40 a barrel. Venezuela’s government also has more than $27 billion of international currency reserves at the central bank, of which slightly more than $19 billion are liquid reserves the government can tap in a pinch. Chavez’s mismanagement of PDVSA and his mistreatment of foreign oil companies, however, are slowly strangling PDVSA, which is Venezuela’s primary source of economic wealth.

Insufficient investment in well maintenance during 2005 probably will reduce PDVSA’s net production capacity by another 200,000 bpd. This could be reversed if PDVSA signs new production contracts with foreign companies. In May, however, the Chavez government intensified its attacks against foreign oil companies, charging that all oil majors — which include ExxonMobil, Total and Statoil — were evading income taxes, violating their contracts with PDVSA and helping government opponents destabilize the country. Although foreign oil companies are eager to expand investments in Venezuela, the Chavez government’s attacks against the companies are discouraging investments.


J U N E 2 0 0 5

Amid the negative reports about PDVSA’s operational health, Chavez said Venezuela would launch a nuclear power development program with the assistance of Iran and other European and Latin American countries. Within 24 hours, the governments of Brazil, Colombia and Mexico rejected Chavez’s remarks. Brazil’s government also declared it would never engage in a nuclear development project involving Iran. Separately, Venezuelan and Russian defense officials announced that the weapons acquired from Russia would start to arrive in Venezuela during the second semester of 2005. Defense officials in Moscow also revealed that Venezuela is negotiating the purchase of 24 Sukhoi SU-27 Flanker jets worth $250 million.

Chavez also launched new attacks against the U.S. government in May, threatening to break diplomatic relations with Washington if the Bush administration refused to extradite Cuban-Venezuelan anti-Castro activist Luis Posada Carriles, who was detained in Miami in mid-May after he publicly admitted that he illegally entered the United States in April. Cuba’s government has accused Posada Carriles of terrorist attacks against Cuban hotels and aircraft and of plotting to kill Cuban President Fidel Castro. The United States rejected Chavez’s demands, and on May 30 Chavez backed away from his threats to break diplomatic relations.

Relations between Washington and Caracas, however, will continue to deteriorate in June, partly as a result of growing U.S. government efforts to isolate Chavez regionally and undermine local support for the Venezuelan leader. On May 26, the U.S. Embassy in Caracas informed Supreme Court President Omar Mora that his U.S. entry visa had been revoked under provisions of the Patriot Act. Stratfor also learned that the U.S. government is investigating dozens of senior Venezuelan government officials who allegedly have deposited millions of dollars in U.S. and European banks.

W a s h i n g t o n ’ s N e w M o v e sThe Bush administration moved on three fronts during May to strengthen its renewed political and economic engagement with Latin America and the Caribbean. This re-engagement started in April with U.S. Secretary of State Condoleezza Rice’s trip to Brazil, Chile, Colombia and El Salvador.

Venezuelan President Hugo Chavez backed off of his threat to break diplomatic relations with the United States.


J U N E 2 0 0 5

On May 2, Chilean Interior Minister Jose Miguel Insulza was elected secretary-general of the Organization of American States in Washington, D.C., with the Bush administration’s support. U.S. President George W. Bush and his administration also intensified efforts to ensure congressional support for continuing and increasing U.S. security and military aid to Colombia. Finally, Bush launched a drive in Congress to win enough votes to approve the proposed U.S.-Central America/Dominican Republic Free Trade Agreement (DR-CAFTA).

Insulza reciprocated the U.S. government’s support by pledging to work on the creation of a new Organization of American States (OAS) mechanism for permanently monitoring the state of democracy in Latin America. The Bush administration wants the OAS to amend its Democratic Charter to allow sanctions against democratically elected governments that stray from the path of democracy. The target of this proposed reform is the Chavez government. The regional monitoring mechanism forms part of the developing U.S. strategy to contain Chavez.

The Bush administration’s efforts to ensure sufficient congressional support to increase aid flows to Colombia and approve the DR-CAFTA agreement also are vital components of its regional re-engagement strategy. Supporting Colombia’s efforts to defeat militant groups and eradicate illegal drugs are key strategic goals of U.S. security policy in Latin America. However, as Chavez militarizes his government in Venezuela and consolidates his strategic military and economic alliance with Cuba, Colombia’s importance to U.S. security interests as a regional counterweight to Chavez’s militarism is also increasing.

Bush also needs congressional approval of DR-CAFTA to build stronger political and security links with Central America and the Caribbean, where Chavez has used Venezuela’s oil wealth to neutralize the possibility that these countries might support the United States in trying to contain Chavez regionally.

These developments in Washington indicate that Rice is imposing some much-needed order within the State Department on U.S. foreign policy toward

The Bush administration wants the OAS to amend its charter to allow sanctions against democratically elected governments that stray from the path of democracy.


J U N E 2 0 0 5

Latin America. It remains to be seen, however, if these U.S. initiatives will reverse the loss of U.S. influence in the region and help to calm political instability in many countries ruled by nominally pro-U.S. governments.

Congress will continue to increase U.S. military and security assistance to Colombia. The Bush administration’s efforts to reform the OAS, however, likely will be challenged by Venezuela and other countries, including Brazil, Argentina and Mexico. Also, congressional approval of DR-CAFTA is uncertain at best.

Moreover, current trends in the region that are adverse to U.S. strategic interests will continue even if the Bush administration achieves all of its objectives — including OAS reforms, congressional approval of DR-CAFTA and increased security assistance for Colombia.

Although the United States remains Latin America’s most important trading partner, South America in particular will continue to distance itself from the U.S. sphere of influence. Also, China will continue aggressive efforts to expand its economic and security presence in Latin America. The region’s political shift toward the left will continue, but a split between moderate and radical socialists will become increasingly visible. Political instability will intensify in the Andes region. Chavez will align Venezuela’s government even more tightly with Cuba and seek to intensify his political confrontation with the Bush administration as the incompetence and corruption of his Bolivarian government become more evident to Venezuelan voters, including the president’s poor followers. All of these trends were visible in May.

K e y I s s u e s

L e a d i n g w i t h C l a y F e e tDevelopments in South America during May demonstrated the limitations of Brazil’s foreign policy. President da Silva wants to position Brazil as the undisputed top economic and political power in Latin America and he wants Brazil to have a permanent seat on the U.N. Security Council. Brazil’s government has clay feet, however, when it comes to exercising real leadership in South America. In fact, Brazil consistently refuses to substantively engage in any regional problems involving Argentina, Bolivia, Chile, Colombia, Ecuador and Venezuela.


J U N E 2 0 0 5

This was evident in May, when the Brazilian government rejected Argentine pleas to negotiate trade safeguards to reduce Argentina’s trade deficit with Brazil. Da Silva also declined to voice any support for Mesa’s embattled presidency and against groups determined to force an undemocratic regime change in Bolivia. Da Silva also declined U.S. requests to lobby Chavez to stop his verbal attacks against the United States and seek more diplomatic avenues to solve bilateral differences. At the same time, though, Brazil refuses to seriously engage the United States in talks to create a Free Trade Area of the Americas. Finally, da Silva failed to prevent the Arab League-South American summit from degenerating into political attacks against the United States and Israel.

Brazilian regional engagement is critical to broader U.S. strategic interests in Latin America. Da Silva demonstrated in May, however, that he is unwilling to exercise leadership in managing regional crises in Brazil’s neighborhood.

G r o w i n g I n s t a b i l i t yAttention in May focused on the political turmoil in Bolivia, which has become an ungovernable country. Mesa barely held on to power during the month, and likely will not survive much longer in the presidency. Bolivia is not the only politically unstable country in the region, however.

Tensions in Ecuador have eased since President Eduardo Palacio assumed power on April 21, though Palacio is at best a caretaker president who will stay in power only by adopting more nationalist and left-leaning policies. Peruvian President Alejandro Toledo Manrique’s corruption troubles continued, while indigenous regions in southern and western Peru became increasingly unstable, forcing Toledo to extend a regional state of emergency for 90 days.

In Nicaragua, President Enrique Bolanos declared an economic state of emergency, suspending some constitutional guarantees for 100 days. He blamed high oil prices for disrupting economic activity, though his real reason for suspending the constitutional guarantees was to block the opposition Sandinista National Liberation Front from organizing more protests against him in an effort to force his resignation.

In Venezuela, President Chavez’s grip on power has not yet slipped appreciably, although several developments illustrate the deepening cracks in his Bolivarian Revolution. Three opinion polls conducted in May by


J U N E 2 0 0 5

Venezuelan polling companies found that the president’s personal popularity remains at about 70 percent. However, these polls also showed his government is perceived increasingly as corrupt, incompetent and unable to deliver on Chavez’s promises of sustained economic growth and improving living standards. For the first time, increasing numbers of Chavez supporters — or chavistas — joined local anti-government protests around the country. Signs of renewed discontent in the military also appeared in May. For the first time since 2003 pamphlets against Chavez were circulated anonymously inside military bases around Venezuela.


H i g h l i g h t s : • Intensifying U.S.-Chavez Confrontation • Increasing Instability, Possible Regime Change in Bolivia • Argentina’s Underlying Economic Weakness Shows • Mercosur’s Internal Rifts Increase

From a U.S. perspective, the top issues in Latin America in June will be proposed reforms of the OAS and the increasing political confrontation with the Chavez government. Another top U.S. concern in June will be to ensure congressional approval for the DR-CAFTA trade agreement with Central America. For Latin America in general, energy and security will remain top issues during June.

Chavez’s pursuit of a confrontation with the Bush administration will continue, while his internal political problems will become more obvious. These problems include PDVSA’s collapsing production, saber rattling in the military, escalating power struggles between opposing groups within the ruling coalition that backs Chavez and continuing disclosures of widespread corruption inside the Chavez government. Chavez will react to these problems with more attacks against the U.S. government. He also will react to U.S. government efforts to push its reforms in the OAS.

The Bush administration will help to fuel doubts about the Chavez government in Venezuela by releasing information to international and Venezuelan news media detailing the enormous extent to which senior Chavez government officials are enriching themselves illicitly.


J U N E 2 0 0 5

The Bolivian crisis will continue in June. Left-leaning opposition groups continue their street protests in an effort to force a change of government. Mesa also will come under growing attack from business leaders and opposition political figures for not exercising effective presidential power. Mora’s decision to return the unsigned Hydrocarbons Law to Congress in mid-May instead of vetoing the law likely damaged irreparably his support among right-leaning lowland business groups.

The Bush administration will intensify lobbying activities in June to obtain congressional approval for $130 million in additional anti-narcotics aid for Colombia. At the same time, the administration will lobby aggressively for votes to pass the DR-CAFTA trade agreement with Central America and the Dominican Republic. The additional Colombia aid likely will be granted, but the DR-CAFTA looks to be put on hold due to the lack of “yes” votes.

Doubts about the health of Argentina’s economic recovery will increase in June. Now that the three-year drama of restructuring Argentina’s defaulted debt is largely over, more attention is focusing on the underlying condition of Argentina’s apparent economic comeback. In effect, while President Nestor Kirchner is taking credit for Argentina’s economic revival and proclaiming that the bad times are over, the reality is that Argentina still has an unresolved debt payments crisis, and inflationary pressures are heating up dangerously for a country with a history of hyperinflation. Argentina’s neighbor Uruguay also confronts a financial crisis that will become more obvious in June.

Internal trade and political rifts within Mercosur are likely to become more visible in June. International news media have portrayed tensions between Kirchner and da Silva as being largely an issue of personality conflicts. Kirchner reportedly is upset with da Silva for not supporting Argentina sufficiently, and for placing Brazil’s strategic interests above Argentina’s concerns. In fact, these rifts are only a reflection of deeper structural problems within Mercosur.

One problem is that Argentina is not competitive, even within Mercosur, where a common external tariff protects Argentine exporters and other Mercosur members from real competition with non-Mercosur members such as the United States and the Western European economies. Kirchner is claiming credit for rescuing Argentina’s economy. The reality, however, is that Argentina’s economic comeback will be short lived. During June, the extent of Argentina’s economic difficulties will command more international attention.


J U N E 2 0 0 5

Another critical problem affecting Mercosur is Brazil’s clay feet. TheBrazilians want to be regional leaders, but the Brazilian economy is toosmall and ultimately uncompetitive to act as the southern cone’s primaryeconomic driver. Brazil’s government and private sector also lack thefinancial resources to function as a primary regional source of privatedirect investment and economic development assistance. In the WesternHemisphere only the United States has that capacity. The Brazilian inabilityto match regional integration rhetoric with economically substantiveinitiatives to achieve real economic integration will become more apparentin June as Bolivia’s political crisis and economic weakness in Argentina andUruguay become more pronounced.

More instability likely is in store for Nicaragua during June. Bolanos is a weak president opposed by a coalition of the Sandinista Front for National Liberation and Liberal Party, which have joined forces in an effort to force him out of the presidency or neutralize his executive powers completely.


J U N E 2 0 0 5


Argentina

Brazil

Bolivia

Chile

Colombia

Costa Rica

Dominican Rep.

Ecuador

El Salvador

Guatemala

Haiti

Honduras

Mexico

Nicaragua

Panama

Paraguay

Peru

Uruguay

Venezuela

n/a = not available


1 CIA World Factbook 2 UNCTAD 3 WAIPA 4 Latin Business Chronicle 5 Strategis 6 ISEC

151.9

599.8

9.4

93.7

95.2

18.5

19.4

29.9

15.8

26.1

3.6

7.4

676.5

4.4

13.8

7.00

67.9

12.0

107.5

37.9

179.1

8.89

16.0

45.3

4.2

8.8

13.4

6.7

12.7

8.1

7.0

106.2

5.6

3.2

6.0

27.5

3.4

26.2

3,912

8,100 12004 est.

1,125

5,856

2,145

4,361

2,190

2,145

2,335

n/a

419

1,035

9,600

788

4,524

1,155

2,349

3,543

4,148

9.100 Q4 2004

-0.200 2003

0.028

7.300 Q4 2004

4.260 Q4 2004

3.900

n/a

2.700

0.021

1953

-0.009

0.025

4.900 Q4 2004

0.040

0.008

0.028

6.800 Q4 2004

2.500 2003

11.20 Q4 2004

1.400 1 2004 est.

147.0 5

4.400 6

6.000 3

2.352

1.600 2003

1.100

993.0 mn 2

496.3 mn

n/a

n/a

176.0 mn

17.20 2

196.9 mn 2

332.0 mn 2

73.70 mn 2

1.400 2

268.4 mn 2

3.100 2

12.00 Mar.

11.50 1 2004 est.

0.092 1

7.900 Mar.

14.00 Q4 2004

0.066 1

0.170 1

0.111

n/a

0.075

Over 2/3 1

0.285 1

3.950 Mar.

0.078 1

0.126 1

0.151 1

0.096

0.130 1

12.00 Q4 2004

29.40

73.10

2.000

29.20 1

n/a

6.184 1

5.400 1

7.500 1

4.100

2.900

483.00 mn

1.900

182.4 1

750.0 mn 1

3.300

2.900 1

9.000 Q4 2004

2.198

35.80 1

13.00 2003 est.

48.30 2003

2.500 2003

22.53 1

n/a

7.842 1

8.000 1

7.600 1

5.300

7.700

1.200 1

2.400

190.0

2.200

3.700

3.300 1

9.600 1

2.190

14.90 1

4.40 2003 est.

14.8 ’03-’04

n/a

1.10

5.90

11.5

n/a

n/a

n/a

n/a

n/a

n/a

4.70

9.30 1

2.00 1

5.10 1

3.70

19.4 2003

21.7

18.10 Jul ‘04

52.94 1 2004 est.

1.214 1

16.02 1

n/a

1.700

426.0 mn

1.400

1.800

3.000

80.60 mn 1

1.400 1

620.7

670.0 mn

1.076

1.100 1

12.70 1

2.300 1

25.70

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

s

Inco

min

g FD

I co

ntrac

ted bi

llions

USD

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us

Argentina

Brazil

Bolivia

Chile

Colombia

Costa Rica

Dominican Rep.

Ecuador

El Salvador

Guatemala

Haiti

Honduras

Mexico

Nicaragua

Panama

Paraguay

Peru

Uruguay

Venezuela

n/a = not available



151.9

599.8

9.4

93.7

95.2

18.5

19.4

29.9

15.8

26.1

3.6

7.4

676.5

4.4

13.8

7.00

67.9

12.0

107.5

37.9

179.1

8.89

16.0

45.3

4.2

8.8

13.4

6.7

12.7

8.1

7.0

106.2

5.6

3.2

6.0

27.5

3.4

26.2

3,912

8,100 12004 est.

1,125

5,856

2,145

4,361

2,190

2,145

2,335

n/a

419

1,035

9,600

788

4,524

1,155

2,349

3,543

4,148

9.100 Q4 2004

-0.200 2003

0.028

7.300 Q4 2004

4.260 Q4 2004

3.900

n/a

2.700

0.021

1953

-0.009

0.025

4.900 Q4 2004

0.040

0.008

0.028

6.800 Q4 2004

2.500 2003

11.20 Q4 2004

1.400 1 2004 est.

147.0 5

4.400 6

6.000 3

2.352

1.600 2003

1.100

993.0 mn 2

496.3 mn

n/a

n/a

176.0 mn

17.20 2

196.9 mn 2

332.0 mn 2

73.70 mn 2

1.400 2

268.4 mn 2

3.100 2

12.00 Mar.

11.50 1 2004 est.

0.092 1

7.900 Mar.

14.00 Q4 2004

0.066 1

0.170 1

0.111

n/a

0.075

Over 2/3 1

0.285 1

3.950 Mar.

0.078 1

0.126 1

0.151 1

0.096

0.130 1

12.00 Q4 2004

29.40

73.10

2.000

29.20 1

n/a

6.184 1

5.400 1

7.500 1

4.100

2.900

483.00 mn

1.900

182.4 1

750.0 mn 1

3.300

2.900 1

9.000 Q4 2004

2.198

35.80 1

13.00 2003 est.

48.30 2003

2.500 2003

22.53 1

n/a

7.842 1

8.000 1

7.600 1

5.300

7.700

1.200 1

2.400

190.0

2.200

3.700

3.300 1

9.600 1

2.190

14.90 1

4.40 2003 est.

14.8 ’03-’04

n/a

1.10

5.90

11.5

n/a

n/a

n/a

n/a

n/a

n/a

4.70

9.30 1

2.00 1

5.10 1

3.70

19.4 2003

21.7

18.10 Jul ‘04

52.94 1 2004 est.

1.214 1

16.02 1

n/a

1.700

426.0 mn

1.400

1.800

3.000

80.60 mn 1

1.400 1

620.7

670.0 mn

1.076

1.100 1

12.70 1

2.300 1

25.70

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

s

Inco

min

g FD

I co

ntrac

ted bi

llions

USD

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us


J U N E 2 0 0 5

Argentina

Brazil

Bolivia

Chile

Colombia

Costa Rica

Dominican Rep.

Ecuador

El Salvador

Guatemala

Haiti

Honduras

Mexico

Nicaragua

Panama

Paraguay

Peru

Uruguay

Venezuela

n/a = not available



151.9

599.8

9.4

93.7

95.2

18.5

19.4

29.9

15.8

26.1

3.6

7.4

676.5

4.4

13.8

7.00

67.9

12.0

107.5

37.9

179.1

8.89

16.0

45.3

4.2

8.8

13.4

6.7

12.7

8.1

7.0

106.2

5.6

3.2

6.0

27.5

3.4

26.2

3,912

8,100 12004 est.

1,125

5,856

2,145

4,361

2,190

2,145

2,335

n/a

419

1,035

9,600

788

4,524

1,155

2,349

3,543

4,148

9.100 Q4 2004

-0.200 2003

0.028

7.300 Q4 2004

4.260 Q4 2004

3.900

n/a

2.700

0.021

1953

-0.009

0.025

4.900 Q4 2004

0.040

0.008

0.028

6.800 Q4 2004

2.500 2003

11.20 Q4 2004

1.400 1 2004 est.

147.0 5

4.400 6

6.000 3

2.352

1.600 2003

1.100

993.0 mn 2

496.3 mn

n/a

n/a

176.0 mn

17.20 2

196.9 mn 2

332.0 mn 2

73.70 mn 2

1.400 2

268.4 mn 2

3.100 2

12.00 Mar.

11.50 1 2004 est.

0.092 1

7.900 Mar.

14.00 Q4 2004

0.066 1

0.170 1

0.111

n/a

0.075

Over 2/3 1

0.285 1

3.950 Mar.

0.078 1

0.126 1

0.151 1

0.096

0.130 1

12.00 Q4 2004

29.40

73.10

2.000

29.20 1

n/a

6.184 1

5.400 1

7.500 1

4.100

2.900

483.00 mn

1.900

182.4 1

750.0 mn 1

3.300

2.900 1

9.000 Q4 2004

2.198

35.80 1

13.00 2003 est.

48.30 2003

2.500 2003

22.53 1

n/a

7.842 1

8.000 1

7.600 1

5.300

7.700

1.200 1

2.400

190.0

2.200

3.700

3.300 1

9.600 1

2.190

14.90 1

4.40 2003 est.

14.8 ’03-’04

n/a

1.10

5.90

11.5

n/a

n/a

n/a

n/a

n/a

n/a

4.70

9.30 1

2.00 1

5.10 1

3.70

19.4 2003

21.7

18.10 Jul ‘04

52.94 1 2004 est.

1.214 1

16.02 1

n/a

1.700

426.0 mn

1.400

1.800

3.000

80.60 mn 1

1.400 1

620.7

670.0 mn

1.076

1.100 1

12.70 1

2.300 1

25.70

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

s

Inco

min

g FD

I co

ntrac

ted bi

llions

USD

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us

Argentina

Brazil

Bolivia

Chile

Colombia

Costa Rica

Dominican Rep.

Ecuador

El Salvador

Guatemala

Haiti

Honduras

Mexico

Nicaragua

Panama

Paraguay

Peru

Uruguay

Venezuela

n/a = not available



151.9

599.8

9.4

93.7

95.2

18.5

19.4

29.9

15.8

26.1

3.6

7.4

676.5

4.4

13.8

7.00

67.9

12.0

107.5

37.9

179.1

8.89

16.0

45.3

4.2

8.8

13.4

6.7

12.7

8.1

7.0

106.2

5.6

3.2

6.0

27.5

3.4

26.2

3,912

8,100 12004 est.

1,125

5,856

2,145

4,361

2,190

2,145

2,335

n/a

419

1,035

9,600

788

4,524

1,155

2,349

3,543

4,148

9.100 Q4 2004

-0.200 2003

0.028

7.300 Q4 2004

4.260 Q4 2004

3.900

n/a

2.700

0.021

1953

-0.009

0.025

4.900 Q4 2004

0.040

0.008

0.028

6.800 Q4 2004

2.500 2003

11.20 Q4 2004

1.400 1 2004 est.

147.0 5

4.400 6

6.000 3

2.352

1.600 2003

1.100

993.0 mn 2

496.3 mn

n/a

n/a

176.0 mn

17.20 2

196.9 mn 2

332.0 mn 2

73.70 mn 2

1.400 2

268.4 mn 2

3.100 2

12.00 Mar.

11.50 1 2004 est.

0.092 1

7.900 Mar.

14.00 Q4 2004

0.066 1

0.170 1

0.111

n/a

0.075

Over 2/3 1

0.285 1

3.950 Mar.

0.078 1

0.126 1

0.151 1

0.096

0.130 1

12.00 Q4 2004

29.40

73.10

2.000

29.20 1

n/a

6.184 1

5.400 1

7.500 1

4.100

2.900

483.00 mn

1.900

182.4 1

750.0 mn 1

3.300

2.900 1

9.000 Q4 2004

2.198

35.80 1

13.00 2003 est.

48.30 2003

2.500 2003

22.53 1

n/a

7.842 1

8.000 1

7.600 1

5.300

7.700

1.200 1

2.400

190.0

2.200

3.700

3.300 1

9.600 1

2.190

14.90 1

4.40 2003 est.

14.8 ’03-’04

n/a

1.10

5.90

11.5

n/a

n/a

n/a

n/a

n/a

n/a

4.70

9.30 1

2.00 1

5.10 1

3.70

19.4 2003

21.7

18.10 Jul ‘04

52.94 1 2004 est.

1.214 1

16.02 1

n/a

1.700

426.0 mn

1.400

1.800

3.000

80.60 mn 1

1.400 1

620.7

670.0 mn

1.076

1.100 1

12.70 1

2.300 1

25.70

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

s

Inco

min

g FD

I co

ntrac

ted bi

llions

USD

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us



J U N E 2 0 0 5

Argentina

Brazil

Bolivia

Chile

Colombia

Costa Rica

Dominican Rep.

Ecuador

El Salvador

Guatemala

Haiti

Honduras

Mexico

Nicaragua

Panama

Paraguay

Peru

Uruguay

Venezuela

*Closing Rates

Beginning

2.9100

2.5292

8.1050

582.50

2350.0

472.05

28.500

25000

8.7550

7.6100

40.439

19.600

11.038

16.350

1.0050

6290.0

3.2560

25.075

2148.3

Low

2.8820

2.3645

8.0670

569.00

2318.0

471.05

26.216

25000

8.745

7.5700

36.285

17.990

10.813

16.250

0.9950

6220.0

3.2505

23.900

2144.6

High

2.9150

2.5272

8.0720

583.70

2350.9

474.20

29.750

25000

8.7550

7.5950

37.661

18.282

11.066

16.370

1.0050

6260.0

3.2590

25.075

2148.0

End

2.8850

2.3700

8.1100

580.30

2340.0

475.20

29.750

25000

8.7570

7.6300

39.804

19.680

10.875

16.370

1.0050

6270.0

3.2550

24.100

2150.0




J U N E 2 0 0 5


May 1: Honduran President Ricardo Maduro is hospitalized with minor injuries after the single engine Cessna 206 in which he, his daughter and a pilot are traveling makes a forced landing in the Caribbean Sea near the Honduran city of Tela.

May 2: Chilean Interior Minister Jose Miguel Insulza is elected secretary-general of the Organization of American States with 31 affirmative votes, two abstentions and one blank vote.

May 3: Angolan President Jose Eduardo dos Santos meets with Brazilian President Luiz Inacio “Lula” da Silva before a two-day visit with President Nestor Kirchner of Argentina.

May 3: A congressional committee in Peru issues a report accusing President Alejandro Toledo Manrique of participating in a criminal conspiracy and violating the public’s trust. The committee report claims that forged voter signatures were used to register Toledo’s Peru Posible party so he could run for president in 2000.

May 3: Venezuelan President Hugo Chavez admits publicly for the first time that Petroleos de Venezuela is experiencing oil production difficulties. Chavez blames sabotage and bad management for the drop in production.

May 3: U.S. Defense Secretary Donald Rumsfeld says Washington will take no direct action to stop President Hugo Chavez’s efforts to impose a socialist state in Venezuela, predicting its people eventually will solve their problems without external interference. Separately, U.S. Assistant Secretary of State for Western Hemisphere Affairs Roger Noriega says the Bush administration has “many other priorities” in Latin America.

May 3: Venezuela’s Defense Ministry is in talks with Russia’s Sukhoi Corp. over the possible purchase of two squadrons of SU-25 ground-attack jets and SU-27 fighter-bombers. Venezuelan officials also are in talks with Mikoyan-Gurevich Corp. to acquire at least $250 million worth of MiG-29 SMT fighters.

May 4: In Honduras, Security Minister Oscar Alvarez says the U.S. government is concerned that international terrorists could use illegally acquired Honduran passports to sneak into the United States and launch attacks.


J U N E 2 0 0 5

May 4: The U.S. Embassy in Colombia confirms that two U.S. soldiers were arrested May 3 in Tolima department on suspicion of illegally selling munitions to unidentified Colombian armed groups.

May 4: In Mexico, the attorney general’s office drops charges of contempt of court against Mexico City Mayor Andres Manuel Lopez Obrador because the law does not clearly state what sentence he would face. The decision clears the way for Obrador to seek the presidency.

May 4: Argentina successfully completes its first debt issue in more than four years: 1 billion pesos ($345 million) of national debt bonds, payable in 2014. Foreign and local investors oversubscribed the issued debt by 216.5 percent.

May 5: Deputy Foreign Minister Jorge Gumucio says Bolivia will start to export natural gas by 2009 through the port of Ilo in southern Peru. The remarks come after Mexican President Vicente Fox and Bolivian President Carlos Mesa sign an agreement that stipulates the natural gas would be exported to Mexico by a reconstituted Yacimientos Petroliferos Fiscales Bolivianos, Bolivia’s state-owned oil company.

May 5: Colombian soldiers find six Nicaraguan army assault rifles in a Revolutionary Armed Forces of Colombia camp near the Yurumangui River. Troops also seize 12,000 rounds of ammunition and nearly 700 hand grenades.

May 6: Mexican President Vicente Fox meets with Mexico City Mayor Andres Manuel Lopez Obrador to ease political tensions that spiked when Congress impeached the mayor for an alleged irregularity.

May 8: Two leading opposition figures in Venezuela — Claudio Fermin, former mayor of Caracas, and Carlos Melo, a political activist — say they will form a new party known as the Popular Assembly to unite against President Hugo Chavez and to “rescue political discourse.”

May 8: Preliminary returns in Uruguay’s municipal elections indicate that candidates for the ruling United Left coalition have won 60 percent and 63 percent respectively in Montevideo and Canelones, the country’s most populous provinces.


J U N E 2 0 0 5

May 8: Venezuelan President Hugo Chavez says foreign oil companies will be audited and that retroactive income taxes dating back as far as the mid-1990s will be levied. Any oil company refusing to pay past-due taxes will be expelled from Venezuela.

May 8: Colombian Sen. Jimmy Chamorro, a member of the Senate Foreign Relations Commission, says Venezuela plans to buy 300,000 AK assault rifles from Russia — not 100,000 rifles, as Venezuelan officials claim.

May 9: Argentine President Nestor Kirchner discusses trade tensions with Brazilian President Luiz Inacio “Lula” da Silva. Brazilian Foreign Minister Celso Amorim says Brasilia will reject proposals for bilateral safeguard mechanisms meant to protect Argentine industry from being flooded by Brazilian exports.

May 9: The Emir of Qatar cancels a visit to Venezuela; no explanation is given to the public.

May 9: In Brasilia, Venezuelan President Hugo Chavez says the governments of Argentina and Brazil have agreed with Venezuela to create a regional petroleum company to be called PetroSur.

May 10: Argentina offers a bilateral trade-reform proposal to Brazil that would “balance” trade within Mercosur. Brasilia will not consider requests for a bilateral system of safeguards to protect Argentine producers from Brazilian exporters, which one official said would be “the death of Mercosur.”

May 10-11: The first summit of the leaders of the Arab League and the recently created South American Community of Nations is held in Brazil, ending in the signing of the Declaration of Brasilia that criticizes U.S. sanctions against Syria and condemns terrorism. It also asserts the right of people “to resist foreign occupation in accordance with the principles of international legality and in compliance with international humanitarian law.” It calls for greater economic and political cooperation and for Israel to withdraw to pre-1967 borders.

May 12: Europe’s fifth-largest oil company, Repsol YPF SA of Spain, is willing to “heavily” invest in Venezuela to help develop new reserves and expand the nation’s oil production, says Chief Financial Officer Luis Manas.


J U N E 2 0 0 5

May 12: In Bolivia, Congress rejects a proposal by President Carlos Mesa to hold a national unity meeting to discuss the country’s controversial Hydrocarbons Law. The law is approved by Congress and sent to Mesa, who wants to negotiate for a law more accommodating to foreign investors.

May 13: A car bomb explodes in Santa Cruz, Bolivia, outside the local headquarters of Brazilian oil company Petroleo Brasileiro SA. No one is injured. A group calling itself the Patriotic Bloc claims credit and warns of more attacks unless Bolivia nationalizes the oil and gas industry.

May 13: Authorities seize 13.9 tons of cocaine — estimated to be worth $350 million — on the banks of the River Mira near Tumaco, in southern Colombia. Calling it the biggest single cocaine bust in history, police claim the drugs belonged to an alliance of drug traffickers from Cali and Medellin, the Revolutionary Armed Forces of Colombia and the paramilitary United Self-Defense Forces of Colombia.

May 16: The Bolivian Workers Central announces a nationwide strike following President Carlos Mesa’s refusal to sign the controversial new Hydrocarbons Law. Police in La Paz use tear gas and water cannons to disperse hundreds of peasants and workers, who are seeking nationalization of the oil and gas industry, as they attempt to storm Congress.

May 17-19: A delegation from the Mercosur South American trading bloc meets leading Russian officials, including Prime Minister Mikhail Fradkov, in Moscow. The talks, the first between Mercosur and Russia, mark an effort to promote political, trade and investment ties — with a specific focus on Russian cooperation in high technology, energy, and transport programs in South America.

May 17: Brazilian oil company Petroleo Brasileiro SA (Petrobras) plans to study the situation in Venezuela before deciding its future in the country, Petrobras’ Finance Chief Sergio Gabrielli says.

May 17: Department of Homeland Security officials in Miami detain Cuban-Venezuelan militant Luis Posada Carriles. Venezuela’s government demands Posada Carriles’ extradition from the United States in connection with the bombing of a Cubana airliner in 1976.

May 17: Venezuelan Defense Minister General Jorge Garcia Carneiro signs a contract to buy 100,000 AK-103 assault rifles from Russia. The contract


J U N E 2 0 0 5

also includes a technology transfer to help Venezuela’s military industries make the weapon under license, making Venezuela the first country besides Russia to manufacture the weapon.

May 17: Reports emerge that the Revolutionary Armed Forces of Colombia has developed 10 new supply-smuggling “corridors” linking the departments of Narino and Putumayo in southwestern Colombia with the northern Ecuadorian provinces of Carchi, Esmeraldas, Orellana and Sucumbios. Corrupt Ecuadorian military personnel reportedly aided the development of the corridors.

May 17: About 12,000 members of the Brazilian Landless Peasants Movement march to the U.S. Embassy in Brasilia and pelt the entrance with garbage to protest U.S. intervention in Cuba, Haiti, Iraq and Venezuela.

May 17: The Bolivian Hydrocarbons Chamber, a group representing the foreign oil companies operating in Bolivia, call the country’s new Hydrocarbons Law enacted by Congress a “confiscatory” statute that will “affect negatively future investments” in Bolivia.

May 18: Brazil will accept a permanent seat on the U.N. Security Council without any veto voting rights, Foreign Minister Celso Amorim says.

May 18: In Brazil, the central bank raises the reference-lending rate to 19.75 percent from 19.50 percent in the ninth increase in nine months. The bank’s next announcement on interest rates will come June 15.

May 19: At least 95 Chilean soldiers are reported missing after their battalion of 433 people encounters a heavy snowstorm while descending the Andes Mountains after participating in a high-altitude training exercise near the Antuco volcano.

May 19: The International Monetary Fund approves Argentina’s request for a one-year extension on a $2.5 billion loan-repayment deadline. The payment now is due in 2007.

May 19: Argentina must invest $33 billion in energy-capacity expansions between 2005 and 2020 to achieve 5 percent annual market growth. To maintain its 23-year-long annual growth rate of 1.2 percent, Argentina must invest $17.4 billion over the next 15 years.


J U N E 2 0 0 5

May 20: Bolivian armed forces commander Adm. Luis Aranda says the military will not allow congressional confrontations over the issue of regional autonomy to deteriorate into clashes that could endanger Bolivia’s unity. Separately, Victor Mena, a leader of the country’s unionized miners, warns that if departments such as Santa Cruz and Tarija seek to break away from the central government and adopt autonomous administrations, miners will “mobilize” against the lowland departments.

May 20: Argentine energy analysts say Bolivia’s new Hydrocarbons Law will aggravate energy shortages in Argentina if foreign companies in Bolivia suspend investment plans to expand natural gas production capacity. They also say the law will derail construction of the Northeast Gas Pipeline, which would supply Argentina with 20 million cubic meters per day of natural gas.

May 20: China State Construction Engineering plans to invest up to $1.5 billion in Peru to build highways, seaports and airports that would be operated under private concession contracts

May 20: Two EU parliamentarians planning to attend a meeting with Cuban dissidents are expelled from Cuba. The governments of Germany, Italy, Poland and the Czech Republic join the European Union in repudiating the Cuban government’s action. Cuba also expels six Polish nationals and detains an Italian journalist.

May 20: Antonio Brufau, president of Spanish oil firm Repsol YPF SA, says Argentina will become a net importer of energy in 10 to 15 years if the Argentine people do not learn to consume energy more efficiently and invest in critically needed capacity expansions.

May 20: In Paraguay, Justice and Labor Minister Juan Dario Mongez resigns, one day after President Nicanor Duarte accepts the resignation of Finance Minister Dionisio Borda. Duarte also accepts the resignation of Paraguay’s central bank president and says Foreign Minister Leila Rachid will resign in August for “personal reasons.”

May 22: President Hugo Chavez says Venezuela will launch a nuclear development program “for peaceful purposes, not to make bombs,” with the participation of other Latin American countries, Europe and Iran. He also says Argentina plans to restart its nuclear development program and that Mexico seeks to launch one of its own.


J U N E 2 0 0 5

May 22: Venezuelan President Hugo Chavez says his government will suspend diplomatic relations with the United States if the Bush administration does not extradite Luis Posada Carriles to Caracas. Chavez claims to have “proof” that Posada Carriles participated in actions to destabilize his government in April 2002, when he was toppled from power for about 48 hours.

May 22: Foreign oil companies owe the Venezuelan government $4 billion in unpaid royalties and taxes dating back to 2000, Energy and Mines Minister Rafael Ramirez says.

May 22: News emerges that the government of Britain is concerned that Argentina might attempt to launch a surprise invasion of the Falkland Islands and increases the British military presence in the South Atlantic Islands to 5,000 troops.

May 23: Colombia will purchase weapons from China to strengthen its offensive capabilities against militant and paramilitary groups, President Alvaro Uribe Velez says. This would be the first time Colombia has acquired weapons from China.

May 23: Mexico reportedly is short 1.2 billion cubic feet per day in supplies of natural gas and needs to spend about $25 billion a year over the coming decade to achieve self-sufficiency in natural gas production. Because Mexico now invests only $6.5 billion annually, according to Energy Department officials, a natural gas supply crunch could come as soon as 2007.

May 23: International airports, seaports and border crossings in Nicaragua are placed on alert after warnings are received that two suspected al Qaeda members could be traveling in Central America. The suspects are identified as Ahmad Salim Sawydan, a Kenyan national, and a Yemeni known as Altuwiti.

May 23: Brazil’s government says it will not cooperate with any Venezuelan nuclear development program involving Iran. Government officials in Chile, Colombia and Mexico also voice concerns about the possibility of a Venezuelan nuclear development program involving Iran, but some Argentine government officials react favorably to the idea of nuclear cooperation agreements with Venezuela.


J U N E 2 0 0 5

May 24-26: The Brazilian and Colombian air forces engage in a joint training exercise meant to refine bilateral protocols for identifying and interdicting private aircraft suspected of transporting drugs and weapons over the Amazon region.

May 24: In Bolivia, Interior Minister Saul Lara says some political actors are seeking “contact” with the armed forces and national police in efforts to destabilize the nation. Separately, Argentine daily newspaper Clarin reports that the Bolivian Workers Central plans to negotiate a consensus with the military to install a nationalist, left-leaning military government in Bolivia.

May 25: Representatives of a self-described “generational military movement” in Bolivia appear on a privately owned Bolivian television station and call for the immediate resignation of President Carlos Mesa, the dissolution of Congress and the nationalization of the oil and gas industry. An army lieutenant colonel identified as Julio Cesar Galindo appears to be the visible head of the clandestine military movement. Army Lt. Col. Julio Herrera reads the statement.

May 25: Bolivia’s top military commanders declare their unified support for President Carlos Mesa and say the Defense Ministry will investigate officers who called for Mesa’s resignation.

May 25: Venezuelan Energy and Petroleum Minister Rafael Ramirez says that Sincor, a strategic venture between Total CFP of France, Statoil of Norway and Petroleos de Venezuela, is the “worst case” of abuse committed by a foreign oil company in Venezuela in terms of not paying its fair share of royalties and taxes. Ramirez’s words contradict President Hugo Chavez’s decision in March to approve a proposed expansion of Sincor’s capacity over the next five years.

May 26: Fuel shortages are increasing in Bolivia’s capital La Paz and the neighboring industrial city of El Alto, forcing many service stations to ration supplies to drivers. Eyewitness reports also suggest, however, that the protests that have paralyzed La Paz since May 23 are losing momentum with the start of a four-day holiday weekend.

May 26: Four international producers of fixed-wing, turboprop combat aircraft have withdrawn from Colombia’s bidding process for 24 combat aircraft, claiming the bidding process lacks transparency and is biased in favor of Brazilian aircraft maker Embraer.


J U N E 2 0 0 5

May 26: Argentina’s government announces it will extend existing capital controls so investors placing money in the country will have to keep it there for a full year rather than for the existing six-month period. The six-month restriction has been in place since June 2003.

May 27: The United States rejects the Venezuelan government’s request that Cuban-Venezuelan anti-Castro militant Luis Posada Carriles — charged with conspiring to blow up a Cubana de Aviacion aircraft — be kept under arrest in the United States while Venezuela formally seeks his extradition.

May 27: The Bolivian armed forces discharge the two army lieutenant colonels who called May 25 for the resignation of President Carlos Mesa and the installation of a military government.

May 28: Demonstrators in the Venezuelan capital of Caracas demand that the United States extradite Luis Posada Carriles to stand trial for the 1976 bombing of a Cuban airliner.

May 30: Senior officials and businessmen from Russia and Venezuela meet in Caracas to explore potential economic cooperation and joint investment.

May 30: Venezuela’s information minister dismisses reports that President Hugo Chavez is ill after Chavez cancels weekend radio and television appearances. A source in the Miraflores presidential palace says, however, that Chavez has suffered a manic depressive episode. Chavez appears on Venezuelan television late in the day with assurances that he is well, though his demeanor is unusually subdued.

May 31: Relations between Chile and Argentina are excellent but the countries will form an ad-hoc committee to discuss cutting promised Argentine deliveries of natural gas by 50 percent to resolve an energy dispute between the two, says Chilean Foreign Minister Ignacio Walker.

May 31: Bolivian President Carlos Mesa says a “conspiracy” is under way to prevent Congress from meeting to discuss ways of easing the country’s political crisis. Protests against Mesa’s government continue in La Paz with thousands of indigenous peasants, miners and workers seeking to block access to Murillo Plaza, where Congress and the presidential buildings are located.


J U N E 2 0 0 5

May 31: China plans to invest $550 million in a Chilean copper mining venture, China Minmetals Corp. and Chile’s Codelco announce.


June 5-7: The General Assembly of the Organization of American States meets in Fort Lauderdale, Fla. U.S. President George W. Bush will address the assembly June 6.

C h a n g e s

Organization of American StatesOAS President Jose Miguel Insulza is a veteran socialist politician in Chile who has held numerous public posts, including foreign minister, before he was appointed to head the Interior Ministry by President Ricardo Lagos. He is well regarded regionally as a person who can bring balance to an OAS that was rocked by scandal in 2004 and more recently has been the scene of the escalating political confrontation between Venezuelan President Hugo Chavez and the administration of U.S. President George W. Bush.

ChileNew Interior Minister Francisco Vidal is a veteran political operative close to President Ricardo Lagos. Before his appointment, Vidal was minister of the Government Secretariat, where he worked closely with Lagos and served as the government’s top official spokesman.

Minister of the Government Secretariat Oswaldo Puccio, who replaced Vidal, is a veteran diplomat who was serving as Chile’s Ambassador to Brazil.

ParaguayPresident Nicanor Duarte partially restructured his Cabinet in May as part of his preparations to compete for the post of leader of the ruling Colorado Party in internal party primary elections scheduled for 2006. Duarte’s strategy is to lock in control of the party and then seek re-election as president of Paraguay in 2008.

Ernesto Bergen is appointed finance minister after Duarte fires Dionisio Borda, a political independent who was considered immune to presidential


J U N E 2 0 0 5

pressures. Duarte fired Borda to clear the way for a public spending increase to help him win the presidency of the Colorado Party. Bergen, previously Industry and Commerce minister, is viewed as generally supportive of in-creased public spending to stimulate economic growth and consumption.

New Industry and Commerce Minister Raul Vera is an economist who reportedly believes in government-supported industrial development policies. Vera likely will work cooperatively with Bergen to increase public spending to boost economic activity and job creation.

Newly named Central Bank President Monica Perez is a former official with the International Monetary Fund. Her first official action is to demand explanations from the Finance Ministry about $425 million in missing funds that were loaned to Paraguay in 1999 by the government of Taiwan. Perez is loyal to Duarte, and her apparent purpose in raising questions about the missing Taiwanese funds is to neutralize Borda politically before he can start challenging Duarte’s plans to boost public spending, which likely will increase inflationary pressures, the fiscal deficit and government indebtedness over the next three years.

New Justice and Labor Minister Ruben Candia replaced Juan Dario Monges, who returned to the chamber of deputies. Candia, an attorney, is a veteran Colorado Party activist and labor rights lawyer. His appointment is likely meant to ensure that potential labor strikes by public workers are kept to a minimum.

BoliviaNational Congress President Hormando Vaca Diez signed Bolivia’s Hydrocarbons Law on May 17 after President Carlos Mesa refused to sign it, but also declined to veto it officially. The new law establishes a royalty of 18 percent on oil and natural gas production and an income tax rate of 32 percent on private oil companies. The law also re-establishes state-owned Bolivian oil company Yacimientos Petroleros Fiscales de Bolivia, although no funds have been set aside for recapitalizing the company.


J U N E 2 0 0 5

he United States has never been more engaged in the Middle East, where al Qaeda-inspired jihadism — introduced so dramatically to the United States on Sept. 11, 2001 — is pitted against a U.S.-inspired move toward democracy. The Middle East is the arena for this epic struggle, which is playing itself out most intensely

in the urban battlegrounds of Iraq. In Iraq, as elsewhere, moderate Islamists are starting to emerge, which will facilitate the region’s political transformation.

T h i s M o n t h ’ s H i g h l i g h t s : I n E v e r y I s s u e : • The Evolution of Iraq • Trends, Stats and Indicators • Pullout and Political Bickering • Noteworthy Events • Lebanon’s Changing Political Landscape • The Pending Death of a King • Pressure to Democratize

T


J U N E 2 0 0 5

TE x e c u t i v e S u m m a r y

he Middle East, which stretches east from Morocco to Pakistan and south from Turkey to Sudan, is a region beset by domestic political flux and outside intervention by the United States. Not only are these changes evident in specific states but they also are common across borders, due largely to al Qaeda-inspired jihadism and the U.S. response.

As it promotes democracy in the region, the United States seeks not only to counter the jihadist insurgency but also to achieve some political stability in a part of the world characterized by conflict since the end of World War I, when the current countries of the Middle East emerged as independent states.

Between these two conflicting trends — jihadism and democratization — is a third trend called moderate Islamism. Moderate Islamist groups seek to take advantage of the U.S. call for democracy and the heightened religious sensibilities of the masses and secure their own political standing. Recognizing the utility of such movements to further its own interests, Washington has begun to engage these moderate Islamists along with other mainstream and secular-leaning political forces.

As states of the Middle East move away from authoritarian rule and toward more democratic political systems, the transformation will have an impact on the region’s thorniest conflicts, from the Israeli-Palestinian problem to Iran’s nuclear ambitions.


J U N E 2 0 0 5

M A Y : T H E M O N T H I N R E V I E W

May brought a lot of activity all across the broader Middle East, from the North African shores of the Atlantic all the way to Kashmir in Southwest Asia. The focal points of action were Iraq, Iran, Israel, the Palestinian territories of the West Bank and the Gaza Strip, Saudi Arabia, Lebanon, Syria, Iran, Afghanistan and Pakistan.

T h e E v o l u t i o n o f I r a qIn Iraq, the jihadists actually managed to increase the tempo of operations with multiple suicide bomb attacks everyday. Then came the news from Iraqi and U.S. authorities that coalition troop levels in Iraq would be reduced by the end of the year. To meet this deadline, the U.S. military launched two major operations in western Iraq near the Syrian border specifically targeting the jihadists led by al Qaeda in Iraq leader Abu Musab al-Zarqawi. Many jihadist operatives and senior leaders of the network were killed or captured. Al-Zarqawi himself reportedly was wounded and fled to a neighboring country, most likely Jordan or Syria. Shortly thereafter, he made another announcement saying he had recovered from his wounds. This was followed by his message to al Qaeda leader Osama bin Laden that he was well and leading the fight in Iraq.

On the political side of things, the new Iraqi government led by Prime Minister Ibrahim Jaafari finalized his Cabinet by filling the remaining posts, especially the portfolios of oil, defense and the position of fourth deputy prime minister. This was followed by the appointment of a 55-member committee to draft the Iraqi constitution.

I r a n ’ s N u c l e a r S t a n d o f fWith Iraq evolving more or less as the clerical regime in Tehran expected, the Iranians have focused their attention on two key policy issues — one having to do with foreign affairs and the other domestic. After months of threatening to pull out of negotiations with the European Union and to resume uranium enrichment, the Islamic republic tentatively agreed to keep the enrichment process suspended for another few months, allowing the

Al-Zarqawi reportedly was wounded and fled to a neighboring country. Shortly therea�er, he made an announcement saying he had recovered from his wounds.


J U N E 2 0 0 5

European Union to come up with a comprehensive deal that satisfies the Iranian demand that it not be denied access to nuclear technology.

Immediately after confirming his nomination for a third term as president, senior Iranian politician Ali Akbar Hashemi-Rafsanjani offered to mend bilateral relations with the United States. The presidential campaign kicked off after the Guardians Council (GC) approved the candidacies of six individuals and disqualified 1,008. In an effort to co-opt leading reformists, Supreme Leader Ayatollah Ali Khamenei got the hard-line-controlled GC to reinstate the candidacy of two leading reformists who are allies of outgoing President Mohammed Khatami.

P u l l o u t a n d P o l i t i c a l B i c k e r i n gOn the Israeli-Palestinian front, not only did the government of Prime Minister Ariel Sharon postpone the planned withdrawal from the Gaza Strip and parts of the West Bank from mid-July to August, but the Palestinian National Authority (PNA) has all but confirmed that the Palestinian Legislative Council (PLC) elections would be delayed. This past month also saw another member of the Sharon Cabinet resign over the decision to pull out of the Palestinian territories, which puts further pressure on Sharon. In addition, the religious right and the Jewish settler community have maintained their opposition to the pullout.

On the other side of the divide, fractures emerged within the Fatah-controlled PNA over electoral laws governing the PLC elections. This was in addition to the bickering going on between President Mahmoud Abbas and Prime Minister Ahmed Qurai and the rift between the old guard of the Palestine Liberation Organization and the younger generation, which has adopted more violent tactics.

The intra-Fatah feuds are not the only ones threatening to weaken the secular Palestinian movement and its hold on to power. Hamas, which made impressive gains in the May municipal elections and is expected to display a similar if not better performance in the coming legislative elections, has Fatah worried. This has resulted not only in moves to postpone the PLC elections but also to the PNA judiciary’s annulling the results in some of the local elections.

This past month saw another member of the Sharon Cabinet resign over the decision to pull out of the Palestinian territories.


J U N E 2 0 0 5

Both issues have created tensions between Hamas and Fatah, and Egypt is trying to mediate the matter.

L e b a n o n ’ s C h a n g i n g P o l i t i c a l L a n d s c a p eTo the north in Lebanon, another military withdrawal was finalized in May with Syrian troops leaving the country after a presence of several decades. The pullout set off a series of political maneuverings ahead of the general elections slated for June. The entire domestic political landscape went into a state of flux, with the pro-Syrian establishment and its opponents spending the better part of May trying to work out deals.

The electoral platform led by Sunni leader Saadeddin al-Hariri — the son of assassinated former Prime Minister Rafik al-Hariri — and backed by Saudi Arabia emerged as the main opponent to the pro-Syrian establishment lead by President Emile Lahoud. Meanwhile, Maronite leader Michel Aoun and Druze leader Walid Jumblatt also are major players in the factionalized opposition movement. While there is stiff competition within the Maronite and Sunni communities, the majority Shiite community with the Amal-Hezbollah arrangement seems to be the most stable. In May, not only did Iran move to protect the status quo, but the United States and Europe also demonstrated a willingness to politically interact with Hezbollah.

S y r i a o n t h e R e t r e a tStill further north, Syrian President Bashar al Assad is trying to keep things together after his regime was forced by the United States, the United Nations, Europe and a host of fellow Arab states to withdraw its troops from Lebanon, where they had been for almost three decades. There has been no let up in pressure from the United States, which wants Damascus to crack down on fighters traversing the Syrian-Iraqi frontier to stage attacks in Iraq and to desist from backing rejectionist Palestinian groups that are upsetting the Israeli-Palestinian peace process.

Moreover, the Bush administration, while it may not have an alternative political force that it can back against the Alawite-Baathist government and also does not want to create instability in the region, is nonetheless interested in regime change in Syria. Therefore, the pressure is likely geared toward weakening the regime from within.

There has been no let up in pressure from the United States, which wants Damascus to crack down on fighters traversing the Syrian-Iraqi frontier.


J U N E 2 0 0 5

Information obtained from sources close to the political scene in Damascus lend credence to reports that senior Syrian intelligence and security officials are running the show and are unhappy with the behavior of al Assad.

As if all of this were not enough, the president’s uncle — a former rival of his father living in exile in Europe since the early 1980s — made clear his intentions to return home to play a leading role in a movement for political change. In the midst of all the things going wrong for al Assad, there was a glimmer of hope — the statement from outgoing Israeli military chief Lt. Gen. Moshe Yaalon — that Israel would still be able to defend itself if the Golan Heights were returned to Syria. Regardless of when or how this happens, Yaalon’s remarks — irrespective of his actual intentions — provided al Assad with a potential tool to shore up his image at home. The million dollar question for everyone is whether he will be able to effectively use that tool.

T h e P e n d i n g D e a t h o f a K i n gMay was quiet month in Saudi Arabia after a major blow to al Qaeda jihadists in the kingdom in April, when several senior operatives were killed in a clash northwest of Riyadh. Though al Qaeda may not have been a major issue for the al Saud regime in May, fears that the country’s monarch would die kept the kingdom in the media spotlight.

On two separate occasions, the kingdom’s monarchical system seemed poised for a major shakeup — something that has happened only three times since the modern Saudi state was founded in the early 1900s. First, on May 3, there were rumors emanating from neighboring Kuwait that King Fahd bin Abdel-Aziz al Saud had died. Then on May 27, it was announced that the ailing king had been hospitalized for pneumonia.

The last few days, however, have seen a flurry of statements from Crown Prince and de facto ruler Abdullah bin Abdel-Aziz al Saud (who also is a half-brother of Fahd) and the second and third in line after Abdullah (who are real brothers of the king), Defense Minister Prince Sultan bin Abdel-Aziz al Saud and Interior Minister Prince Naief bin Abdel-Aziz al Saud. All three princes have said the king’s health is improving. These reassurances notwithstanding, King Fahd, who is believed to be in his 80s and has been ill for the last 10 years, will not be around for long.


J U N E 2 0 0 5

P r e s s u r e t o D e m o c r a t i z eIn Egypt, the United States has called on the government of President Hosni Mubarak to enact political reforms, and street protests in Egyptian cities are no longer a novelty. In fact, this past month has seen many such demonstrations and, in turn, government crackdowns, especially on the moderate Islamist Muslim Brotherhood, which may not be the strongest political force in the country but is the most organized. This is why the brotherhood joined a host of secular political parties under the banner of the Kifayah (Sufficient) movement to forge a common front against the Mubarak regime.

Under pressure from the Bush administration, Cairo passed legislation that apparently allows, for the first time, multiple candidates to run in the presidential election. In reality, with the elections scheduled for September, it will be difficult for candidates to get on the ballot. The approved legislation went up for a national referendum May 25, but the opposition boycotted the referendum. Despite government claims that some 83 percent voted in favor of the constitutional amendment, the actual turnout reportedly was low, and the voting was marred by violent clashes between government supporters and opposition activists, followed by a police crackdown.

C l a s h e s O v e r t h e K o r a nIn southwest Asia, both Afghanistan and Pakistan saw protests over reports of alleged abuse of the Koran by U.S. military personnel at the detention facility in Guantanamo Bay, Cuba, with several people getting killed during clashes with police. Afghan President Hamid Karzai tried unsuccessfully to gain more control over military operations during his visit to the White House but was flatly rejected by U.S. President George W. Bush. In the same visit, Karzai and Bush signed an agreement allowing U.S. troops to maintain bases in the country for an extended period of time.

At a time when the hunt for the highest leadership of al Qaeda is in full swing, Pakistani and U.S. intelligence and security personnel nabbed Abu Farj al-Libi, a senior operative who was heading operations in Pakistan and is allegedly behind the attempted assassinations of Pakistani President Gen. Pervez Musharraf, Prime Minister Shaukat Aziz and Vice Chief of the Army Staff Lt. Gen. Ahsan Saleem Hayat. After insisting that al-Libi would be tried in Pakistan, Islamabad announced it was handing him over to the United States.

The U.S. has called on President Hosni Mubarak to enact political reforms, and street protests in Egyptian cities are no longer a novelty.


J U N E 2 0 0 5

K E Y I S S U E S

While Russian geopolitical disintegration and Chinese economic meltdown have taken center stage on a global scale, the Middle East is still dealing with two major U.S. strategic initiatives — the war against jihadism and the push for democratization. In other words, geopolitics in the Middle East has one common denominator — the United States. Actually, U.S. involvement varies from state to state and ranges from protecting fledgling governments from insurgents to seeking ways to effect regime change. The Bush administration also is trying to deal with incumbent regimes, even though they may be undesirable ones. In the midst of all of this, the U.S. military and intelligence apparatus is still hunting for al Qaeda’s top leadership.

A m e r i c a n T h e a t e rOn the Arab-Persian frontier, Iraq is working out according to U.S. wishes. The Sunni willingness to at least think about participating in the government is in keeping with American desires, and things continue to move in a direction that suits both parties. Al-Zarqawi is being marginalized, and he announced his wounds to justify a disruption in operations. The United States has engaged substantial segments of the Sunni leadership, and although they have reached no agreement, negotiations continue. The Shia are uneasy with this, of course, and the process does represent a clash of Iranian and American interests. At root, however, their primary interest is the same — contain the Sunnis. The Iranians want domination in Iraq, the Americans want bases. They can and will establish a dialogue about their respective desires in Iraq.

Notwithstanding their bloody eight-year war in the 1980s, the futures of Iran and Iraq now appear to be linked with the ouster of Saddam Hussein. Dominated by its majority Islamist-leaning Shiite community, Iraq’s political system will provide Tehran with a geopolitical tool with which it can project power in the region and beyond. On its own, Iraq will take some time to emerge as a viable state, since containing the insurgency and drafting the country’s constitution will not be possible until some time early next year, at the earliest. Only after these two issues have been settled will the country return to its role as a major oil producer and a state allied with Iran. As for Iran

The Iranians want domination in Iraq, the Americans want bases. They can and will establish a dialogue about their respective desires in Iraq.


J U N E 2 0 0 5

itself, the clerical regime’s attempts to consolidate itself at home and seek recognition abroad are the two key issues that will drive the country’s domestic and international politics. Critically linked to both is the United States, which to a great degree will determine the health of the Iranian state and its place in world affairs.

Afghanistan, despite the weakening of the Taliban movement and the pumping of vast amounts of financial and military assistance into the country, thus far remains a failed state. While the constitution has been drafted and presidential elections have been held, the most challenging task remains — to bring together an entire country fractured along regional, ethnic, tribal, linguistic and ideological lines by electing a parliament. As in Iraq, this is a function of containing the insurgency and co-opting a significant segment of the insurgents. On the periphery of the Middle East, Pakistan is a nuclear-powered nation ruled by the military and is the headquarters of al Qaeda. The militant group might not be there for long, but that does not necessarily mean the country will move toward greater stability. In fact, the impending operation against bin Laden and associates involving U.S. forces could


J U N E 2 0 0 5

contribute to the country’s instability. Many within Pakistan’s political and military hierarchy may take issue with the regime for allowing U.S. forces to operate in the country. Even if this were not the case, given that Pakistan’s hybrid civil-military system revolves around Musharraf, the country will sooner rather than later see a period of political instability when the general is no longer at the helm because of natural or other causes.

L e v e r a g e i n t h e L e v a n tThe Israeli-Palestinian conflict has long been one of the key issues in the region, and it is especially so now with the impending withdrawal of Israeli forces from the West Bank and Gaza Strip and Palestinian legislative elections over the summer. The Israeli withdrawal — an historic event in itself — will pave the way for the emergence of a sovereign Palestinian state, and the elections will allow the militant Islamist Palestinian group Hamas to transform into a major political player. At the same time, the Palestinian establishment is weakening, and there are serious divisions within the ruling Likud Party in Israel over the proposed pullout. Dissidents allied with the religious right and the settler community threaten the stability of the government of Sharon, who has had to forge a government of national unity with the opposition Labor Party.

In the Syrian-Lebanese arena, Damascus’ withdrawal of its troops from Lebanon has not only paved the way for a political shake-up in Beirut, but also threatens to destabilize the Alawite-Baathist regime led by al Assad. U.S. pressure on Syria has not subsided, even after Syria complied with the international demand to remove its forces from Lebanon. Washington is now forcing Syria to crack down on militant traffic along the country’s border with Iraq. It remains to be seen whether the Bush administration goes for the jugular and continues with the pressure to secure regime change in a non-military manner.

A G r a d u a l R e s h a p i n gWhile al Qaeda may no longer be a strategic threat to the government of Saudi Arabia, the impending transition within the royal family, along with calls for reform from the United States, will continue to re-shape the country’s political system — albeit gradually. This will have a direct impact on global oil markets because the country contains a large portion of the world’s oil reserves.

The Palestinian establishment is weakening, and there are serious divisions within the ruling Likud Party in Israel over the proposed pullout.


J U N E 2 0 0 5

The death watch over the ailing monarch is important in that King Fahd plays a significant role as a system stabilizer. His younger half-brother has been discharging his duties as de facto ruler of the Saudi kingdom for the last decade, but Fahd bin Abdel-Aziz al Saud retains his title as king. In other words, Crown Prince Abdullah has been manning the helm in terms of both domestic as well as foreign affairs, while King Fahd has spent most of his time resting and tending to his illness for as long as al Qaeda has existed. Ten years is a long time for a man to be king in name only, especially with his half brother serving as the effective ruler of the kingdom and his real brothers serving as subordinates. King Fahd is known to have certain negative characteristics, but pettiness is not one of them, and it is unlikely that the aging monarch wanted to hold on to the title of king for some trivial pleasure. So what purpose is being served in having him retain his official position as reigning monarch?

There are likely certain problems on which the lid has been kept during King Fahd’s illness. With Crown Prince Abdullah and Defense Minister Prince Sultan poised to assume the roles of king and crown prince respectively, these problems could have to do with disagreements over the Cabinet and other positions below them. Who succeeds King Fahd and who gets to be deputy monarch are settled matters. The fact that the four top princes beneath the


J U N E 2 0 0 5

current king are all 69 or older and could therefore die in quick succession poses a huge problem for the stability of the Saudi system. Such a scenario effectively transfers power into the hands of the grandsons of the founder of the modern Saudi dynasty, King Abdel-Aziz. It is not a pretty picture. Considering that his sons had problems sharing power, his grandsons are likely to as well. The situation will be exacerbated by their sheer number, by some accounts more than 50 sons of men who have been in positions of power since the establishment of the kingdom.

Egypt, for the first time since it became a U.S. ally in 1978, is under pressure from the United States to effect political reforms, which is the main driver of events within the country. On the external front, Cairo continues to play a major role brokering peace between Israelis and Palestinians and mediating between the ruling Fatah and its opponents, both secular and Islamist. Despite the focus on domestic issues in the wider Middle East, the Mubarak government it is trying to sustain its position as a major player given its central role in the Arab League.

T h e M o n t h A h e a d :F o r e c a s t s f o r J u n e

H i g h l i g h t s : • Attacks and Infighting Continue in Iraq • Rafsanjani Wins in Iran • Electioneering Continues in Palestinian Territories • “Cedar Revolution” Fizzles in Lebanon • Egypt Steps Back from Mediator Role

In Iraq, we will see a continuation of the Shiite-led government’s attempts to co-opt the Sunnis into the political process. In the event al-Zarqawi’s capture, Stratfor expects a successor to emerge at the forefront of the jihadist resistance. Though his successor may not be as charismatic, he will be able to sustain low-level attacks against U.S. forces and Iraqis. The drafting process of the Iraqi constitution will continue against a backdrop of infighting within the Iraqi regime.

That the four top princes beneath the king are 69 or older poses a huge problem for the stability of the Saudi system.


J U N E 2 0 0 5

The June 17 presidential elections in Iran will result in a win for pragmatic conservative candidate and two-time former President Rafsanjani, who will use his re-election to embark on a path toward rapprochement with United States. Iran and the European Union will continue to take a restrained approach toward nuclear negotiations as they await a possible June vote on Iran’s membership in the World Trade Organization. Iran also will publicly deepen its involvement in Lebanon to ensure its paramilitary proxy resistance group Hezbollah will stay intact as a militant tool to protect Iran from Israeli threats against its nuclear program. On the home front, Rafsanjani will begin trying to consolidate his hold on his pragmatic conservative faction by balancing between the hard-liners and the reformists.

Electioneering in the Palestinian territories will seriously threaten the informal truce between Israeli and Palestinian resistance groups as Fatah tries to hold off an electoral onslaught by Hamas. Abbas will take great care to distance himself from the infighting that has plagued Fatah and its militant offshoot, al-Aqsa Martyrs Brigade. He is attempting to please all actors involved in the peace process, including his own Fatah party, Hamas and Israel. This largely has contributed to a dangerous stagnation in the political process that has threatened to break the fragile truce declared between Palestinian militant groups and Israel. It is important to note that both Israel and the PNA are waiting for each other to act first to gauge the success of their own plans (including the Israeli withdrawal from the Gaza Strip and West Bank and the Palestinian legislative elections that probably will be delayed). Regardless of these tactics, both parties will be forced to recognize that the growing political power of Hamas and the likelihood of a tumultuous withdrawal period are very real issues that must be dealt with. This idea will be discussed at Abbas’ summit with Sharon on June 21, when both sides will have to decide who will act first without sacrificing too much political capital at home.

In Lebanon, the much-anticipated and widely disappointing “Cedar Revolution” will fizzle out when the parliamentary elections wrap up June 19. Despite shuffling in a few new influential faces from the opposition, the general direction of the Lebanese government will not stray far from the

PNA President Mahmoud Abbas will take great care to distance himself from the infighting that has plagued Fatah and its militant offshoot.


J U N E 2 0 0 5

status quo as a significant number of pro-Syrian loyalists will retain their positions under the 2000 electoral law. Meanwhile, the Saudi government will have regained its sphere of influence in Beirut through its proxy Saadeddinal-Hariri, the son of slain former Lebanese Prime Minster Rafik al Hariri. Saadeddin will succeed in taking all 19 seats on theal-Hariri electoral list and will set the stage to take the premiership once the parliamentary elections wrap up. The real electoral battle will take place in the Aley-Baabda district, in which Maronite politician Aoun will contest al-Hariri’s coalition with Jumblatt. We also will begin to see pressure ratchet up in the newly elected Parliament to force the resignation of Lahoud.

To Lebanon’s east, the Syrian regime led by al Assad will continue its attempts to stave off U.S. pressure and win EU support with the 10th National Baath Party Conference in June. A number of cosmetic reforms under vague guidelines will be introduced to allow al Assad to keep the Syrian public distracted without committing to a specific timeline that would threaten his hold on power.

Meanwhile, Egypt will begin retreating from its position as the chief mediator of the Arab-Israeli conflict as it finds itself in an increasingly turbulent domestic imbroglio. Mubarak will move toward co-opting the Muslim Brotherhood into the political process to secure legitimacy for the presidential elections.

In the kingdom of Saudi Arabia, the death of King Fahd will result in Crown Prince Abdullah assuming the throne and Defense Minister Prince Sultan becoming crown prince. The perception of instability in the kingdom will affect world oil prices to some extent and will be exacerbated if the al Qaeda branch in Saudi Arabia chooses to take advantage of the distraction of King Fahd’s death to stage an attack.

In Pakistan, it appears that both the U.S. and Pakistani militaries are gearing up for a final offensive against al Qaeda. This will prompt jihadist actors in the region to continue staging attacks against Shiite targets in an attempt to distract Washington and Islamabad from their military objectives.

Egypt will begin retreating from its position as the chief mediator of the Arab-Israeli conflict as it finds itself in a domesticimbroglio.


J U N E 2 0 0 5


Afghanistan

Algeria

Bahrain

Egypt

Iran

Iraq

Israel

Jordan

Kuwait

Lebanon

Libya

Morocco

Mauritania

Oman

Qatar

Pakistan

Saudi Arabia

Syria

Tunisia

Turkey

UAE

Yemen

n/a = not available


1 World Bank Development Indicators, 2003 2 WDI, 2002 3 WDI, 20034 IMF 2004 5 IMF 2005 6 CIA World Factbook 2004 7 Laborsta, 2001 8 Laborsta, 2003 9 WTO, 200310 Australian Estimate, 2004

0.01

66.53 1

9.50

106.00

137.14

n/a

110.23 3

9.86 3

41.75 3

18.04 2003

25.30 2004

53.10

1.09 3

20.31 2

28.45

96.96 2004

248.50 2004

24.40

29.41

300.58 2004

85.10 2004 est.

11.37 2003

26,813,057 1

31,832,610 1

689,418

77,505,756

66,392,020 3

26,074,906

6,864,200

5,323,000 2004

2,396,417 3

4,500,000 2003

5,765,563

31,100,000 10

284,7869 3

2,598,832 3

744,029

148,720,000 2004 est.

22,673,538

17,384,490 3

10,041,500 2004

70,712,000 2003

4,320,000

20,356,700 2003

0.20

2090.00

13779.74

1367.64

2065.67 1

n/a

16058.22

1852.36

17421.14

4008.44

4388.12

1707.40

383.94 3

7814.85

38239.10

652.00 2004

10959.91

1403.55

2928.99

4250.74 2004

19699.07 2004 est.

558.37 2003

0.08

6.80 1

6.00

3.20 1

6.61 1

n/a

4.30 4

3.16 3

9.90

3.00 2003

4.80

4.00

4.94 3

6.30

20.50

6.40 2004 est.

8.70

3.00 3

7.60

24.60 2004

4.80

14.12 2003

n/a

634.00

517.00

237.00

120.00

n/a

3700.00

379.00

67.00

358.00

700.00

2200.00

214.00

138.00

400.00

1400.00

208.00

150.00

584.00

575.00

480.00

-89.00

n/a

25.40 6

16.14 7

11.00 8

11.20 6

28.10 8

10.40 2004

15.00 6

2.20 6

20.00

30.00 6

11.30

20.00 6

15.00 6

3.90 7

8.27 2004

9.60

11.70 8

13.80 6

10.30 2004

2.40 6

11.50 2003

n/a

24.50 2003

7.60

10.45

33 .788 9

n/a

33.80

3.08 9

20.69 9

1.52 2003

9.14 2

8.77 9

0.37 3

11.67 9

13.35

12.10 2004 proj.

96.37 9

8.60 3

9.47.83

75.90 2004

56.00 2004 est.

3.77 2004

n/a

13.30 2003

5.90

18.29

26.16 9

n/a

40.30

5.74 9

10.79 9

7.17 2003

6.97 2

14.23 9

0.82 3

6.58 9

4.40

14.50 2004 est.

36.96 9

7.09 3

12.98

79.00 2004

39.80 2004 est.

3.71 2003

10.00

3.50 5

3.70 5

7.90 5

15.00 5

n/a

1.10 2004

3.50 5

1.80 5

2.00 5

1.80 5

2.00 5

14.20 5

0.60 5

3.00 5

3.90 2004 est.

1.00 5

4.00 5

2.50 5

9.00 5

3.00 2004 est.

14.20 5

n/a

21.00

n/a

9350.00

23.00

n/a

24554.41

n/a

n/a

n/a

18.90

n/a

n/a

n/a

n/a

n/a

23.30

n/a

3568.50 2005

37859.77 2005

n/a

n/a

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

sIn

com

ing

FDI

contr

acted

billio

ns US

D

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us

Afghanistan

Algeria

Bahrain

Egypt

Iran

Iraq

Israel

Jordan

Kuwait

Lebanon

Libya

Morocco

Mauritania

Oman

Qatar

Pakistan

Saudi Arabia

Syria

Tunisia

Turkey

UAE

Yemen

n/a = not available



0.01

66.53 1

9.50

106.00

137.14

n/a

110.23 3

9.86 3

41.75 3

18.04 2003

25.30 2004

53.10

1.09 3

20.31 2

28.45

96.96 2004

248.50 2004

24.40

29.41

300.58 2004

85.10 2004 est.

11.37 2003

26,813,057 1

31,832,610 1

689,418

77,505,756

66,392,020 3

26,074,906

6,864,200

5,323,000 2004

2,396,417 3

4,500,000 2003

5,765,563

31,100,000 10

284,7869 3

2,598,832 3

744,029

148,720,000 2004 est.

22,673,538

17,384,490 3

10,041,500 2004

70,712,000 2003

4,320,000

20,356,700 2003

0.20

2090.00

13779.74

1367.64

2065.67 1

n/a

16058.22

1852.36

17421.14

4008.44

4388.12

1707.40

383.94 3

7814.85

38239.10

652.00 2004

10959.91

1403.55

2928.99

4250.74 2004

19699.07 2004 est.

558.37 2003

0.08

6.80 1

6.00

3.20 1

6.61 1

n/a

4.30 4

3.16 3

9.90

3.00 2003

4.80

4.00

4.94 3

6.30

20.50

6.40 2004 est.

8.70

3.00 3

7.60

24.60 2004

4.80

14.12 2003

n/a

634.00

517.00

237.00

120.00

n/a

3700.00

379.00

67.00

358.00

700.00

2200.00

214.00

138.00

400.00

1400.00

208.00

150.00

584.00

575.00

480.00

-89.00

n/a

25.40 6

16.14 7

11.00 8

11.20 6

28.10 8

10.40 2004

15.00 6

2.20 6

20.00

30.00 6

11.30

20.00 6

15.00 6

3.90 7

8.27 2004

9.60

11.70 8

13.80 6

10.30 2004

2.40 6

11.50 2003

n/a

24.50 2003

7.60

10.45

33 .788 9

n/a

33.80

3.08 9

20.69 9

1.52 2003

9.14 2

8.77 9

0.37 3

11.67 9

13.35

12.10 2004 proj.

96.37 9

8.60 3

9.47.83

75.90 2004

56.00 2004 est.

3.77 2004

n/a

13.30 2003

5.90

18.29

26.16 9

n/a

40.30

5.74 9

10.79 9

7.17 2003

6.97 2

14.23 9

0.82 3

6.58 9

4.40

14.50 2004 est.

36.96 9

7.09 3

12.98

79.00 2004

39.80 2004 est.

3.71 2003

10.00

3.50 5

3.70 5

7.90 5

15.00 5

n/a

1.10 2004

3.50 5

1.80 5

2.00 5

1.80 5

2.00 5

14.20 5

0.60 5

3.00 5

3.90 2004 est.

1.00 5

4.00 5

2.50 5

9.00 5

3.00 2004 est.

14.20 5

n/a

21.00

n/a

9350.00

23.00

n/a

24554.41

n/a

n/a

n/a

18.90

n/a

n/a

n/a

n/a

n/a

23.30

n/a

3568.50 2005

37859.77 2005

n/a

n/a

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

sIn

com

ing

FDI

contr

acted

billio

ns US

D

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us


J U N E 2 0 0 5

Afghanistan

Algeria

Bahrain

Egypt

Iran

Iraq

Israel

Jordan

Kuwait

Lebanon

Libya

Morocco

Mauritania

Oman

Qatar

Pakistan

Saudi Arabia

Syria

Tunisia

Turkey

UAE

Yemen

n/a = not available



0.01

66.53 1

9.50

106.00

137.14

n/a

110.23 3

9.86 3

41.75 3

18.04 2003

25.30 2004

53.10

1.09 3

20.31 2

28.45

96.96 2004

248.50 2004

24.40

29.41

300.58 2004

85.10 2004 est.

11.37 2003

26,813,057 1

31,832,610 1

689,418

77,505,756

66,392,020 3

26,074,906

6,864,200

5,323,000 2004

2,396,417 3

4,500,000 2003

5,765,563

31,100,000 10

284,7869 3

2,598,832 3

744,029

148,720,000 2004 est.

22,673,538

17,384,490 3

10,041,500 2004

70,712,000 2003

4,320,000

20,356,700 2003

0.20

2090.00

13779.74

1367.64

2065.67 1

n/a

16058.22

1852.36

17421.14

4008.44

4388.12

1707.40

383.94 3

7814.85

38239.10

652.00 2004

10959.91

1403.55

2928.99

4250.74 2004

19699.07 2004 est.

558.37 2003

0.08

6.80 1

6.00

3.20 1

6.61 1

n/a

4.30 4

3.16 3

9.90

3.00 2003

4.80

4.00

4.94 3

6.30

20.50

6.40 2004 est.

8.70

3.00 3

7.60

24.60 2004

4.80

14.12 2003

n/a

634.00

517.00

237.00

120.00

n/a

3700.00

379.00

67.00

358.00

700.00

2200.00

214.00

138.00

400.00

1400.00

208.00

150.00

584.00

575.00

480.00

-89.00

n/a

25.40 6

16.14 7

11.00 8

11.20 6

28.10 8

10.40 2004

15.00 6

2.20 6

20.00

30.00 6

11.30

20.00 6

15.00 6

3.90 7

8.27 2004

9.60

11.70 8

13.80 6

10.30 2004

2.40 6

11.50 2003

n/a

24.50 2003

7.60

10.45

33 .788 9

n/a

33.80

3.08 9

20.69 9

1.52 2003

9.14 2

8.77 9

0.37 3

11.67 9

13.35

12.10 2004 proj.

96.37 9

8.60 3

9.47.83

75.90 2004

56.00 2004 est.

3.77 2004

n/a

13.30 2003

5.90

18.29

26.16 9

n/a

40.30

5.74 9

10.79 9

7.17 2003

6.97 2

14.23 9

0.82 3

6.58 9

4.40

14.50 2004 est.

36.96 9

7.09 3

12.98

79.00 2004

39.80 2004 est.

3.71 2003

10.00

3.50 5

3.70 5

7.90 5

15.00 5

n/a

1.10 2004

3.50 5

1.80 5

2.00 5

1.80 5

2.00 5

14.20 5

0.60 5

3.00 5

3.90 2004 est.

1.00 5

4.00 5

2.50 5

9.00 5

3.00 2004 est.

14.20 5

n/a

21.00

n/a

9350.00

23.00

n/a

24554.41

n/a

n/a

n/a

18.90

n/a

n/a

n/a

n/a

n/a

23.30

n/a

3568.50 2005

37859.77 2005

n/a

n/a

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

sIn

com

ing

FDI

contr

acted

billio

ns US

D

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us

Afghanistan

Algeria

Bahrain

Egypt

Iran

Iraq

Israel

Jordan

Kuwait

Lebanon

Libya

Morocco

Mauritania

Oman

Qatar

Pakistan

Saudi Arabia

Syria

Tunisia

Turkey

UAE

Yemen

n/a = not available



0.01

66.53 1

9.50

106.00

137.14

n/a

110.23 3

9.86 3

41.75 3

18.04 2003

25.30 2004

53.10

1.09 3

20.31 2

28.45

96.96 2004

248.50 2004

24.40

29.41

300.58 2004

85.10 2004 est.

11.37 2003

26,813,057 1

31,832,610 1

689,418

77,505,756

66,392,020 3

26,074,906

6,864,200

5,323,000 2004

2,396,417 3

4,500,000 2003

5,765,563

31,100,000 10

284,7869 3

2,598,832 3

744,029

148,720,000 2004 est.

22,673,538

17,384,490 3

10,041,500 2004

70,712,000 2003

4,320,000

20,356,700 2003

0.20

2090.00

13779.74

1367.64

2065.67 1

n/a

16058.22

1852.36

17421.14

4008.44

4388.12

1707.40

383.94 3

7814.85

38239.10

652.00 2004

10959.91

1403.55

2928.99

4250.74 2004

19699.07 2004 est.

558.37 2003

0.08

6.80 1

6.00

3.20 1

6.61 1

n/a

4.30 4

3.16 3

9.90

3.00 2003

4.80

4.00

4.94 3

6.30

20.50

6.40 2004 est.

8.70

3.00 3

7.60

24.60 2004

4.80

14.12 2003

n/a

634.00

517.00

237.00

120.00

n/a

3700.00

379.00

67.00

358.00

700.00

2200.00

214.00

138.00

400.00

1400.00

208.00

150.00

584.00

575.00

480.00

-89.00

n/a

25.40 6

16.14 7

11.00 8

11.20 6

28.10 8

10.40 2004

15.00 6

2.20 6

20.00

30.00 6

11.30

20.00 6

15.00 6

3.90 7

8.27 2004

9.60

11.70 8

13.80 6

10.30 2004

2.40 6

11.50 2003

n/a

24.50 2003

7.60

10.45

33 .788 9

n/a

33.80

3.08 9

20.69 9

1.52 2003

9.14 2

8.77 9

0.37 3

11.67 9

13.35

12.10 2004 proj.

96.37 9

8.60 3

9.47.83

75.90 2004

56.00 2004 est.

3.77 2004

n/a

13.30 2003

5.90

18.29

26.16 9

n/a

40.30

5.74 9

10.79 9

7.17 2003

6.97 2

14.23 9

0.82 3

6.58 9

4.40

14.50 2004 est.

36.96 9

7.09 3

12.98

79.00 2004

39.80 2004 est.

3.71 2003

10.00

3.50 5

3.70 5

7.90 5

15.00 5

n/a

1.10 2004

3.50 5

1.80 5

2.00 5

1.80 5

2.00 5

14.20 5

0.60 5

3.00 5

3.90 2004 est.

1.00 5

4.00 5

2.50 5

9.00 5

3.00 2004 est.

14.20 5

n/a

21.00

n/a

9350.00

23.00

n/a

24554.41

n/a

n/a

n/a

18.90

n/a

n/a

n/a

n/a

n/a

23.30

n/a

3568.50 2005

37859.77 2005

n/a

n/a

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

sIn

com

ing

FDI

contr

acted

billio

ns US

D

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us



J U N E 2 0 0 5

Afghanistan

Algeria

Bahrain

Egypt

Iran

Iraq

Israel

Jordan

Kuwait

Lebanon

Libya

Morocco

Mauritania

Oman

Qatar

Pakistan

Saudi Arabia

Syria

Tunisia

Turkey

UAE

Yemen

*Closing Rates

Beginning

42.785

72.405

1

5.8025

7900

1521.1

4.3822

0.7083

0.292

1514

1.3269

8.6289

270.8

0.3852

3.6395

59.474

3.7495

52.51

1.2555

1.3835

3.6724

183.05

Low

42.785

70.879

1

5.7912

7900

1396.8

4.3579

0.70688

0.29133

1505.3

1.2189

8.5834

263.49

0.3852

3.6395

58.898

3.7409

52.51

1.2495

1.3421

3.664

181.02

High

42.785

72.56

1

5.8227

7900

1414.2

4.4127

0.71112

0.29308

1514

1.2521

8.9293

265.5

0.3852

3.6395

59.707

3.7647

52.51

1.2937

1.3886

3.686

183.2

End

42.785

72.56

1

5.7948

7900

1530.7

4.4127

0.71093

0.293

1509.8

1.357

8.9293

263.5

0.3852

3.6395

58.898

3.7624

52.51

1.2937

1.3645

3.685

183.2




J U N E 2 0 0 5

N O T E W O R T H Y E V E N T S

May 1: Iraqi National Security Adviser Mowaffak al-Rubaie says U.S. and allied forces in Iraq will begin withdrawing by mid-2006.

May 1: A suicide bomber attack at the funeral of a Kurdish official in Tall Afar, Iraq, kills 25 people.

May 2: Israeli Cabinet Minister Natan Sharansky submits his resignation to Prime Minister Ariel Sharon over plans for an Israeli withdrawal from the West Bank.

May 3: Israeli Prime Minister Ariel Sharon tells U.S. Senators Bill Frist and Joseph Lieberman that Hamas must disarm before it participates in Palestinian legislative council elections.

May 3: U.S. Central Command reports that troops in Iraq seized a letter from Abu Asim al-Qusaymi al-Yemeni to “the Sheikh,” a name often used for Abu Musab al-Zarqawi, during an April 28 raid in Baghdad. In the letter, the al Qaeda in Iraq member criticizes the Sheikh for disappearing since the Al Fallujah raid but praises him for resisting U.S. forces. The writer also comments on the incompetence of jihadist leaders and on the decreasing support for the movement. A document with target information and sketched maps for bombings and kidnappings is attached to the missive.

May 3: Iran says it will resume some nuclear activities that were suspended to gain international confidence, but says it will not resume uranium enrichment while talks with European negotiators continue.

May 3: Two Hamas members who allegedly were planning a rocket attack are arrested in the Gaza Strip following a shootout with Palestinian police — the first such clash since Palestinian National Authority President Mah-moud Abbas ordered a crackdown on militants April 28. Hamas denies the men were planning to fire rockets but confirms they were armed.

May 4: A Lebanese magistrate drops all three charges — usurping power, carrying out unlawful political activity and embezzling public funds — against former Prime Minister and Christian opposition leader Michel Aoun, who spent 14 years in exile in France. Aoun still faces charges for testimony he gave to a U.S. congressional committee in September 2003 that


J U N E 2 0 0 5

contributed to Washington’s decision to enact sanctions against Syria and its “support of terrorism.”

May 4: Israeli Defense Minister Shaul Mofaz freezes the transfer of authority of towns in the West Bank to the Palestinian National Authority (PNA), saying the PNA failed in its commitment to disarm militants.

May 4: Pakistan confirms its capture of Abu Farj al-Libi, a Libyan believed to be third in command of al Qaeda. He is wanted in connection with two assassination attempts against Pakistani President Gen. Pervez Musharraf.

May 4: PNA President Mahmoud Abbas, accusing Israel of wanting “Palestinian blood to be spilled,” criticizes Israeli demands that the Palestinian National Authority curb militants, although he acknowledges that progress has been slow.

May 4: A suicide bombing at a police recruitment center in the Kurdish stronghold of Arbil in northern Iraq kills at least 50 people and injures dozens. The bomber posed as a police volunteer to gain access to the compound.

May 5: Preliminary results of the 84 local elections in the West Bank and Gaza Strip indicate that Palestinian National Authority President Mahmoud Abbas’ Fatah party has won 50 of the municipalities, Hamas has won 28 and smaller factions have won four. Final results are expected May 8.

May 5: Lebanese President Emile Lahoud signs a decree authorizing four rounds of legislative elections starting May 29.

May 5: In Egypt, security forces fight thousands of protesters during nationwide demonstrations against President Hosni Mubarak’s rule. Approximately 2,500 members of the banned Muslim Brotherhood assembled in front of a Cairo mosque and demanded reforms. In other cities, Egyptian police use tear gas to disperse protesters and arrest more than 400 people.

May 5: Armed with intelligence provided by Abu Farj al-Libi, security forces carry out raids in several cities in Pakistan and arrest about two dozen al Qaeda suspects.


J U N E 2 0 0 5

May 6: One of the Muslim Brotherhood’s most prominent leaders, Essam el-Erian, and three other high-ranking members are arrested in Cairo, Egypt, as members of the group gather to protest arrests made earlier in the week.

May 6: Saudi Crown Prince Abdullah bin Abdel-Aziz al Saud arrives in Damascus to encourage Syrian President Bashar al Assad to pursue internal reforms and improve his relations with Washington.

May 6: Iran says it is ready to step up its nuclear activities if the European Union and Tehran cannot quickly reach an agreement over the program.

May 6: News reports emerge in the Middle East that the United States has a plan, awaiting presidential approval, to fully withdraw its troops from Iraq by the end of 2005.

May 7: Iraqi government officials say security forces captured Ghassan al-Rawi, an aide to al Qaeda in Iraq leader Abu Musab al-Zarqawi, in late April. Al-Rawi is accused of involvement in kidnappings, and officials say weapons and vehicles being prepared for suicide bombings were found at his location when he was arrested in the western town of Rawa.

May 7: Former Christian opposition leader Michel Aoun returns to Lebanon after 14 years of exile in France.

May 7: The U.S. military launches Operation Matador, a counterinsurgency offensive in Iraq’s western Anbar province.

May 8: Gunmen affiliated with the al-Aqsa Martyrs Brigade raid election offices in central Gaza, closing them down to protest Fatah losses in municipal elections the previous week.

May 8: Iraqi government officials say militant leader Amar al-Zubaydi, also known as Abu Abbas, was captured May 5 in Baghdad. Al-Zubaydi is a key aide to al Qaeda in Iraq leader Abu Musab al-Zarqawi.

May 8: Iran announces a decision to resume some uranium enrichment-related nuclear activities at the Isfahan Uranium Conversion Facility, regardless of talks with the European Union.


J U N E 2 0 0 5

May 9: Israel must rethink plans to pull troops out of the Gaza Strip if Hamas wins Palestinian National Authority elections on July 17, Foreign Minister Silvan Shalom says.

May 9: The Atomic Energy Organization of Iran says 37 tons of raw uranium were converted into UF-4 gas at the Isfahan Uranium Conversion Facility before Iran halted activities in November 2004.

May 9: Israeli Prime Minister Ariel Sharon announces plans to delay the Gaza troop pullout until mid-August.

May 10: In Egypt, the People’s Assembly, the lower house of parliament, passes a constitutional amendment to allow more than one candidate to stand in presidential elections. The upper house passed the measure May 8. The public will vote next in a referendum.

May 10: Responding to earlier statements by Israel’s foreign minister, Defense Minister Shaul Mofaz calls for an Israeli pullout from the Gaza Strip regardless of Hamas’ performance in Palestinian National Authority elections in July. Mofaz says the departure will be a “complex, historic and heartbreaking move” that is critical to Israel’s future.

May 11: Palestinian National Authority President Mahmoud Abbas applauds Hamas’ plans to take part in July’s legislative elections, saying “everyone [will have to] accept the results with respect.”

May 11: A two-day South American-Arab summit concludes in Brazil with the Declaration of Brasilia, which criticizes U.S. sanctions against Syria and condemns terrorism. Additionally, it asserts the right of people “to resist foreign occupation in accordance with the principles of international legality,” seeks greater economic and political cooperation and calls for Israel to withdraw to pre-1967 borders.

May 11: In Iraq, suicide bombers stage five attacks in three cities, killing 61 people and injuring 124.

May 11: In Jalalabad, Afghanistan, security forces and U.S. troops open fire at hundreds of students rioting over reports of abuses of the Koran at Guantanamo Bay, Cuba. Two people are killed and 40 are injured.


J U N E 2 0 0 5

May 12: The Muslim Brotherhood says it will not nominate a presidential candidate for Egypt’s first multi-candidate presidential election.

May 12: A Russian nuclear official calls Tehran’s intentions to resume nuclear activities “legitimate,” saying a nuclear Iran does not pose a security threat because Tehran will use its uranium enrichment program peacefully and within International Atomic Energy Agency guidelines. The official adds that differences between U.S. and Russian attitudes on the issue are “narrowing.”

May 12: Complications caused by Israel’s plans to withdraw from the Gaza Strip and parts of the West Bank could postpone Palestinian National Authority elections set for July 17, senior Fatah officials say. Party leaders believe Fatah would stand a better chance if elections are postponed, but Hamas warns against a delay.

May 12: Iran reportedly backs away from threats to immediately resume uranium enrichment, likely in response to an ultimatum from Europe.

May 13: In Iran, officials say talks with the European Union still could defuse a confrontation over Iran’s nuclear program. Tehran plans to continue nego-tiations but says Iran cannot overlook its own energy needs.

May 13: The Palestinian National Authority says legislative elections will be held as planned in July, despite calls for a delay.

May 13: Iran will acquire the technological capability to fashion a nuclear bomb within six to nine months, Israeli Foreign Minister Silvan Shalom says.

May 13: Hezbollah launches rockets against Israeli troop positions in the disputed Shebaa Farms region bordering Lebanon. Israel responds with air raids and tank and artillery fire, reportedly destroying four Hezbollah bases. The U.S. State Department calls for a cessation of violence to keep from de-railing plans for Lebanese elections May 29 and says all Lebanese militias — including Hezbollah — should disarm.

May 14: Israeli Prime Minister Ariel Sharon pledges no further retaliation against Lebanon following rockets attacks by Hezbollah a day earlier.

May 14: The U.S. military ends Operation Matador in western Iraq. During the week-long operation, an insurgent base was “neutralized,” 125 militants were killed and 39 with “intelligence value” captured. On the U.S. side, nine Marines were killed and 40 injured.


J U N E 2 0 0 5

May 15: In the United States, Newsweek magazine says a May 9 report about desecration of the Koran at Guantanamo Bay, Cuba, is inaccurate.

May 15: Muslim Brotherhood leader Mohamed Mahdi Akef says the organization might field a candidate in Egypt’s presidential elections.

May 15: Britain’s Sunday Times reports that al Qaeda in Iraq leader Abu Musab al-Zarqawi was injured and treated at an Iraqi hospital on May 11.

May 15: Reports emerge in the United Kingdom that Qatar pays al Qaeda several million dollars in protection money every year — a deal allegedly struck in early 2003, just before the Iraq war.

May 16: In Iraq, Shiite leader Muqtada al-Sadr makes a rare public announcement, urging his followers to exercise restraint in fighting U.S. troops and forbidding any action targeting unarmed civilians.

May 16: Israeli police say they have discovered a Jewish extremist plot to wreak chaos in the Middle East and halt plans for a Gaza pullout by firing a missile into the Dome of the Rock, Islam’s third-holiest shrine. Israel’s justice minister says there will be no indictment, since the plotters had second thoughts before their arrests and there is no evidence they carried out any part of the plan.

May 16: Israel announces plans to expand its West Bank separation barrier to encompass the Maale Adumim settlement, which has 30,000 residents, and cut off Palestinians from Jerusalem.

May 17: Palestinian National Authority President Mahmoud Abbas says Hamas needs to be part of the Palestinian political process to stem the need for armed confrontations.

May 17: Pakistani President Gen. Pervez Musharraf says he will seek another term in office when the current one expires in 2007. The government does not say whether Musharraf would keep his position as army chief when he seeks re-election.

May 17: Officials from Egypt’s three main opposition groups — the Wafd, the Tagammu and the Nasserist parties — and the banned Muslim Brotherhood say they plan to boycott a referendum in May, when voters will


J U N E 2 0 0 5

decide whether to allow the country’s first competitive presidential elections. The opposition groups say referendum rules will benefit President Hosni Mubarak’s National Democratic Party.

May 18: Iran says it might delay resuming its nuclear development activities for several weeks if talks with the European Union are positive but denies any connection between this move and the presidential election set for June 17.

May 18: Palestinian lawmakers approve legislation — which probably will be vetoed by President Mahmoud Abbas — that would allow two-thirds of Parliament to be chosen through district voting. Abbas would prefer that all lawmakers be elected from party lists; others fear that system would favor Abbas’ own Fatah party over Hamas, which enjoys increasing popular support.

May 18: Palestinian National Authority President Mahmoud Abbas meets with Chinese President Hu Jintao and Prime Minister Wen Jiabao on the final day of his two-day visit to Beijing.

May 19: In Iran, officials propose that Russia should have the task of enriching Iranian-converted uranium as a compromise to help resolve Tehran’s nuclear dispute with the European Union; Brussels opposes the suggestion.

May 19: Afghan Foreign Minister Abdullah Abdullah rejects suggestions that former Taliban leader Mullah Mohammed Omar and guerrilla leader Gulbuddin Hekmatyar should receive amnesty if they cooperate with the government and disarm, citing links each has to al Qaeda.

May 19: A Palestinian National Authority court reverses municipal election results in Beit Lahia, in north Gaza, that gave eight council seats to Hamas and seven to Fatah. The ruling, which invalidates Hamas victories in five of 42 polling stations, follows a similar move in the southern town of Rafah a day earlier.

May 20: Cartel president and Kuwaiti Oil Minister Sheikh Ahmad Fahd al-Sabah says members of the Organization of the Petroleum Exporting Countries will continue to produce oil at near-record levels (currently at 30.3 million barrels per day), despite a fall in crude prices, to meet world demand.


J U N E 2 0 0 5

May 20: Despite renewed violence in the Gaza Strip, Palestinian elections will begin as scheduled July 17, Palestinian National Authority President Mahmoud Abbas says.

May 20: Pakistani Foreign Minister Khurshid Kasuri says Osama bin Laden is alive but that his network is paralyzed. Without revealing intelligence on bin Laden’s location, Kasuri says the al Qaeda leader is on the run with a small group of people.

May 21: An Iranian exile claims, and his statements are confirmed by a senior diplomat in Tehran, that Iran is smuggling sensitive, dual-use graphite and a graphite compound in violation of international trade laws.

May 21: Hamas will halt mortar and rocket attacks against Jewish settlements in the Gaza Strip in efforts to preserve a new truce negotiated by the Palestinian Interior Ministry and Hamas on May 18.

May 22: The Washington Post reports that U.S. military commanders have prepared plans to consolidate troops in Iraq into four large air bases, down from the 100-plus posts now occupied by international forces. Timing of the move depends on the security situation in Iraq and other factors.

May 23: Officials from Saudi Arabia visit Moscow to discuss the launch of six Saudi satellites in 2005 with Russian Dnepr rockets, which have been used to launch Saudi satellites from Baikonur.

May 23: Former Lebanese Prime Minister Michel Aoun announces plans to seek a parliamentary seat in elections beginning May 29.

May 23: U.S. and Iraqi soldiers arrest approximately 285 alleged insurgents in Baghdad in the war’s largest military operation to date. The raid is intended to halt a recent increase in car bomb attacks.

May 23: A delegation led by Mustafa Buhairi, a deputy to Egyptian intelligence chief Omar Suleiman, visits Gaza to help resolve a disputebetween Fatah and Hamas over local election results.

May 23: Syria “severed all links” with the U.S. military and CIA because the Bush administration decided “to escalate the situation” with Damascus, despite its cooperation against Iraqi insurgents, Syria’s ambassador to the United States says.


J U N E 2 0 0 5

May 23: Plans for a summit of North African states are postponed after Moroccan King Mohammed VI withdraws amid a tiff with Algeria related to Western Sahara.

May 25: Calls to delay the July 17 Palestinian National Authority elections continue, this time over an unresolved dispute concerning proposed voting law reforms. May 25: Iran and the European Union agree to continue their search for a compromise over the nuclear issue, hoping to reach a deal by the end of July.

May 25: The U.S. military announces the capture in Balad of Mullah Kamel al-Aswadi, an aide to al Qaeda in Iraq leader Abu Musab al-Zarqawi.

May 26: Iraqi Interior Minister Bayan Jabor confirms Internet reports that al Qaeda in Iraq leader Abu Musab al-Zarqawi is wounded but declines to reveal the source of the intelligence.

May 26: Iraqi Defense Minister Sadoun al-Dulaimi announces plans for the largest anti-insurgent operation to date by Iraqi forces. Some 40,000 troops are expected to deploy in and around Baghdad, creating a cordon around the capital and conducting sweeps in seven parts of the city. The operation is to be the first phase of a nationwide crackdown intended to give government forces an offensive, rather than defensive, posture against insurgents.

May 26: In Egypt, a referendum on key election reforms passes with 83 percent of the vote.

May 28: Pakistani President Gen. Pervez Musharraf warns that pre-emptive military action against Iran will result in colossal destruction and greater unrest within the Muslim world but notes his belief that Tehran seeks to weaponize nuclear technology.

May 28: Rifaat al Assad, the exiled brother of former Syrian President Hafez al Assad, says he wants to return home to oust his nephew’s authoritarian regime and usher in political and economic reforms, including reconciliation with the United States, but that he fears assassination. The 67-year old exile also says President Bashar al Assad does not have complete control of the government in Damascus.


J U N E 2 0 0 5

May 29: Some 40,000 Iraqi troops, supported by U.S. units, launch Operation Lightning in Baghdad, targeting insurgent strongholds.

May 30: Saadeddin al-Hariri, the son of slain former Lebanese Prime Minister Rafik al-Hariri, sweeps the first round of Lebanon’s elections. Boycotts by various parties resulted in voter turnout of only 27 percent, but U.N. observers consider the elections successful.

May 30: Israeli Prime Minister Ariel Sharon plans to meet with Palestinian National Authority President Mahmoud Abbas in Jerusalem to finalize coordination on the Israeli withdrawal from the Gaza Strip and some parts of the West Bank. The Israeli government seeks assurances that the vacated areas will not fall under the influence of radical groups such as Hamas.

May 30: The Israeli army lobs missiles at a rocket launcher operated by Palestinian Islamic Jihad (PIJ) at a refugee camp in the Gaza Strip, wounding three people. The missiles were fired after PIJ members fired rockets at an Israeli village just outside Gaza.

May 31: Hamas says it will not participate in the repeat of elections in some Gaza Strip towns June 1 and calls on followers to boycott the elections. Hamas earlier said it would consider running in the new elections if its candidates were given enough time to prepare.

May 31: Palestinian groups denounce Israel’s May 30 attack in the Gaza Strip and warn that the violence threatens to destabilize the peace. The Palestinian National Authority (PNA) and Fatah call for international help in maintaining a cease-fire, but Hamas rejects PNA President Mahmoud Abbas’ calls to renounce violence.

May 31: Outgoing Defense Forces Chief Lt. Gen. Moshe Yaalon says Israel could defend its territory from Arab neighbors even after withdrawing from the Golan Heights. Some Likud members criticize the statements and say Yaalon is trying to advance his own political career.

May 31: Speaking anonymously, a U.S. official says an audio recording of Iraqi insurgent leader Abu Musab al-Zarqawi has been authenticated. The audiotape, discovered May 30, specifically addresses Osama bin Laden and assures the al Qaeda leader that al-Zarqawi’s wounds are only minor.


J U N E 2 0 0 5


May 29-June 1: The World Accounting Summit to meet in Dubai to discuss uniform accounting standards.

June 1: Mandatory re-polling in certain Gaza/West Bank municipalities following disputes over initial round of elections.

June 3: Kashmiri separatists to meet with government officials in Islamabad, Pakistan.

June 4: Gulf Cooperation Council customs union to vote on whether to allow free trade agreements between Persian Gulf states and the United States.

June 5-7: Indian petroleum minister in Pakistan to discuss Indian-Iranian pipeline.

June 7: Palestinian National Authority President Mahmoud Abbas and Israeli Prime Minister Ariel Sharon tentatively scheduled to meet to discuss the Palestinian peace process.

June 8: Pakistan National Security Council to meet in Islamabad.

June 8: Turkish Prime Minister Recep Tayyip Erdogan to meet with U.S. President George W. Bush in Washington, D.C.

June 10: Darfur peace talks to resume in Nigeria.

June 11-13: Indian petroleum minister to travel to Iran to discuss oil and gas sales to India.

June 15-16: The G-77 and China Second South Summit scheduled to be held in Doha, Qatar.

June 22: EU and United States co-sponsor an international conference on Iraq in Brussels, Belgium.


J U N E 2 0 0 5

TBD: • Iran and Kuwait may hold talks over energy resources. • Pakistani President Gen. Pervez Musharraf might visit Qatar to discuss liquefied natural gas pipeline to Pakistan. • World Trade Organization could vote on allowing Iranian membership. • Baath Party Congress could be held in Syria. • Chinese Foreign Minister Li Zhaoxing planning to tour Middle East. • Free trade agreement talks could be held between United States and United Arab Emirates. • North Korean trade minister to visit Yemen for discussions on economic and trade cooperation.

C h a n g e s

IraqAbid Mutlak al-Juburi, a Sunni from Kirkuk, was appointed one of three deputy prime ministers in May — joining Rowsch Shaways, a Kurd, and Ahmed Chalabi, a Shi’i, who were appointed in April. Al-Juburi, who served as a major-general in Saddam Hussein’s army, was applauded for his military prowess in the Iran-Iraq war and later became dean of Iraq’s Military Academy. He holds degrees in military engineering and law.

Sadoun al-Dulaimi, a Sunni from Ar Ramadi, was appointed defense minister by the new Iraqi government in May. Al-Dulaimi was an officer in Saddam Hussein’s General Security Directorate. After being accused of taking part in a failed assassination plot against Hussein in the late 1980s, he fled to Britain and earned a doctorate in socio-psychology. He joined the Iraqi opposition in 1990 and returned to Iraq in 2003 to run the Center for Research and Strategic Studies. New Oil Minister Ibrahim Bahr al-Uloum, the son of a prominent opposition Shiite cleric, served in the same position under the transitional, U.S.-backed Iraqi Governing Council. He holds a doctorate in petroleum engineering from the University of New Mexico. New Minister of Electricity Muhsin (or Mohsen) Shlash, a Shia, holds a doctorate in power system analysis and control from the University of Manchester’s Institute of Science and Technology. He also is a member of the Ontario Union of Professional Engineers.


J U N E 2 0 0 5

Narmin Othman, previously the minister of education in Kurdish Iraq, was named in May to head the environment and human rights portfolios. Othman also has served as supervisor of Kurdish Iraq’s Ministry of Justice and as the Kurdish Minister of Social Affairs. A former teacher, Othman also managed Save the Children in Erbil.

Usama Abdul Aziz al-Najafi, a Sunni from Mosul who has directed the construction of several power stations in Iraq, was named minister of industry and minerals in May, taking over a vacant position. Al-Najafi holds a bachelor’s in electrical engineering.

AfghanistanU.S. Lt. Gen. Karl Eikenberry assumed command of coalition forces in Afghanistan from U.S. Gen. David Barno. Eikenberry previously was director of Strategic Planning and Policy for U.S. Pacific Command at Camp H.M. Smith, Hawaii. He also served in Korea, the United States, Europe, China (as defense attaché at the U.S. Embassy) and in Afghanistan. A graduate of the U.S. Military Academy, Eikenberry holds a master’s in East Asian studies from Harvard University and a master’s in political science from Stanford University. He was a National Security Fellow at Harvard’s Kennedy School of Government. He also earned an advanced degree in Chinese history from Nanjing University and an interpreter’s certificate in Mandarin Chinese from the British Foreign Commonwealth Office.


J U N E 2 0 0 5

Custom Intelligence Services: Consulting Tailored to Your Intelligence Needs

STRATFOR has a proven track record of offering highly confidential custom intelligence and decision-oriented, actionable intelligence to corporations, businesses, government agencies, and high-profile executives. We equip our clients with critical intelligence that will allow them to better manage risk, develop strategies for corporate growth, protect their brands, and ensure personal security.

These are just a few of the customized services we offer:

Threat and Opportunity Assessments – Assessments noting or analyzing potential or existing risks to or opportunities for a client’s assets, infrastructure, personnel, or brand equity. Our forecasting ex-pertise assists our clients in formulating long-range strategic plans by identifying risks and opportuni-ties, defining the most efficient deployment of resources, and ultimately providing maximum return on investment and profitability.

Monitoring – Monitoring of a social, political, economic or security issue vital to a client’s business, with regular reports or updates provided as developments occur. Monitoring provides our clients with the necessary intelligence to anticipate trends, make informed decisions regarding global issues, and enhance and protect their brands.

Personalized Security Services – Assessing risks to the physical safety of executives or other key per-sonnel, as requested by the customer.





J U N E 2 0 0 5

Geopolitical Intelligence and Analysis: Online Intelligence to Keep You Ahead Of the Game

As a leading provider of strategic intelligence, STRATFOR delivers its renowned subscription intel-ligence services to many prestigious Global 2000 clients. STRATFOR gives you the insights, analyses, and unbiased commentary you need on global developments, and delivers it all in concise formats you can use.

STRATFOR Premium – An all-inclusive package covering STRATFOR’s expert analysis, net assess-ments, quarterly and annual forecasts, terrorism coverage and special reports. Plus, automatic ser-vices such as email alerts, situation reports, the Morning Intelligence Brief, and Travel Security reports provide up-to-the-minute geopolitical intelligence you can use.

STRATFOR Enhanced – A specialized selection of daily analysis designed for those who need action-able intelligence at a truly affordable price. You also get the Geopolitical Diary, STRATFOR Weekly, and valuable periodic pieces, such as regional net assessments, situation reports, alerts and Intelli-gence Guidance.

STRATFOR Standard – Intelligence for those who want to know more than what the media reports, but don’t have bottom-line intelligence needs. You get daily analysis, situation reports and STRAT-FOR’s intelligence guidance.

World Terrorism Report – An entire site dedicated to analyzing major terrorist threats and trends around the world, as well as developments in counterterrorism. This service is an invaluable resource for security professionals and individuals interested in understanding terrorist motivations and move-ments, and potential affects across the globe.

Enterprise Subscription Packages – STRATFOR also offers multiple-user packages to corporations, government agencies, educational and non-profit institutions that need reliable intelligence and in-sightful analysis and forecasts in their everyday activities.





J U N E 2 0 0 5

S t r at e g i c F o r e c a s t i n g , I n c .

W e b S i t ewww.stratfor.com

C o r p o r a t e H e a d q u a r t e r s700 Lavaca Street, Suite 900Austin, TX 78701(U.S.) 512.744.4300

B u s i n e s s D e v e l o p m e n t1666 K Street, Suite 600Washington, DC 20006(U.S.) 202.429.1800

Documents

WikiLeaks · GLOBAL VANTAGE Global Perspective STRATEGIC FORECASTING, INC. STRATFOR is the world’s leading private intelligence ﬁrm providing corporations, governments and individuals