Op-Ed Contributor Beijing's 'Marshall Plan'
By BEN SIMPFENDORFER
NYT
November 4, 2009

China’s foreign policy is about to change, and not entirely by choice.

The country’s engagement with the developing world has accelerated markedly in the wake of the economic crisis. And for all the focus on Beijing’s relationship with Washington, it is Beijing’s relationship with the emerging world’s capitals, from Cairo to New Delhi, that may contain the greater surprise.

In the past months, a series of Chinese academics have proposed using the country’s foreign-exchange reserves to finance infrastructure projects in the developing world. The economist Xu Shanda has called for a Chinese “Marshall Plan” to boost demand for Chinese goods. A governor of the People’s Bank of China, Zhou Xiaochuan, has argued for establishing a supra-sovereign wealth fund to invest in the developing world.

It is an idea born of opportunism and necessity. The opportunism arises from the difficulties the emerging world has in financing infrastructure projects, especially as foreign banks retreat to their home markets. China benefits from such infrastructure, whether it is railways to ship copper from Afghanistan, or industrial parks to produce goods in Egypt.

Necessity stems from the challenges China faces in investing nearly $2.3 billion worth of foreign reserves. Over 65 percent are invested in U.S. assets, and thus exposed to the risks of a weak dollar or rising yields. Diversification is necessary. Investment in foreign infrastructure offers a useful alternative.

China may not have a choice in the matter. Its relations with the emerging world are about to face serious challenges, and development aid would be a positive response. How so?

China’s exports to the emerging world have surged from $190 billion to $670 billion in the past five years. China has captured market share in almost all emerging market countries to produce factory closures and job losses from India to Syria. Export subsidies and a currency effectively pegged to the dollar have only aided Chinese exporters in the past year.

For the past decade, China was seen as a natural leader of the emerging world, as it challenged the West’s economic hegemony. But China is now of a sufficient size to challenge the emerging world itself. And China’s image will deteriorate markedly unless the emerging world starts to share in the benefits of the country’s spectacular economic rise.

Indeed, in a recent debate on the “Marshall Plan,” a number of Chinese academics argued that the draft plan focuses overly on selling more goods to emerging markets as a way to reduce China’s overcapacity problems. The same academics warned that unless more attention was paid to creating jobs for locals and raising living standards, the plan might yet fail.

The challenge for China is its policy of nonintervention. This prevents Beijing from taking positions on issues like the Israel-Palestine conflict. It is a strategy that has enabled China to avoid entanglement in complex political issues. But it also limits the country’s policy options in trying to exert its weight in the emerging world.

A case in point: Saudi Arabia provided $60 million in aid for reconstruction in Sichuan following the earthquake in 2008. But when China provided only $2 million in aid for reconstruction programs after the war in Gaza, Arab sentiment toward China reportedly weakened.

It thus makes sense that China follows the Japan model. Japan rarely intervenes in another country’s internal politics. But it is one of the world’s largest providers of development aid. For example, Tokyo provides over $1 billion in aid to the Middle East annually, a large share of it to the Palestinians. This helps to bolster Japan’s image in the region.

It is this convergence of opportunism and necessity that will shortly produce a change in China’s foreign policy and spur its development aid.

For all the talk of a supra-sovereign wealth fund, it is more likely that China will offer aid bilaterally, thus more directly benefiting Chinese companies and providing much-needed burnishing of China’s reputation abroad. This development aid likely will go to countries with large domestic markets or commodity resources. Africa, the Middle East and Latin America will rank high.

Take the acquisition of Afghanistan’s Aynak copper mine by the Mettallurgical Corporation of China. The company’s bid was successful largely because it was linked to development aid, specifically the construction of electricity generation, road and rail projects, as James Yeager, a former adviser to the Afghanistan Ministry of Mines, noted in a report published this month.

China’s rapid accumulation of foreign reserves is unsustainable. Its commercial push into the emerging world is untenable. The economic crisis has brought about big shifts in the global economy. But bigger shifts are yet to come. And it is within the emerging world itself that the bigger surprises from China will lie.

Ben Simpfendorfer is the chief China economist for the Royal Bank of Scotland and the author of “The New Silk Road.”

Mother of all carry trades faces an inevitable bust
By Nouriel Roubini

Published: November 1 2009 18:44 | Last updated: November 1 2009 18:44
ft.com

Since March there has been a massive rally in all sorts of risky assets – equities, oil, energy and commodity prices – a narrowing of high-yield and high-grade credit spreads, and an even bigger rally in emerging market asset classes (their stocks, bonds and currencies). At the same time, the dollar has weakened sharply , while government bond yields have gently increased but stayed low and stable.

This recovery in risky assets is in part driven by better economic fundamentals. We avoided a near depression and financial sector meltdown with a massive monetary, fiscal stimulus and bank bail-outs. Whether the recovery is V-shaped, as consensus believes, or U-shaped and anaemic as I have argued, asset prices should be moving gradually higher.

But while the US and global economy have begun a modest recovery, asset prices have gone through the roof since March in a major and synchronised rally. While asset prices were falling sharply in 2008, when the dollar was rallying, they have recovered sharply since March while the dollar is tanking. Risky asset prices have risen too much, too soon and too fast compared with macroeconomic fundamentals.

So what is behind this massive rally? Certainly it has been helped by a wave of liquidity from near-zero interest rates and quantitative easing. But a more important factor fuelling this asset bubble is the weakness of the US dollar, driven by the mother of all carry trades. The US dollar has become the major funding currency of carry trades as the Fed has kept interest rates on hold and is expected to do so for a long time. Investors who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates – as low as negative 10 or 20 per cent annualised – as the fall in the US dollar leads to massive capital gains on short dollar positions.

Let us sum up: traders are borrowing at negative 20 per cent rates to invest on a highly leveraged basis on a mass of risky global assets that are rising in price due to excess liquidity and a massive carry trade. Every investor who plays this risky game looks like a genius – even if they are just riding a huge bubble financed by a large negative cost of borrowing – as the total returns have been in the 50-70 per cent range since March.

People’s sense of the value at risk (VAR) of their aggregate portfolios ought, instead, to have been increasing due to a rising correlation of the risks between different asset classes, all of which are driven by this common monetary policy and the carry trade. In effect, it has become one big common trade – you short the dollar to buy any global risky assets.

Yet, at the same time, the perceived riskiness of individual asset classes is declining as volatility is diminished due to the Fed’s policy of buying everything in sight – witness its proposed $1,800bn (£1,000bn, €1,200bn) purchase of Treasuries, mortgage-backed securities (bonds guaranteed by a government-sponsored enterprise such as Fannie Mae) and agency debt. By effectively reducing the volatility of individual asset classes, making them behave the same way, there is now little diversification across markets – the VAR again looks low.

So the combined effect of the Fed policy of a zero Fed funds rate, quantitative easing and massive purchase of long-term debt instruments is seemingly making the world safe – for now – for the mother of all carry trades and mother of all highly leveraged global asset bubbles.

While this policy feeds the global asset bubble it is also feeding a new US asset bubble. Easy money, quantitative easing, credit easing and massive inflows of capital into the US via an accumulation of forex reserves by foreign central banks makes US fiscal deficits easier to fund and feeds the US equity and credit bubble. Finally, a weak dollar is good for US equities as it may lead to higher growth and makes the foreign currency profits of US corporations abroad greater in dollar terms.

The reckless US policy that is feeding these carry trades is forcing other countries to follow its easy monetary policy. Near-zero policy rates and quantitative easing were already in place in the UK, eurozone, Japan, Sweden and other advanced economies, but the dollar weakness is making this global monetary easing worse. Central banks in Asia and Latin America are worried about dollar weakness and are aggressively intervening to stop excessive currency appreciation. This is keeping short-term rates lower than is desirable. Central banks may also be forced to lower interest rates through domestic open market operations. Some central banks, concerned about the hot money driving up their currencies, as in Brazil, are imposing controls on capital inflows. Either way, the carry trade bubble will get worse: if there is no forex intervention and foreign currencies appreciate, the negative borrowing cost of the carry trade becomes more negative. If intervention or open market operations control currency appreciation, the ensuing domestic monetary easing feeds an asset bubble in these economies. So the perfectly correlated bubble across all global asset classes gets bigger by the day.

But one day this bubble will burst, leading to the biggest co-ordinated asset bust ever: if factors lead the dollar to reverse and suddenly appreciate – as was seen in previous reversals, such as the yen-funded carry trade – the leveraged carry trade will have to be suddenly closed as investors cover their dollar shorts. A stampede will occur as closing long leveraged risky asset positions across all asset classes funded by dollar shorts triggers a co-ordinated collapse of all those risky assets – equities, commodities, emerging market asset classes and credit instruments.

Why will these carry trades unravel? First, the dollar cannot fall to zero and at some point it will stabilise; when that happens the cost of borrowing in dollars will suddenly become zero, rather than highly negative, and the riskiness of a reversal of dollar movements would induce many to cover their shorts. Second, the Fed cannot suppress volatility forever – its $1,800bn purchase plan will be over by next spring. Third, if US growth surprises on the upside in the third and fourth quarters, markets may start to expect a Fed tightening to come sooner, not later. Fourth, there could be a flight from risk prompted by fear of a double dip recession or geopolitical risks, such as a military confrontation between the US/Israel and Iran. As in 2008, when such a rise in risk aversion was associated with a sharp appreciation of the dollar, as investors sought the safety of US Treasuries, this renewed risk aversion would trigger a dollar rally at a time when huge short dollar positions will have to be closed.

This unraveling may not occur for a while, as easy money and excessive global liquidity can push asset prices higher for a while. But the longer and bigger the carry trades and the larger the asset bubble, the bigger will be the ensuing asset bubble crash. The Fed and other policymakers seem unaware of the monster bubble they are creating. The longer they remain blind, the harder the markets will fall.

The writer is a professor at New York University’s Stern School of Business and chairman of Roubini Global Economics

Oil, Ideology Keep China From Joining Push Against Iran

By John Pomfret
Washington Post Staff Writer
Wednesday, September 30, 2009



In its effort to muster support for sterner action against Iran, the Obama administration will have to overcome China's reluctance to punish a country that is one of its top oil suppliers and a major beneficiary of its energy-related investments.

The administration's frustration with Beijing is growing. U.S. officials have noted that China has appeared even more reluctant than Russia to take action against Iran after disclosures about its nuclear program. U.S. officials said they are particularly concerned that China has blocked their efforts to target freight-forwarding companies based in Hong Kong that reship goods, including prohibited weaponry, to Iran.

The Chinese "have not displayed a sense of urgency" on Iran, said a senior administration official. Instead, the official said, China has attempted to "have it both ways," preserving its relationship with Iran while also working with the United States and other countries involved in the effort to prevent Iran from developing a nuclear weapon.

Why is China protecting Iran? Two reasons, analysts say: oil and ideology.

Iran is China's second-biggest supplier of oil, and imports are rising. In a country where more people are expected to buy cars this year than in the United States, China's appetite for oil is unquenchable.

Furthermore, China's rapid economic growth is the ruling Communist Party's single most important claim to legitimacy. Tougher economic sanctions against Iran would probably cause the price of oil to spike in China, threatening its economic juggernaut.

China's investments in Iran also lessen the likelihood that Beijing will support enhanced sanctions. China's state-run oil behemoths have committed so much money to Iran -- an estimated $120 billion over the past five years -- that analysts estimate that its engineering firms will not be able to handle all the work.

Over the past five years, Chinese firms have moved in on projects that Western and Japanese firms have left dangling. In 2004, Sinopec, also known as China Petroleum and Chemical Corp., signed a $70 billion deal to develop the Yadavaran oil field and buy 10 million metric tons of liquefied natural gas from Iran every year for 25 years.

In June, China National Petroleum Corp. signed a $5 billion contract with National Iranian Oil Co. to develop the massive South Pars gas field, after the Iranians accused French oil producer Total SA -- which had signed an initial agreement to develop the fields -- of delaying the project.

"While we in the West are going through economic hari-kiri, the Chinese are out there taking all of the oil and gas deals," said Michael Economides, professor of chemical engineering at the University of Houston and author of the forthcoming "Energy: China's Choke Point." "The Chinese don't look at Iran as the country of the mullahs that everybody is afraid of; they look at it as a country with lots of oil and gas. Every time I go to China, they ask me, 'Why are you in the West letting us have it so easy?' "

China's investments are also helping shield Iran against the prospect of what Secretary of State Hillary Rodham Clinton contended last week would be "crippling" sanctions. Specifically, Sinopec Engineering has signed contracts worth more than $5 billion to either expand or build four refineries there.

Gal Luft, executive director of the Institute for the Analysis of Global Security, said Iran has dropped its reliance on gasoline imports from 40 percent to 25 percent. That explains, in part, why Western powers appear less interested than they once were in targeting such imports with sanctions.

"There is a lot of hype about gasoline sanctions, but they are not going to be very effective," Luft said. "We've missed the boat on this one."

At the Group of 20 meeting last week, China's statement on Iran was significantly weaker than that of Russia. China called on Iran to cooperate with the International Atomic Energy Agency (IAEA), but it subsequently said sanctions were not the way to go.

In addition, China has declined to cooperate with a U.S. Treasury Department program to crack down on freight-forwarding companies based in Hong Kong, according to government officials and analysts.

"The Chinese government has also been stepping in to protect Iranians targeted by U.S. enforcement efforts," Michael Jacobson, a senior fellow at the Washington Institute for Near East Policy, wrote in a paper in August. In the most prominent case so far, China blocked the extradition to the United States from Hong Kong of an Iranian procurement agent who had been indicted in New York on charges of attempting to acquire F-14 fighter plane parts. He was subsequently released from custody.

China also opposes sanctions for ideological reasons. The concept of "noninterference in internal affairs" has animated China's foreign policy since the 1950s. Michael Green, a former senior director for Asian affairs at the National Security Council, said China opposes a military solution to the crisis and is concerned that the United States might seek the authority from the U.N. Security Council to attack Iran.

"They are anticipating that the more they put the brakes on sanctions now, the more they are delaying really troubling decisions to authorize force down the line," he said.

Zhu Feng, deputy director of the Center for International and Strategic Studies at Peking University, said a key issue in determining how China approached the crisis would probably be Tehran's attitude -- specifically how it responds to demands that the IAEA be allowed to inspect Iran's recently disclosed second uranium-enrichment plant.

"If Iran refuses IAEA engagement and shows no sincerity of reaching deal with the West," Zhu said in an e-mail, "I don't think that Beijing will keep opposing sanctions." A U.S. official said he hopes Zhu is right.

Disrupting the Foreign Fighter Flow

On the battlefields of Iraq and Afghanistan, US soldiers, sailors, airmen and Marines have confronted third-party national combatants. Widely known as 'foreign fighters,' these individuals have gained deadly skills, combat experience and global connections that can be exported and exploited to devastating effect, Michael P Noonan writes for FPRI.

By Michael P Noonan for FPRI
20 Oct 2009
www.isn.ethz.ch


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Whether one believes that the extremism of Al Qaeda and affiliated movements is an existential threat to the United States or that such threats pose more of a nuisance to international security, the fact is that foreign fighters motivated by such causes do pose risks not only to U.S. service members deployed to combat zones, but also to geostrategically important governments in North Africa, the Middle East, and South and Southeast Asia, not to mention potential targets in the United States, Europe, and other locations. Therefore, disrupting the flow of foreign fighters is an important undertaking. But how does one do so?

The foreign fighter phenomenon at a glance

The foreign fighter phenomenon has grown since the call to jihad against the Soviet invasion of Afghanistan in 1979. Following that conflict foreign fighters migrated to such places as the Balkans and Chechnya, Dagestan, and Tajikistan in the former Soviet Union. But this is not a new problem. Foreign fighter belligerents on both “sides of the hill” were a marked feature of the 1930’s Spanish Civil War. Furthermore, the incidence of such fighters has been fairly widespread throughout history. As David Malet, a recognized expert on the phenomenon, has noted, “Among the 331 civil conflicts [occurring between] 1815 [and] 2005, at least 67 of them featured the presence of foreign fighters.”

Still, the emergence of Al Qaeda directly from the experience of 1980s Afghanistan, portends ominous possibilities from this latest cohort of global foreign fighters. According to Clint Watts, a former Army officer and FBI special agent with expertise on foreign fighters, “[l]eft unchecked, the Second Foreign Fighter Glut will produce the next generation of terrorist organizations and attacks much as the First Foreign Fighter Glut fueled [Al Qaeda].” While they might not be as numerous as those that participated in the 1980s jihad, which was in many cases sanctioned by regional governments, “they have learned skills that far outweigh those of the original Jihadis. Their understanding and employment of urban tactics, weaponry and advanced technology make them far more lethal than their predecessors.” In Iraq, for instance, while such fighters have accounted for less than 5 percent of insurgents they were estimated at producing over 90 percent of high lethality attacks.

But what — if anything — is new about this latest wave of foreign fighter activity? Malet suggests that, “[i]n modern history, transnational insurgencies have been based on various ties of ethno-nationalism and ideology, but contemporary foreign fighters in conflicts around the globe now all share the same religious identity.” This does not mean that Islam itself is the cause of this phenomenon, rather “the cause appears to be partly the result of a period effect, the coincidence of increasingly globalized communications and transportation technology with a particular identity community whose members have transnational identities that are currently particularly salient.” Perceived threats to such identity communities, thus, foster and propel defensive mobilization by motivated individuals. To Malet, such defensive mobilization is the key to recruitment across cases, ideologies, and religious networks.

Disrupting the foreign fighter flow

Clint Watts asserts that the foreign fighter pipeline has three phases: (1) source country/flashpoint, (2) safe havens and the transit network, and (3) target locations. Others suggest that a fourth phase, outflow destinations, is important as well. Each of these phases is examined below. It is important to remember that at least since the original anti-Soviet jihad in Afghanistan there has been a large chicken-and-egg effect and overlap between and amongst these phases. The complexity of the issue, however, suggests that one cannot deal singly with any particular phase. A combined approach working within and across phases appears to be the only realistic way to minimize the problem in the short- to mid-term. Full eradication of the phenomenon seems unrealistic.

Source Country/Flashpoint. Foreign fighters like most other combatants must be recruited. While self-selection and varying degrees of intrinsic motivation are important, extrinsic factors also appear to be crucial. Watts argues that “social-familial-religious” networks fuel such recruitment with the assistance and influence of former foreign fighters. Defensive mobilization recruitment themes similar to former President George W. Bush’s statement to “fight them over there so we don’t have to fight them here” are employed. Autocatalytic recruitment from, say, the internet appears to be rare. Cities and neighborhood kinship and cultural nodes are important. For instance, according to the “Sinjar files” — the most complete personnel files on the foreign fighter inflow into Iraq captured near that northwestern Iraqi city — the top five foreign fighter producing cities for that cohort of individuals per capita were: Darnah, Libya; Mecca, Saudi Arabia; Jawf, Saudi Arabia; Dayr al zur, Syria; and Sanaa, Yemen, respectively.

In the long run this phase is probably the most important one but suppressing the flashpoints is also fraught with difficulties. As the terrorism scholar Jarrett Brachman has noted,

…over the last eight years al Qaeda has undergone a metamorphosis. It has transformed from a global terrorist group into a global terrorist movement, one with its own founding fathers, well-codified doctrine, substantial and accessible corpus of literature, and deep bench of young, bright, and ambitious commanders. Attacks still matter to them, but in an era of increased counter-terrorism pressure, al Qaeda is beginning to realize that it is a lot more effective at being a movement, an ideology, even a worldview. It is starting to see that terrorism is only one of many tools in its arsenal and that changing minds matters more than changing policies.

Pivoting popular narratives away from Al Qaeda and other extremists, as the past decade-plus has shown, however, is difficult. As the late French counterinsurgency practitioner and theorist David Galula said, “[t]he insurgent, having no responsibility, is free to use every trick; if necessary, he can lie, cheat, exaggerate. He is not obliged to prove; he is judged by what he promises, not by what he does. Consequently, propaganda is a powerful weapon for him.”

Within the U.S. government bureaucratic layers and seams inhibit the effective coordination to counter such narratives even before getting to work by, with, and through the numerous governments whose populations are subject to the messages of the global movement. And even when working with these governments, the embassy teams tend to focus more on bilateral relations rather than on stemming the outflow of extremist foreign fighters who operate sometimes thousands of miles away from their day-to-day realities. It is important to increase the flow of counter-narratives to messages of Muslim oppression or victimization, but this is often difficult given the reasons stated above. Additionally, while host nation governments today do a much better job of tracking individuals who have left to become foreign fighters, those fighters who do not achieve martyrdom pose risks to their home countries and to others abroad.

Safe Havens and the Transit Network. Unless such fighters go to fight in a neighboring country, much depends on getting foreign fighters to training sites and to target destinations intact and undetected. (Unfortunately, thanks to the internet, training sanctuaries for some skills may not be as critical as they once were.) In addition, it is necessary to establish logistical hubs not only for the transit and training of fighters, but also locations to conduct a wide array of financial activities — ranging from the illicit (such as product piracy, smuggling, money laundering, etc.) to the more commonplace (access to banking, legitimate businesses, etc.) — which are necessary to fund current and future operations.

Prior to September 11, 2001 national governments (e.g., the Sudan and Afghanistan) were more willing to offer sanctuary to groups such as Al Qaeda, but the U.S. reaction to the attacks on New York and Washington, DC, in Afghanistan and other locations has diminished such flagrant support. Today, such groups seek out the freedom of action offered by geopolitical “dead spaces,” like areas of the Sahel, Somalia, and Yemen. Punitive strikes may be taken against targets using such dead space — see for example the alleged U.S. raid near Deir Ezzor, Syria in 2008, [18] the Israeli Air Force attack on a supply convoy in Sudan in spring 2009, and the recent U.S. strike to kill Saleh ali Saleh Nabhan in Somalia — but political sensitivities and the resources required to undertake these special missions can impose costs. In addition, some experts claim that international cooperation in the fight on terrorists is enhanced when the United States respects sovereignty.

Such cooperation may be necessary in order to restrict the free movement of foreign fighters. For instance, law enforcement and intelligence organizations need to collaborate more in sharing information. They should also keep tabs on those with whom such individuals are interacting. In addition, such cooperation might assist in making it more expensive or more difficult for obvious foreign fighter candidates to travel to known transshipment points. But such cooperation will not always be possible. A local government, if one exists, may be unable or unwilling to cooperate. Under such circumstances, punitive or information gathering raids, as described earlier, may be undertaken or more creative approaches such as “false flag” operations to complicate the smuggling of fighters into and out of target areas. These operations might also demoralize and dissuade such fighters from following through with going to, or recruiting others to, fight.

Target Locations. By the time foreign fighters arrive at target locations they are mainly the problem of the host nation security forces or are, like in Afghanistan and Iraq, also the problem of external armed forces. As stated earlier, such fighters, particularly in Iraq and Afghanistan, have deployed tactics, techniques, and procedures of great skill and oftentimes of greater lethality than those previously used on scene — e.g., the diffusion of innovative uses of person-borne, vehicle-borne, or static emplaced improvised explosive devices (IEDs). Furthermore, as the “McChrystal Assessment” on Afghanistan states, “[f]oreign fighters provide materiel, expertise, and ideological commitment." Abu Musab al-Zarqawi, among others, showed what such materiel assistance, expertise, and ideological commitment could accomplish by bringing Iraq to the precipice of civil war in 2006 by employing a strategy pitting Sunni Arabs vs. Shi`i Arabs vs. Kurds.

Vast amounts of information and specialized capabilities are necessary to counteract such networks. You need human networks to go after foreign fighter and insurgent networks, but all insurgencies are sui generis. Population-centric counterinsurgency or foreign internal defense approaches may work in certain environments, but not in other locations where the physical or human terrain may favor other methods of force and resource employment. Foreign fighters themselves must also operate in these varied terrains. Not all environs will be hospitable. As the Anbar Awakening showed, such foreign fighters may operate more effectively when divorced from the local populace who, in any event, may tire of such visitors and their behavior.

Aside from those who stay on the battlefield or move to other destinations, some foreign fighters in the target locations will be killed — and many request to be suicide bombers — while others are captured. Of those captured, some are returned to their source countries for imprisonment or for attempts at reintegration into society. Such reintegration seems to work in certain cases, but not in others. As of the spring of 2009, for instance, a Pentagon report found that there was roughly a 14 percent recidivism rate among those prisoners transferred from Guantanamo Bay, Cuba to other locations.

If — and it may be a big if — this other 86 percent of individuals holds across other samples and such individuals become solid citizens and do not incite others to go off and fight then that would be a great success. But as was stated earlier, former foreign fighters, even if not actively engaged in fighting themselves, appear to be important cogs in recruiting others to fight — either by word or by past example. Of course, those who had unpleasant experiences while off fighting might be useful in dissuading others from following their paths, too.

Outflow Destinations. Those foreign fighter veterans who are not killed or captured at target locations generally may either: (1) return to their source country, (2) go to a safe haven, or (3) go to a current or future conflict zone. Since the first foreign fighter glut of the 1980s and 1990s, this situation has spawned something akin to a deadly version of the “show that never ends.”

Examining the so-called “Arab Afghans,” who fought the Soviets in the 1980s, the terrorism scholar Mohammed Hafez suggests that that conflict produced six types of veterans: reintegrationists (those who went home again and reintegrated into their original societies), government assets (e.g., Arab Afghan Yemenis who fought against southern Yemenis during the civil war following Yemen’s reunification), facilitators, social revolutionaries (e.g., Egyptians and Algerians who fought against their governments upon return from Afghanistan in the 1990s), global jihadists, and unaffiliated terrorists (e.g., Ramzi Yusef).[28] Some will continue due to their religious or ideological beliefs while others are attracted to the lifestyle — a powerful argument. As the military historian, and retired U.S. Army Lieutenant Colonel, Robert Mackey has stated about a different historical context, “the guerrilla fighters of Arkansas and Missouri during the [American] Civil War formed the cadres of the Old West criminal gangs — Cole Younger, Jesse James. They were people who did not fit back into their societies; they couldn’t go home again.”

Whether individuals are motivated by religion, ideology, or lifestyle, the Islamist strategic studies scholar Barak Mendelsohn has offered a simple, yet important distinction between different groups of foreign fighters: those that are experienced and those that are not. According to Mendelsohn, the experienced cadres deserve more attention because of their leadership abilities, their technical, tactical, and strategic knowledge that they can transmit through training and advising, and their connections. While the less experienced might be capable of causing large-scale carnage, particularly in spectacular suicide attacks, the experienced cadres are the planners and instigators.

To counter such individuals it is, therefore, important to plan for and deal with foreign fighter outflows, especially the cadres leaving from Iraq and Afghanistan. To Mackey the key to such planning is to consider what happens 5, 10, or 15 years from now and develop a series of “indications and warnings.” In particular, the United States should: (1) stringently look at where money goes and where it moves (“funding, financing, travel and movement”), (2) focus on the law enforcement angle and on coalition partner capacity-building, (3) acknowledge that once fighters start leaving a country such as Iraq it is critical to know where they are going, and (4) focus on conflict abatement. Wars allow foreign fighters the opportunity to fight, provide them with expertise and the repetition of practice, and serve as the training ground for the next fight. Lastly, as Mendelsohn has suggested, we need to identify the connections to local groups from source or future target countries where outflow may become a lot more relevant.

Beyond these steps, Mackey suggests that we need to establish an international fusion center overseas that would aggregate intelligence and share it cross-nationally. This would allow us to track outflow and leverage comparative advantages in human intelligence capabilities. And while he noted that the Foreign Fighter Task Force is doing a great job, it is focused on U.S. Central Command area of responsibility. That task force model needs to be copied and applied elsewhere and given an international role. In other words, “[w]e need to modify our organization bureaucratically to meet the threat and not necessarily try to force the threat into our bureaucratic model,” argued Mackey.

From a different — but largely complementary — angle, Dan Green, a former Provincial Reconstruction Team member in Afghanistan and Naval Reservist tribal engagement officer in Iraq, has suggested the need to build U.S. personnel capacity. Michael Doran, a Middle East scholar and former National Security Council, Department of Defense, and Department of State official, has argued that the United States must build a political warfare capability. To Green, building personnel capacity is essential in developing bases of knowledge, expertise, familiarity, and the relationships needed to operate in the locales where foreign fighters originate, transit, and fight. Unfortunately, bureaucratic structures impede such deep specialization and inhibit precisely the development of the skills required for the political warfare capabilities suggested by Doran. According to Doran, we have some great programs in place, but that they are all ad hoc.

What is needed is: (1) greater flexibility in moving between war zones and non-war zones, (2) better local intelligence and the ability to put the right answer (often non-military) on target, (3) better understanding of cultural contexts, (4) legislative relief to create constructive linkages between things like intelligence collection and development assistance under a new organization, and (5) increasing relationship linkages by developing educational institutions such as the George C. Marshall European Center for Security Studies — but from a “whole of government” perspective — for Africa and Central Commands. Such capabilities — when combined with those offered by Mackey and Mendelsohn — would offer robust, yet scalable measures for dealing with issues across and within the four foreign fighter phases.

Conclusion

Today the United States focuses largely on what to do in Afghanistan and in neighboring Pakistan. Still, some reports suggest that the drone strikes against Al Qaeda in Pakistan have produced an outflow of foreign fighters to Yemen and Somalia. Meanwhile the situation in Iraq remains improved from the dark days of 2004-2007, yet still tenuous. But there are other reports claiming that Al Qaeda has reinforced their leadership to refocus and direct the fight in Iraq by sending Sheikh Issa al-Masri to Syria. Strategically, these developments lumped together suggest three things: (1) the foreign fighter problem and the “Al Qaeda movement,” however defined, are not going away, (2) such fighters are intent on keeping the United States widely engaged across theaters of operations, and (3) the movement to Yemen and Somalia, aside from their geopolitical dead space benefits, are in close striking distance of the heart of the Arabian peninsula and Egypt.

Financial reality and limited diplomatic, development, and defense capabilities already stretched thin by eight years of war suggest further difficulties in dealing with foreign fighters. Realistically this means that the United States must leverage its friendships and acquaintances to work by, with, and through others and employ indirect strategy. As the late French Army General Andre Beaufre stated in his magisterial An Introduction to Strategy

Though its outward manifestations are of a specialized and frequently disconcerting nature, indirect strategy is no specialized form of strategy divorced from direct strategy. The key to it, as with all strategy, is freedom of action; it is only the method by which this freedom is obtained which is different. It must be obtained by initiative combined with security and it is different because the area of freedom of action (and therefore the limits of security) depends upon what is done outside, not inside, the area at issue. This is its special feature and it is this which gives it its indirect character.

In other words, while foreign fighters are by no means chiefly responsible for all of the problems in places such as Iraq, Afghanistan, or Pakistan, working against them successfully will help to reduce violence in the war zones. Combined with effective actions on the ground, an indirect strategy that husbands and appropriately distributes resources across borders to limit recruitment, transit, and logistics for these international killers is essential to success.



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Michael P. Noonan is the managing director of the Program on National Security at the Foreign Policy Research Institute and a veteran of Operation Iraqi Freedom.