13 July 1999 Reactions toward new Israeli Government and the Middle East Situation …Quick Comments on World Economy, Serbia, Taiwan and Korea Follow

I remain optimistic. Barak is acting as I predicted — as an autocrat surrounding himself with weak detractors and loyal yes-men so that he can implement his policies. At least he seems to know what they will be, which is more than Bibi brought to the table. His patience brought a good coalition which gives him a high probability of serving out a 4 year term but his cabinet is disappointing and by its nature is riddled with contradiction and will probably not last long in its present form. The Knesset’s vote to put in the talented Avram Burg as speaker instead of his suicide-running neophyte is an indication of the rebellions to come if he stumbles. He will, after a year, learn that Israeli leaders cannot rule by decree and that those you alienate on the way up will later bring you down as they did Bibi. Barak did not sufficiently reward those that rose with him and he will pay for this (although considering that half his cabinet consists of members of his party but his party only won a quarter of the seats in the government he did better for his party than he is being given credit for). For reasons to be explained, he needs to be cut some slack here. 

First, the disappointments. David Levy is not suited to be foreign minister and was a flop in that position in the past and less than a year ago (not to mention that he was hardly involved in the ministry when he was foreign minister); Yossi Beilin is not even a lawyer and is now running the justice ministry; Shlomo Ben Ami is for some reason running the police department and Beigat Shochat was no one’s choice for the finance ministry. Yitzchak Mordechai will be inept at Transportation and the only thing the new environment minister wants on her agenda is a promotion out of that ministry. Already the Haaretz newspaper has declared her unsuitable and this is too bad since she is the only female to get a ministry. It is sad that merit and vision have been thrown to the sides with these appointments as they are all important areas where big things need to be and can be done. The two big changes will be Yossi Sarid who will shake things up at Education and Nathan Sharansky at Interior — these will bring about greater secularization of key ministries in the government. Yet a religious party still holds the Labor ministry and will continue to focus the ministry on hounding business owners that violate the sabbath — hardly a priority for a government ministry. Shlomo Ben Ami at police may be a good surprise (ie: there may be integration of police work and solutions to social problems of society) and Arabs tell me that they are quickly noticing positive changes. It is disappointing that Israel’s Arabs — who are 20% of `the voting population and voted 95% for Barak — got no ministries and it is frankly racist. However, quite a few party loyalists inside Barak’s party got nothing also and it almost seemed that you got more if you were against Barak than with him. 

So why cut Barak some slack here? He is betting that he needs votes in order to push through his policies and that he needs a stable coalition; the Shas party needs to be in the government to exist and they bring 17 disciplined and willing peace votes which the Likud couldn’t bring and which Barak needs. A good number of sefardis voted for Shas and Barak, and it would be crazy for him to ignore this sector of society. The Arabs are likely to get more from him in actual improvements such as budgetary allocations and appointments to things such as Knesset committees such as defense and security. The Arabs are wise enough to value true gains over tokens. 

Attention should remain focused on substance over form; the key will be not what the government says it will do in its various position papers that were negotiated with the various parties but what it does. Clearly Priority One is reaching agreements this year with Syria and the Palestinians and there is not much doubt over what they will contain. No need at this point to even recite the contents. Since Barak is acting as expected, the next year holds out 80% probability of success on his Priority One and a cabinet shakeup in a year when he turns his attention to implementing domestic matters. In the meantime, keep the various forces spread out, occupied and dormant in their ministries and Volvos but keep the crucial votes lined up. I suppose that for the next year this will have to suffice. 

I think that Barak wants to move forward both with the Palestinians and with Syria but remember that he abstained from Oslo when it came up 5 years ago and he has more problems agreeing to terms with the PA than with Syria. I expect he will initially give Arafat a bit of a hard time and play him against the Syrian track (and notice that Assad refuses to make nice-nice with Arafat and is thus leaving him to twist by himself) in order to get him to negotiate on terms important to him but in the long term I expect a deal, much in the same way Barak dealt with Shas during the coalition negotiations (initial brush off until they got rid of Deri and agreed to his choice of ministries). 

Syria is definitely interested and is making moves in terms of putting Hizbullah on a tighter leash and Iran is also letting Hizbullah know that the end of its usefulness as a military movement in Lebanon may be near. Iran is cutting its military aid and Syria is stopping some of the shipments. Assad wants a deal with Israel before his son takes over because his son is not yet strong enough to produce and withstand one. Arafat wants to see and will get a redeployment of Israeli troops and some prisoners released so he can show some results on the ground before agreeing to Barak’s request to move directly into final-status talks. Mubarak also wants to see results before he gives any quarter to Israeli requests on various matters. At this writing, I don’t know definitely how the initial Barak-Arafat talks went but at least one gets the feeling that even if the parties do or don’t agree, there is a willingness to believe what Barak says and that will help get the parties through the next few months. 

Quick Comments

World Economy...I agree with warnings asserted by the Economist and others that Asia and other regions have put off true reforms because the current economic situation appears stable and markets are performing well. Asia is still too much a clubby world and the cost of rocking the boat outweighs the benefit to those doing business there. Fact is there is an accident waiting to happen and it will, within the year. US Banks are also exposed with too much risky lending out there. 

Yugoslavia...I didn’t expect that Milosevic would fall but it is increasingly likely that he will not last a year. Particularly problematic is his home base which seems to be turning against him. It may turn out that Clinton’s half-assed policy will work and we will have brought about the desired change with some laser guided bombs, 3 months of resolve and a united coalition. We have also managed to get Russia to cooperate with us and not go hostile in the followup operation now in progress over there. Why Serbia will work and Saddam still sits pretty I attribute to the fact that Saddam has total control over his people and what they know and Milosevic doesn’t. If this works, Clinton’s team deserves a round of applause in spite of the fact that they admittedly had no idea what they were doing when they went in there. 

KOREA and TAIWAN: Recent statements in Taiwan about abandoning the One-China concept I see as political posturing before an election campaign and I don’t read much into it. As for Korea, North Korea will some day fall unexpectedly and quickly as did Romania and the South is not ready to deal with absorbing the North. They are not preparing for it and, when you get down to it, don’t really want to think about it. Unification of Korea is an aspirational thing but the mechanics will be much tougher than East Germany was — East Germany at least knew about West Germany from television and had some industry. North Korea knows nothing about the rest of the world and its GDP is about 1/10 of that of East Germany.

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