Monday, September 14, 2009

Time has come for Obama to walk the walk

Business Times - 15 Sep 2009


Time has come for Obama to walk the walk

His ability to make hard choices on issues will have major impact on US' position globally

By LEON HADAR
WASHINGTON CORRESPONDENT

US PRESIDENT Barack Obama's dramatic address to a joint session of Congress last week, during which he implored lawmakers to back his sweeping healthcare overhaul, was clearly an attempt to seize control of healthcare debate.

He wants it to create a political momentum that could drive forward one of the most important changes in America's social-economic policy since the Great Society legislation of the 1960s.

Indeed, if Mr Obama's speech helps him win over a sceptical public and persuade wavering Democratic and Republican lawmakers to come up with far-reaching healthcare legislation which would cut health costs and expand coverage to million of non-insured Americans, he would be following in the footsteps of presidents such as Franklin Roosevelt and Lyndon Johnson who had created the foundations for the American welfare state. Mr Obama would secure his legacy as a social and economic reformer.

By regaining control of the political agenda and restoring his reputation for political skill while re-igniting some of the flash he displayed during the election campaign, Mr Obama would be in a position not only to push forward healthcare reform but also to meet this month some of the historic challenges on the home front and in the global arena.

His ability to make the hard choices on these issues, ranging from fiscal policy to relationship with Iran, is bound to have major impact on the prospects for economic recovery and on US position in the world.

Indeed, the next challenge confronting Mr Obama following the push to pass healthcare reform has to do with his ambitious energy agenda, and in particular the cap-and-trade climate bill promoted by the White House and the Democrats - setting a cap or legal limit on the quantity of greenhouses gases that can be emitted each year - a version of which had been approved in the House of Representatives while another is being debated in the Senate.

Climate bill

There is a growing domestic and international pressure on the White House and the Democrats on Capitol Hill to get a climate bill approved before UN negotiations on the issue restart in December in Copenhagen. But like on the issue of healthcare reform, the majority of Republicans and some conservative Democrats have been opposed to the climate bill.

At the same time, most Americans, according to opinion polls, want some sort of government action to control global warming but resist plans that could raise their energy costs.

Mr Obama will to have to decide very soon whether he wants to play a leadership role and use his remaining political capital to push for the climate legislation in the same way that he was willing to put himself on the line over the issue of healthcare reform.

Then, before the leaders of the G-20 economies meet in Pittsburgh, Pennsylvania on Sept 24-25, Mr Obama will be facing another dilemma. Should he and his G-20 colleagues declare victory in their efforts to halt the economic downturn through their governments' extraordinary fiscal stimulus programmes combined with the monetary easing embraced by their central bankers? There is clearly a lot of pressure in Washington and in the capitals of the leading economies to declare victory and search for an economic exit strategy.

It comes from investors and economists who are worried that the expansionary fiscal and economic policies that still remain in place are going to ignite inflation, sooner rather than later.

But at the same time, there are also concerns, especially among members of the political class, that tightening fiscal and monetary policies could create the conditions for another recession next year and produce an electoral backlash.

In the context of US politics, that could lead voters to punish the Democrats in the midterm Congressional election next year. In fact, some Democrats are urging Mr Obama to promote another economic stimulus programme that could help create more employment opportunities during this jobless economic recovery.

So, will Mr Obama and Federal Reserve chairman Ben Bernanke stay the fiscal and monetary course or will they start reversing their policies?

Trade war

And last Friday, Mr Obama announced the United States would impose a tariff of 35 per cent on Chinese tyres for cars and light trucks. The labour unions, a key political constituency in the Democratic Party, backed by many Democratic lawmakers, supported the president to punish China for what is seen as 'unfair trade' policies. But Mr Obama is scheduled to visit China in November and would like to avoid a trade war with the Chinese who, among other things, are continuing to finance America's growing current account deficit.

And America's allies and rivals are going to watch closely as Mr Obama makes important choices about US policy in the Greater Middle East. In Afghanistan, he will have to decide this month whether to follow the recommendations of General Stanley McChrystal, the Afghanistan commander who wants him to send more US troops to that country (in addition to the 17,000 that Mr Obama had already dispatched) or to respond in another way to the growing discontent among the American people over US involvement there.

Indeed, against the backdrop of rising American casualties and reports about widespread fraud in the recent presidential elections in Afghanistan, most opinion polls show that majority of Americans support withdrawing US troops from that country. Interestingly enough, Democrats have been more critical of what is beginning to look like a US military quagmire in Afghanistan and have warned the White House that unless Mr Obama comes up with a set of realistic goals for US policy there and a cost-effective strategy to achieve them, and is able to sell that to the American people, he will face an overwhelming pressure at home to leave Afghanistan.

The policy choices facing Mr Obama in Iran seem also very unappealing. His preferred policy of engaging the government in Teheran and using diplomatic means to ease the crisis over its nuclear programme may have reached a dead end.

The administration had set a deadline for Iran to respond by the end of this month to the American overtures to open a dialogue with Washington over the nuclear issue. But there are no signs that the Iranians are going to meet this deadline, which could leave Mr Obama with no other choice but to campaign for a new set of UN Security Council sanctions against Iran. But the concern in Washington is that if the Russians and the Chinese reject the American approach, the Israelis could end up launching a military strike against Iran's nuclear sites, which would start another regional war.

With regard to Israel, Mr Obama has created a lot of expectations in the Middle East with his commitment to press for a more activist American role in trying to get the Israelis and the Palestinians to renew negotiations and to move towards reaching a peace agreement. But there remains a lot of scepticism in Washington over whether Mr Obama would be willing to get more involved in a process that could force him to challenge Israel and its supporters in Washington. But if he doesn't move in that direction, he could end up antagonising America's Arab allies, including the oil-rich Saudis.

In short, when it comes to US policy in the Middle East, the handling of the economic crisis, trade with China, and the climate and healthcare reform legislation, President Obama will have no choice but to be decisive.

This is going to be the month in which Mr Obama will not be able to get away by talking the talk. Instead, this time around he will have to walk the walk.


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