-Caveat Lector- -----Original Message----- From: Martin H. Katchen <[EMAIL PROTECTED]> To: Mark A. Smith <[EMAIL PROTECTED]> Date: Sunday, January 03, 1999 7:38 PM Subject: Fw: STRATFOR's 1999 Annual Forecast -----Original Message----- From: [EMAIL PROTECTED] <[EMAIL PROTECTED]> To: [EMAIL PROTECTED] <[EMAIL PROTECTED]> Date: Sunday, January 03, 1999 3:55 PM Subject: STRATFOR's 1999 Annual Forecast >_________________________________________________ > >Need to Know Something Fast? >Try STRATFOR's Find Facts Service >Visit http://www.stratfor.com/findfacts/index.asp >Or e-mail [EMAIL PROTECTED] >_________________________________________________ > > >Global Intelligence Update >Red Alert >January 4, 1999 > >1999 Annual Forecast: A New and Dangerous World > > >SUMMARY > >* Russia will begin the process of recreating old Soviet empire >in 1999. The most important question of 1999: will Ukraine >follow Belarus into federation with Russia? > >* Russia and China will be moving into a closer, primarily anti- >American alliance in 1999. > >* Asian economies will not recover in 1999. Japan will see >further deterioration. So will China. Singapore and South Korea >will show the strongest tendency toward recovery. > >* China will try to contain discontent over economic policies by >increasing repression not only on dissidents, but the urban >unemployed and unhappy small business people. Tensions will >rise. > >* Asia will attempt to protect itself from U.S. economic and >political pressures. Asian economic institutions, like an Asian >Monetary Fund, will emerge in 1999. > >* The Serbs, supported by the Russians, will test the United >States in Kosovo. There is increasing danger of a simultaneous >challenge from Serbia and Iraq, straining U.S. military >capabilities dramatically. > >* The main question in Europe will be Germany's reaction to the >new Russia. The Germans will try to avoid answering that >question for most of the year. > >* Latin America appears ready to resume its economic expansion, >beginning late in 1999. > > >FORECAST > >The Post-Cold War world quietly ended in 1998. A new era will >emerge in 1999. It will appear, for a time, to be not too >dissimilar to what came before it, but looks can be deceiving. >In fact, we have entered an era with a fundamentally different >global dynamic than the previous era. We should not think of the >period 1989-1998 as an era. It was an interregnum, a pause >between two eras. 1999 will see a more conventional, natural >world, in which other great powers in the world will unite to try >to block American power. In 1998 the United States worried about >Serbia, Iraq and North Korea. In 1999, the United States will be >much more concerned with Russia, China, France and Japan. The >world will not yet be a truly dangerous place, but it will begin >the long descent toward the inevitable struggle between great >powers. > >Two forces are converging to create this world. The first is the >recoil of Russia from its experiment in liberalism. The other is >the descent of Asia into an ongoing and insoluble malaise that >will last for a generation and reshape the internal and external >politics of the region. In a broader sense, this means that the >Eurasian heartland is undergoing terrific stress. This will >increase tensions within the region. It will also draw Eurasian >powers together into a coalition designed to resist the >overwhelming power of the world's only superpower, the Untied >States. Put differently, if the United States is currently the >center of gravity of the international system, then other >nations, seeking increased control over their own destinies, will >join together to resist the United States. Russia will pose the >first challenge. Asia will pose the most powerful one. > > >Russia Begins its Quest to Recover Great Power Status > >The die has been cast in Russia. We wrote in our 1998 Forecast >http://www.stratfor.com/services/giu/1998.asp: "Whether or not >Yeltsin survives politically or personally is immaterial. The >promise of 1991 has become an untenable nightmare for the mass of >Russians. The fall of Communism ushered in a massive depression >in the Russian economy while simultaneously robbing it of its >global influence." In 1998 we saw the consequences of this. The >reformers in Russia were systematically forced out of power. >Power seeped out of Yeltsin's hands. Finally, a new Prime >Minister was selected -- the former head of the KGB's >international espionage apparatus. A restoration of sorts is >well under way in Russia. > >Personalities are unimportant. What is important is that in >1998, the massive failure of the reformers resulted in their >being forced from power. The West, which had invested in Russia, >realized that it would never recover those investments nor many >of the loans they made. As a result, investment and credit >ceased flowing into Russia and, therefore, Western influence >plummeted. There was no reason to appease the West if no further >money was forthcoming. The Russian love affair with the West >came to an abrupt halt. As so many times before in Russian >history, the pendulum is moving from adoration of the West to >suspicion and contempt. As before, the Westernizers who >dominated Russia for the past decade are being replaced by >Slavophiles, who will seek to root out Western influence while >they liquidate the Westernizers. > >Russian politics has searched for a center of gravity ever since >the reformists began to lose credibility. In December 1998, that >center of gravity emerged in the form of Russian chauvinism and >anti-Americanism. When the United States bombed Iraq without >even consulting the Russians, the lid suddenly came off of the >pent up anger Russians felt at their loss of great power >standing. The one thing that every significant faction in >Russian politics agree on today (save for the dwindling band of >liberals) is that the loss of great power status is intolerable. >Primakov, Zhirinovsky, the Communists and even Yeltsin agree on >little save this -- Russia must recover its great power status. >It is the only unifying principle left in Russian life. > >The corollary to this is a growing Russian consensus that Russia >has been victimized both by Western investors and by the United >States. Investors are seen has having taken advantage of >Russia's eagerness to please the West, exploiting it shamelessly. >The United States has treated Russia as if it were a third world >country, subjecting it to continual humiliation. All of this >has tapped into a deep vein of Russian chauvinism and xenophobia. >In a country that has become virtually ungovernable, this >powerful nationalism is now the only means of uniting the >country. No one can govern Russia any longer except on a >powerful, nationalist platform. > >The situation in Russia reminds us of the last days of Weimar >Germany. Unable to provide either prosperity or national >security, Weimar Germany was replaced by a regime that used >national security issues as a means to unite Germany and revive >the economy through military spending. Yeltsin's Russia has lost >all credibility, failing to provide either prosperity or national >security. Where Germany focused on the Rhineland, Sudetenland and >the Danzig Corridor, Russia will focus on the Baltics, Ukraine >and Central Asia. We expect to see massive increases in defense >spending, intended both to increase Russian power and stimulate >the Russian economy. > >As with Germany, not all of the former fragments of the old >Soviet empire are opposed to reintegration. On December 25, >1998, exactly six years after the dismantling of the Soviet >Union, Russia signed a treaty with Belarus, essentially >establishing the foundations of reunification. That set, the >focus for 1999 will be Ukraine. If Ukraine follows Belarus back >into federation with Russia, the geopolitical essence of the >former Soviet Union will have been recreated. Then the focus >will be on the Caucuses, Central Asia and the Baltics. But first >and foremost, the burning question of 1999 will be Ukraine. We >predict that Ukraine will join Belarus in returning to >federation, in spite of belated efforts by the West to keep them >out. > >After that, Russia will face a generation of reabsorbing its >former constituents. Each step of reabsorption will bring it >into greater conflict with other nations. Its move back into >Central Asia will bring it into direct conflict with the United >States, which has made huge investments in oil development in the >region. Its move south into the Caucuses will collide with Iran >and Turkey. But it is the move west that will be the most >dangerous. In 1999, Russian troops will once again find >themselves on the Polish border, a Poland now part of NATO. As >Russian pressure grows on the Baltic States, this border area >will become explosive. > >But the first confrontation will come, we think, over Serbia, >where we expect Russia to increase direct aid to Serbia openly, >thereby challenging U.S. policy in Bosnia and Kosovo. Serbia, >watching U.S. fumbling over Iraq, and emboldened by Russian >support, is clearly preparing a new challenge to the United >States over Kosovo. Serbia is calculating that the United States >will not risk a major confrontation with Russia, and France may >choose to oppose a full-scale anti-Serbian intervention. The >dangers of a new confrontation with Serbia rise as Russian >nationalism intensifies. There is particular danger if Serbia >and Iraq challenge the United States simultaneously. > > >Asia Seeks Political Solutions to Continuing Economic Malaise > >Russia will not represent a global threat, but it will challenge >U.S. power along its periphery, in a contest that will begin in >1999, but will take a generation to play out. Nevertheless, the >United States will face threats globally, owing to the evolution >of the Asian financial process. Note that we say process and not >crisis. Asia is no longer in crisis. It is now in an endemic >malaise, from which it cannot, generally speaking, recover. >Asia's economic dysfunction is no longer a crisis, but a long- >term Asian condition. > >Since some are predicting recovery in 1999, let us explain why we >are so negative. The essence of the Asian crisis, as we have >said many times, is to be found in the appallingly low rate of >return on capital that Asian economies have experienced. This >low rate of return is rooted in the ability of Asian governments >to abort the business cycle through export-generated growth and >high savings rates. Because interest rates were kept >artificially low, businesses that had no business surviving >actually expanded. They grew in spite of the fact that they were >only minimally profitable, if at all. These businesses soaked up >available credit, while continuing to erode financially. In the >end, they could not even repay their loans. > >Recessions are normally triggered by rising interest rates. The >rising cost of money forces marginally profitable business to >restructure or fail. This is an essential aspect of the >discipline of capitalism. Capitalism without business cycles is >a contradiction in terms. Nevertheless, Asian governments >managed to avoid this discipline for almost half a century. They >avoided business failures, lay-offs, restructuring and all the >nastiness of capitalism. The net result is a group of economies >that are breathtaking in their inefficiency. > >The key is Japan. Japan led Asia into its current situation. >Japan must lead Asia out. But Japan is institutionally committed >to preventing the needed massive, shattering, agonizing >restructuring of its economy. It cannot proceed. The huge >dinosaurs of the Japanese economy must be compelled to >restructure. The only force that can compel them to do this is >rising interest rates. As Japanese credit worthiness continues >to decline, foreign investment and loans are either drying up or >available only at much higher interest rates. Internally, the >Japanese government continues to protect the dinosaurs by keeping >interest rates absurdly low. Japan understandably wants to >prevent a massive collapse of the economy. But unless the >economy is permitted to collapse, it cannot be reconstructed. In >other words, Japan can neither endure the disease it has caught >or the medicine that can cure it. It is not Japan's politicians >that have created gridlock. It is the Japanese reality. > >This is the agonizing dilemma throughout Asia. Having played >with the business cycle for generations, inefficiencies have >built up to such a degree that the culling that must take place >will be cataclysmic. Socially, Asian societies are completely >unprepared to pay the price they must pay in terms of >unemployment, declining standards of living, and loss of control >to foreign investors and creditors. Politically, leaders are >trapped between the economic and social realities. They are >therefore paralyzed. The inefficiencies continue to rise, hopes >of recovery are constantly aborted by economic realities, and >social tensions rise. > >In weaker Asian societies, such as Indonesia, society has already >essentially exploded and the government is trying to contain the >consequences. In some countries, like Singapore and South Korea, >owing to fortunate circumstances and skillful political action, >restructuring is actually taking place within the existing >political framework. In Japan, however, the government's >inability to bear the social consequences of depression has >paralyzed it. This is not because Japanese politicians are >stupid or weak as some have charged. The paralysis of the >Japanese state is built into the collision of the Japanese >economy with Japanese society. There can be no solution without >a radical restructuring of the Japanese political order, >replacing it with a structure that is able to impose pain on a >society unprepared to endure it. > >This is precisely what China is trying to do. On the one hand, >China is permitting economic reality to ravage its economy. It >is shutting down inefficient businesses, allowing unemployment to >rise, allowing standards of living to begin falling. It is also >taking political steps to control the situation. Apart from its >very public crushing of dissent, Beijing is shifting its >political base away from the coastal regions to the interior >agricultural regions, by shifting state investment patterns. It >is not clear that China will succeed in this partial, politically >controlled house cleaning. It may well be, as we strongly >suspect, too little and too late. But the combination of >powerful political repression with some degree of restructuring >may well become an Asian model. > >It is a model that can mitigate the economic problems, but cannot >solve them. Asia cannot endure the long-term reconstruction >needed to make it competitive with a rampant America. As Asia >becomes less competitive, it will find that it must protect >itself against American economic encroachment. Obviously, the >U.S. is sensitive to Asian exports surging into the United >States. But the real friction is caused by the Asian need for >U.S. investment and Asia's inability to pay the price it must to >get it. > >Japan badly needs U.S. investment and credit. It cannot solve >its problems without them. But U.S. investors and lenders >require a level of transparency and a degree of control that is >incompatible with Japanese social requirements. Someone lending >billions to bail out a Japanese bank will want a large degree of >control over that bank. American owners will want to make >investments based on economic rationality rather than on the >bank's keiretsu relationships. The intrusion of American capital >would cause the very social chaos that Japanese politicians badly >want to avoid. This holds true throughout most of Asia. Asia is >unable to generate sufficient capital to solve its problems, >unable to restructure its economies to generate that capital, and >unwilling to allow an uncontrolled influx of American capital on >American terms. > >Asia cannot solve its problems. It is therefore caught in a >process of mitigation, keeping things from becoming unacceptably >bad. In order to do this, Asia must seek to insulate itself from >the United States in particular and the global economy in >general. It appears to us that the Asian solution will be to >create Asian institutions to supplant the global institutions >within which Asian economies are increasingly uncompetitive. We >expect to see increased resistance to American demands for trade >liberalization along with increased utilization of Asian >solutions to problems, from using the yen as a reserve currency >to an Asian Monetary Fund to Asian based security systems. We >expect 1999 to be a year in which Asia begins creating Asian >institutions. > > >The Sino-Russian Alliance Redefines the World > >Asia's efforts to work around its fundamentally insoluble >economic malaise will lead to increased friction with the United >States on all levels. Most important immediately, we see the >reemergence of a Moscow-Beijing axis designed to block unilateral >American actions in Eurasia. Furthermore, this relationship will >both insulate Russia and China from U.S. political and military >pressure, and create politico-military counter-pressure on the >United States designed to elicit greater economic cooperation. >1999 will be the year in which this alliance will take full >shape. > >There will be outriders to this alignment. Japan is increasingly >at odds with the United States over economic policy. It also >seems to be developing an independent assessment of the North >Korean threat. As U.S. pressure on Japan to liberalize its >markets increases, Japan's search for alternatives will increase >as well. Its search for economic alternatives is already well >under way. But in order to create economic alternatives to the >U.S. sponsored global systems, Japan will need political >traction. Japan will not join in the Russo-Chinese alliance, but >it will use it to attempt to extract concessions from the United >States. > >There will be other outriders. France is already clearly >cooperating with China and Russia. This was visible in the Iraq >affair. The question is what pressure it will put on the new >Europe. We were clearly wrong when we expected the Euro to fail. >The Euro is here and seems likely to work in the short run. >However, with French foreign policy increasingly anti-American, >the question is whether the rest of Europe will follow. To be >more precise, the question is whether the Germans will follow the >French lead. > >Germany is now deeply torn. The political instincts of the new >government, forged in the 1960s, reflect a profound uneasiness >with the United States and its leadership. French policy is >attractive. However, fear of Russia is also a visceral feeling >in Germany, and mismanagement there could quickly destabilize the >government. With Russian troops on the Polish frontier, the old >German nightmare, the Polish question, is about to arise. Happy >to have the buffer, but reluctant to forward deploy in Poland >(and unlikely to be welcomed by the Poles), the Germans need the >United States to counterbalance the Russians. At the same time, >a solid arrangement with the Russians is also attractive. >Germany is now in the process of defining an identity and a >policy for the 21st century. It is simply unclear to anyone, >including the Germans, what this identity will be. 1999 will not >be the year this is settled. > > >The United States Rolls Blithely On > >Then there is the United States. We continue to expect the U.S. >economy to expand. There will undoubtedly be a cyclical downturn >at some point, but it will not be historically significant and it >may not come for a while. We have heard a great deal from those >who expect the U.S. economy to implode because of Asia. Asia >will undoubtedly have some effect. But the Asian crisis has been >in full swing from over a year and the U.S. economy has been only >marginally affected. We just don't see indications that the >expansion is about to end. We have been bullish on the U.S. >economy since 1995 and we continue to see this as a massive, >long-term movement driven by the restructuring of the 1980s. > >We expect others, particularly Latin America, to benefit from >this historical American expansion. In spite of the problems in >Brazil and Venezuela, we feel that the worst has already been >seen and the probability of an upturn later this year is >extremely strong. We continue to feel that Latin America will >see the strongest growth of any region in the first decade of the >21st Century. The 1998 downturn, while unexpected, represented >the rapid cycling of capital markets in an immature economy, not >the wheezing senility of Asia. Just as Latin America >deteriorated with surprising vigor, it will, we think, recover. >By late 1999, we expect to see a major Latin American rebound >underway. > >As rosy as the economic picture is in the Western Hemisphere, the >foreign policies of the United States are increasingly >unsettling. U.S. policy in Iraq has essentially collapsed. U.S. >policy in Serbia, where we expect another crisis shortly, is now >going to be challenged by the Russians, making the U.S. mission >much more dangerous and much less soluble. North Korea will >similarly become unmanageable. The Wye Accords between Israel >and the Palestinians are coming apart at the seams. Whether Bill >Clinton survives his crisis is at this point, 1999, fairly >irrelevant. What is relevant is that the United States has not >created a foreign policy identity for itself, and has not planned >for a world increasingly resistant to its policies. > >That is the key to 1999. We are in a world increasingly >resistant to the one superpower. There is no second superpower, >but there are several great powers. These great powers are in >the process of cobbling together an alliance that, taken >together, may not fully counterbalance the United States, but >will serve to limit American freedom of action. Behind the >shield of this alliance, built around China and Russia, we expect >to see increasing Asian economic integration, designed to limit >the effects of the global economy on their insulated societies. >We also expect to see increasing regional Russian imperialism, >increasing Chinese repression, increasing attempts by others to >use the Russo-Chinese alliance for their own ends and therefore, >a new and dangerous world. 1999 is the first of many years of >increasing tension and conflict involving not only minor players, >but also the world's great powers. It is the beginning of what >will prove to be a tense first decade in the 21st century. > >___________________________________________________ > >To receive free daily Global Intelligence Updates, >sign up on the web at http://www.stratfor.com/mail/, >or send your name, organization, position, mailing >address, phone number, and e-mail address to >[EMAIL PROTECTED] >___________________________________________________ > >STRATFOR, Inc. >504 Lavaca, Suite 1100 >Austin, TX 78701 >Phone: 512-583-5000 >Fax: 512-583-5025 >Internet: http://www.stratfor.com/ >Email: [EMAIL PROTECTED] > > > *********************************** Lloyd Miller, Research Director for A-albionic Research (POB 20273, Ferndale, MI 48220), a ruling class/conspiracy research resource for the entire political-ideological spectrum. Quarterly journal, book sales, rare/out-of-print searches, New Paradigms Discussion List, Weekly Up-date Lists & E-text Archive of research, intelligence, catalogs, & resources. 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