June 10, 2008
BORDER CROSSINGS
Spain, Grappling With Illegal Immigrants, Tries Forgiveness

By JASON DePARLE
MADRID — With the United States riven by calls to legalize millions of illegal immigrants, Americans might consider the possible effects by looking at southern Europe, where illegal immigration has abounded and so have forgiveness plans.

In the last two decades, Spain, Italy, Portugal and Greece have run at least 15 legalization programs, including a Spanish effort three years ago that was among the Continent’s largest. With little domestic opposition, Spain legalized nearly 600,000 of the African, Latin American and eastern European workers who helped power its economy and brought this once insular land the strengths and strains of diversity.

Immigrants say their prized work cards have brought higher wages, peace of mind and reunions of separated families. But critics say legalizations have attracted more illegal migrants — with spillover risks to nearby countries — and warn that an economic slowdown now puts Spain and its foreigners at odds.

Among the beneficiaries of the legalization policy are Ignacio Cantos and Sandra Delgado, a husband and wife from Ecuador who left four children and an economic crisis in search of Spanish jobs. Legalization has raised their pay and ended their fear of the police, who once jailed Mr. Cantos for lacking work papers.

It has also ended their separation from their youngest child, Allan, a gap-toothed 8-year-old sent with his siblings to live with their grandparents when he was 3. Since arriving in Madrid in March, he has been twirling his mother’s earrings and stroking her hair as if worried that she is a mirage.

“I would never leave my children a second time,” said Ms. Delgado, 38, a nanny who has been raising others’ children while aching for her own. “I’m sorry I did it.”

Though both husband and wife favor legalization, they differ on the critics’ main complaint — that “regularizations” attract more illegal migrants.

“I don’t think so,” said Mr. Cantos, 43, a truck driver who argued that migrants moved out of desperation, not legal expectations. “I didn’t even know what a regularization was.”

But Ms. Delgado said repeated amnesties could act as a magnet. “People are thinking they’ll be able to get their papers almost immediately,” she said.

The United States has an estimated 12 million illegal immigrants, a record number. Its last mass amnesty program, which began in 1987, legalized 2.7 million. President Bush proposed an immigration plan that would give some workers a path to legalization. But it died last year under assault from people who said it would lead to more illegal immigration.

Europe has held at least 20 legalizations in the past 25 years, giving residency papers to about four million people. Italy and Spain account for about two-thirds of the total, to the consternation of northern Europeans who see the south as the Continent’s weak back door. With free movement across much of Europe, legalized immigrants can easily head north, alarming those worried about job competition, welfare costs, cultural clashes or terrorist threats.

Southern Europe’s tolerance for illegal immigration has several explanations. Its aging populations and booming economies created a need for foreign workers. Its proximity to northern Africa and eastern Europe places it close to countries that supply them. And its economies have traditionally depended more on off-the-books workers.

No country has run more legalization programs than Spain, which has carried out six since 1985. As recently as a decade ago, immigrants made up less than 2 percent of the population. Now they are more than 10 percent. About 40 percent come from eastern and northern Europe; 38 percent come from Latin America; and 20 percent from Africa.

Despite the rapid change, until recently there was little political conflict, with legalizations occurring under both conservative and socialist governments. Spain even offers immigrants free health insurance, whether they are legal or not.

“The attitude toward unauthorized migrants is much more relaxed than in the United States,” said Joaquín Arango, a sociologist at Complutense University in Madrid.

The acceptance has been attributed to newfound prosperity, the need for workers, the progressive culture of post-Franco Spain and the shared language with Latin Americans, which spares Spain a major source of tension in the United States.

But with the economy slowing, attitudes appear to be changing. The unemployment rate among foreigners is now 14.7 percent, compared with 8.7 percent among Spaniards. Nearly 40 percent of the recent jump in unemployment has occurred among the foreign-born.

“People are starting to say: ‘We don’t need immigrants. They should return to their country,’ ” said Sebastián Salinas, a lawyer with the immigrant rights group Acobe.

Immigration emerged as an election issue in Spain this year for the first time. Mariano Rajoy, a conservative challenger to Prime Minister José Luiz Rodríguez Zapatero, said the 2005 legalization had attracted more illegal immigrants and increased social tensions. “We are heading toward a situation of enormous problems,” said Mr. Rajoy, who narrowly lost.

Likewise, with Italy’s economy faltering, Prime Minister Silvio Berlusconi recently promised a new crackdown on illegal immigrants.

Mr. Cantos, in moving to Spain, traded one set of problems for another. One of 11 children born to poor farmers, he finished most of high school and landed a job collecting insurance premiums. But he lost it in 1999 when bank runs, a currency plunge and soaring unemployment sent hundreds of thousands of Ecuadorians to Spain, which they could enter without visas at the time.

Mr. Cantos joined them in 2001 after borrowing the air fare from a sister in Los Angeles. (She had moved there illegally and become legalized, but warned him that the border was now too dangerous to cross.) He found piecemeal work in Madrid passing out leaflets, and Ms. Delgado, needing money, reluctantly followed.

Life was miserable. They lived in a two-bedroom apartment with seven other migrants. They went to work fearing arrest. Ms. Delgado had lived in Madrid for two years when Spain put into effect the legalization, which covered only migrants with jobs. Of the 570,000 successful applicants, two-thirds came from five countries: Ecuador (21 percent), Romania (17 percent), Morocco (13 percent), Colombia (8 percent) and Bolivia (7 percent).

The government argued that underground work reduced tax revenue and gave lawbreaking employers a competitive edge, through lower labor costs. But officials say their main goal was social, not economic.

“If you practice exclusion, you risk the future of your country,” said Jesús Caldera, who ran the program when he was labor minister. “You risk terrorism, violence.”

Still, there have been costs. The slowdown in construction has idled Mauricio Velasco, a housepainter from Ecuador, who now draws unemployment benefits. Jorge Salinas brought his mother from Bolivia, but she soon needed a kidney transplant, which the Spanish government provided without charge. His mother, Miriam Vaca, 70, now gets free dialysis treatments three times a week. “The ambulance comes to get me,” she said. “They are very, very kind.”

French, German and Dutch officials criticized the Spanish move, fearing an increase in illegal immigration that would cross their borders. Some domestic critics said the program also attracted illegal workers dwelling elsewhere in Europe.

“They came by land, air and water,” said Ana Pastor, a legislator from the conservative Popular Party. “There was a massive influx.”

Lorenzo Cachón, a sociologist at Complutense University, analyzed the program’s “call effect” by studying municipal records. Most immigrants in Spain, legal or not, register with local governments to obtain benefits like health insurance. Their numbers grew 20 percent the year after the program was announced, compared with 3 percent the year before.

“That means the maximum call effect is 17 percent,” he said. In practice, he said, much of that growth came from migrants already living in Spain, who registered as part of legalization. “I consider that a small call effect.”

He, like most scholars, said migrants were mainly lured by jobs. But the region’s history of repeated legalizations, he added, may add to the pull. “It produces in the imagination of the immigrant the possibility that there might be a regularization,” he said.

A 2007 report by the Council of Europe, an organization of European states, concluded that the Spanish program may have had a small “pull effect” but called it a “positive experience from which many European states can learn.”

For the Cantos family, the program brought an uphill fight. Mr. Cantos paid $1,200 to a lawyer who never filed his application, which he discovered only when stopped by the police. Finding him absent from the list of pending cases, they jailed him overnight and started deportation proceedings.

Ms. Delgado did get her papers filed, only to discover that her employer failed to sign them. She says her boss “forgot” — drawing quotation marks with her fingers and rolling her eyes — “because she knew I wanted to travel back to Ecuador, and she didn’t want me to go.” She won a long appeal, and Mr. Cantos was legalized as her spouse.

Their combined income quickly rose about 30 percent, as employers had to pay more to keep them. With annual earnings of about $44,000, they make about 20 times what Mr. Cantos made in Ecuador as the family’s sole provider.

Mr. Cantos said legalization had brought him “a sense of peace,” as he no longer feared arrest. But Ms. Delgado wears the willed smile of a woman trying to hide her sorrow. Her visit to Ecuador reminded her of how much she had missed of her children’s lives. “You go back and you don’t find them the way you left them,” she said.

Their income allowed the couple to bring just one child to Spain, and they brought their youngest, Allan. Arriving in March, he found the weather cold, the food strange. Puzzled by his parents’ fourth-floor walk-up, he said, “The houses are high.”

Fearful of losing his mother again, he grows jealous when his father hugs her. He exploded one night when he heard his parents laughing in the next room.

“He ran out of the bathroom and said, ‘You two are happier without me!’ ” Ms. Delgado said. “He still asks us to this day, ‘Why did you leave us behind?’ ”

With another willed smile, she added, “We’re so happy to have at least one of them back.”

GEOPOLITICAL DIARY: CHINA'S NEXT ECONOMIC MANEUVER

China announced this weekend that it was raising reserve requirements for banks by 1 percent, bringing the requirement to 17.5 percent. This is the fifth such hike this year, but it is the first of this magnitude; other increases have been half a percent or less. China said that the increase would be in two stages, with half a percent taking effect June 15 and another half-percent on June 25. The Chinese also said that the increased reserve requirement will not apply to banks in the area affected by the May 12 earthquake.

The Chinese are caught between two massive trends. The first, older trend is the tendency of the banking system, driven by political and social concerns, to make loans that aren't repaid. The nonperforming loans have been a huge burden on the financial system but have also provided an important service: The loans have kept firms in business that should have gone bankrupt. That has kept the unemployment rate under control -- and given the reserves the Chinese have accumulated through exports, they have been willing to live with the nonperforming loans in order to maintain social and political stability.

The second trend is inflation, particularly the dramatic pressures being caused by increased energy prices. The Chinese government maintains price controls on energy, in effect subsidizing energy consumption or forcing Chinese oil companies to absorb the cost of the subsidy. Either way, while this policy has led to energy shortages, it has kept inflation under control and, more important, it has allowed exports to remain competitive on the international market. Had the policy not done that, it would have also led to business failures, some of which we have discussed in the past. And that, of course, would have led to unemployment as well as inflation.

China is spending about 1 percent of its gross domestic product on energy subsidies. Subsidizing soaring energy prices and also subsidizing loans to businesses that are non-competitive add up to a sizeable burden on China. No matter what China's reserves, controlling oil prices for a country with more than a billion people while also underwriting a financial system with high tolerances for loan default has got to be a major burden. The Chinese had to decide how to attack the problem. The path they chose this weekend was to go after the banking system.

By raising reserve requirements, the Chinese are attempting to cut back on the financial system's liquidity. Besides addressing the two important trends mentioned above, raising the reserve requirement also makes a dent in China's excess liquidity problem brought about by inflows of foreign currency that come from accelerating export income, foreign direct investment and speculative "hot money." Excess liquidity not only contributes to inflation, it also makes Beijing's tight yuan policy much more expensive to maintain. Raising the reserve requirement is one of the relatively cheaper ways for Beijing to soak up such excess liquidity, since it forces state banks to hold on to more cash themselves, as opposed to having the central bank hold it by issuing bonds. Previous reserve requirement hikes have had a limited impact, because the minimum level of reserves banks were required to hold still fell below the amount of reserves they already held. But with this latest hike, the minimum has caught up with -- if not exceeded -- the amount of reserves many small to mid-sized Chinese banks hold.

The larger reserve requirement will begin reducing the amount of money the banks have available for lending. If the banks obey the reserve requirements -- and it is not clear that all financial institutions have always followed these regulations scrupulously -- the amount of money available for borrowing will shrink by the end of the month. That means that some businesses will not be rolling over their loans, and that means bankruptcies and unemployment.

It is not clear that a 1 percent increase is enough to make a difference. However, it is clear that the Chinese are allowing the price of gasoline and diesel to creep up unofficially. So this does not mean that they are going solely after the financial side of the system, nor does it mean that the reserve requirement increase is the only move they are going to make. It does mean that the Chinese appear to be moving toward a position in which they are trying to manage the consequences of their financial system's failures while coping with high energy prices.

It is also clear that they are setting the stage for substantial business failures, particularly of smaller light manufacturers who are undercapitalized, and who cannot withstand any declines in cash flow from exports or from higher expenses. How much damage will be done to this sector is important not only from the standpoint of entrepreneurs but much more significantly from the standpoint of unemployment. The unemployed in these businesses will not be people with several months of savings and retirement plans to tap into. They will be people making third-world wages for whom unemployment means a personal catastrophe. How they react to this will be the single most important aspect of this evolution.

The economics are set. It is the politics that begin to matter now.

Copyright 2008 Strategic Forecasting, Inc.

June 10, 2008
Marines Go to an Afghan Village, Hoping to Use Iraq Lessons to Keep It

By CARLOTTA GALL
HAZARJOFT, Afghanistan — United States marines pushed the Taliban out of this village and the surrounding district in southern Helmand Province so quickly in recent weeks that they called the operation a “catastrophic success.”

Yet, NATO troops had conducted similar operations here in 2006 and 2007, and the Taliban had returned soon after they left. The marines, drawing on lessons from Iraq, say they know what to do to keep the Taliban at bay if they are given the time.

“There is definitely someone thinking out there,” said Capt. John Moder, commander of Company C of the 24th Marine Expeditionary Unit, speaking of the Taliban. “That’s why we need these people to be at least neutral to us,” he said, gesturing to the farmers who have been slowly filtering back to harvest their fields.

Originally sent to Garmser District on a three-day operation to open a road, the marines have been here a month and are likely to stay longer. The extension of the operation reflects the evolving tactics of the counterinsurgency effort in Afghanistan, building on the knowledge accumulated in recent years in Anbar Province in Iraq.

The district of Garmser, a fertile valley along the Helmand River, had been under control of the Taliban and members of Al Qaeda for most of the last two years and much of it had become a war zone, as the Taliban traded fire with British troops based in the district center. One of the largest poppy-growing areas in the country, Garmser District has been an important infiltration route for the insurgents, sending weapons and reinforcements to the north and drug shipments to the south to the border with Pakistan.

Previous operations by NATO forces to clear the area of Taliban had yielded short-lived successes, as the Taliban have re-established control each time, Afghans from the area said. It is a strategy the insurgents have employed all over Afghanistan, using roadside and suicide bombs as well as executions to terrorize the people and undermine the authority of foreign forces and fledgling local governments.

In Garmser those with the means gave up and fled to the provincial capital, Lashkar Gah. Interviewed there by telephone, they said they had been living as refugees for almost two years and were still afraid to return — and to be identified, for fear of retribution from the Taliban.

But Company C served in Anbar Province, once one of the most intractably violent areas of Iraq, which quieted last year under a new strategy of empowering local groups called Awakening Councils, which now provide security. The marines were confident they could put that experience to good use here.

Only when you win over a critical balance of the local population and empower them to stand up to the insurgents can you turn the situation around, several marines said.

First Lt. Mark Matzke led a platoon for nine months last year in the Anbar city of Ramadi, where he said he got to know every character in a small neighborhood, both the troublemakers and the power brokers. But it was only when he sneaked in after dark and listened to people’s grievances in private that he was able to work out a strategy for protecting them from the insurgents.

“Through listening to their grievances, you could figure out that the people did not like the insurgents,” he said. But their biggest fear was that the marines would pull out, he said, leaving them at the mercy of insurgents who would treat them as collaborators.

As trust was built up, the people began to side with the marines and started to tip them off about who the insurgents were and where to find them. “You just need to give them confidence,” he said.

In this village, only the poorest laborers and farmers have started filtering back, Lieutenant Matzke said, adding, “These people are completely broken.” They refused all assistance at first, he said, but after talking for a couple of hours they admitted they could use the help, but were afraid to accept it for fear of the Taliban.

The people were glad when the Taliban were driven away, the marines said, and that is a sentiment they need to nurture. “We need to convince the people we are here to help, and to exploit the fact that we can help,” Captain Moder said.

As a first step, the marines promised to provide a strong security cordon so those villagers who had fled could return without fear to rebuild their homes and reopen the bazaar.

When on patrol, the marines carry a small gadget the size of an old Polaroid camera that takes fingerprints, photos and an iris scan of people they meet. It is used to build a database of the residents so they can easily spot strangers, the marines say. The Afghans accepted the imposition without protest.

Observation on the ground, information from the populace and control of key commerce and transportation routes are all ways to prevent the Taliban from seeping back into the area, Col. Peter Petronzio, commander of the 24th Marine Expeditionary Unit, said in an interview.

“You need physically to be there,” he said. “You need to continue to move about the population, let your presence be known, but do it in a way so that you are not smothering and overwhelming. You have got to let life go on.”

But the villagers remain scared, uncertain how long the marines will stay and who will follow in their wake.

“I don’t think I will go back until complete peace and security comes,” said one elder, who said he had heard his house had collapsed under bombardment. “This is not the first time we have suffered. Several times we have seen such operations against the Taliban, and after some time the forces leave the area and so the Taliban find a way to return.”

“If NATO really wants to bring peace and make us free from harm from the Taliban,” he said, “they must make a plan for a long-term stay, secure the border area, install security checkpoints along the border area, deploy more Afghan National Army to secure the towns and villages, and then the people will be able to help them with security.”

June 10, 2008
OP-ED COLUMNIST
The Great Seduction

By DAVID BROOKS
The people who created this country built a moral structure around money. The Puritan legacy inhibited luxury and self-indulgence. Benjamin Franklin spread a practical gospel that emphasized hard work, temperance and frugality. Millions of parents, preachers, newspaper editors and teachers expounded the message. The result was quite remarkable.

The United States has been an affluent nation since its founding. But the country was, by and large, not corrupted by wealth. For centuries, it remained industrious, ambitious and frugal.

Over the past 30 years, much of that has been shredded. The social norms and institutions that encouraged frugality and spending what you earn have been undermined. The institutions that encourage debt and living for the moment have been strengthened. The country’s moral guardians are forever looking for decadence out of Hollywood and reality TV. But the most rampant decadence today is financial decadence, the trampling of decent norms about how to use and harness money.

Sixty-two scholars have signed on to a report by the Institute for American Values and other think tanks called, “For a New Thrift: Confronting the Debt Culture,” examining the results of all this. This may be damning with faint praise, but it’s one of the most important think-tank reports you’ll read this year.

The deterioration of financial mores has meant two things. First, it’s meant an explosion of debt that inhibits social mobility and ruins lives. Between 1989 and 2001, credit-card debt nearly tripled, soaring from $238 billion to $692 billion. By last year, it was up to $937 billion, the report said.

Second, the transformation has led to a stark financial polarization. On the one hand, there is what the report calls the investor class. It has tax-deferred savings plans, as well as an army of financial advisers. On the other hand, there is the lottery class, people with little access to 401(k)’s or financial planning but plenty of access to payday lenders, credit cards and lottery agents.

The loosening of financial inhibition has meant more options for the well-educated but more temptation and chaos for the most vulnerable. Social norms, the invisible threads that guide behavior, have deteriorated. Over the past years, Americans have been more socially conscious about protecting the environment and inhaling tobacco. They have become less socially conscious about money and debt.

The agents of destruction are many. State governments have played a role. They aggressively hawk their lottery products, which some people call a tax on stupidity. Twenty percent of Americans are frequent players, spending about $60 billion a year. The spending is starkly regressive. A household with income under $13,000 spends, on average, $645 a year on lottery tickets, about 9 percent of all income. Aside from the financial toll, the moral toll is comprehensive. Here is the government, the guardian of order, telling people that they don’t have to work to build for the future. They can strike it rich for nothing.

Payday lenders have also played a role. They seductively offer fast cash — at absurd interest rates — to 15 million people every month.

Credit card companies have played a role. Instead of targeting the financially astute, who pay off their debts, they’ve found that they can make money off the young and vulnerable. Fifty-six percent of students in their final year of college carry four or more credit cards.

Congress and the White House have played a role. The nation’s leaders have always had an incentive to shove costs for current promises onto the backs of future generations. It’s only now become respectable to do so.

Wall Street has played a role. Bill Gates built a socially useful product to make his fortune. But what message do the compensation packages that hedge fund managers get send across the country?

The list could go on. But the report, which is nicely summarized by Barbara Dafoe Whitehead in The American Interest (available free online), also has some recommendations. First, raise public consciousness about debt the way the anti-smoking activists did with their campaign. Second, create institutions that encourage thrift.

Foundations and churches could issue short-term loans to cut into the payday lenders’ business. Public and private programs could give the poor and middle class access to financial planners. Usury laws could be enforced and strengthened. Colleges could reduce credit card advertising on campus. KidSave accounts would encourage savings from a young age. The tax code should tax consumption, not income, and in the meantime, it should do more to encourage savings up and down the income ladder.

There are dozens of things that could be done. But the most important is to shift values. Franklin made it prestigious to embrace certain bourgeois virtues. Now it’s socially acceptable to undermine those virtues. It’s considered normal to play the debt game and imagine that decisions made today will have no consequences for the future.

source: stratfor.com
GLOBAL FOOD CRISIS: PROMISING HARVESTS AND A SHORT-TERM REPRIEVE

Summary
Food exporting countries are anticipating a good harvest season, which would take some of the sting out of the global food crisis. Fuel prices will continue to rise, however, and combined with growing demand will eventually push food prices higher as well.

Analysis
A sharp rise in commodity prices has lead to global food shortages this spring, but exporting countries are expecting good summer, fall and winter harvests, which should provide some short-term relief. Nevertheless, demand-side factors will remain in play, which will likely mean that food prices will resume their upward trajectory in the spring of 2009.

According to reports released in May by the U.S. Department of Agriculture, global wheat production is projected to reach a record 656 million tons in 2008-2009, while global consumption is projected to surge to 642 million tons, almost 22 million tons above 2007. While the 2008-2009 harvest is expected to be the first crop in three years to exceed total consumption, global stocks will remain at historic lows. Meanwhile, global trade is projected to climb to a record 117 million tons.

Even with a greater surplus, some major exporting countries will be able to rebuild only a portion of their stocks as import demand rises. The grains with the most positive production outlook -- wheat, soybeans, rice -- will come to harvest in the United States and in countries of the former Soviet Union and European Union in July. Canada, another major wheat exporter, will begin its harvest in August, while Australia and Argentina will begin harvesting grain in October. The vast majority of rice in China will be harvested between mid-summer and early winter, while most South Asian rice will come to market in the November-December timeframe. (Summer harvests in the northern hemisphere run from August through November and in the southern hemisphere from April through June. Winter crops are harvested in the northern hemisphere from June through August and in the Southern hemisphere from October through January.)

Global milled rice production for 2008-2009 is projected to be 432 million tons. Larger harvests are forecast in almost all rice-producing countries in response to higher world prices. And despite record prices, global rice consumption continues its upward trend. With production exceeding consumption, ending stocks are also expected to continue their upward trajectory, increasing almost 4 million tons to 82 million.

Although corn production is expected to remain lower than consumption (and will not be coming into harvest until the fall), the overall positive crop yield expected this year will likely offset the problems associated with the poor harvest last year and low levels of supplies in international grain reserves. It is difficult to quantify the extent of the reprieve, but it appears there will be enough to fill demand over the next year since production will outweigh consumption. This could help states contain any brewing social and political unrest.

The bad news is that long-term factors are unlikely to change. Key among them is the rising price of crude oil, which almost hit a $140 a barrel late last week. Although there are occasional dips in rising oil prices they appear to be temporary, and the upward trend is likely to remain, though it is impossible to predict how long. Another key factor is the growing demand for oil and food in emerging economies. The fascination with biofuel also will continue to divert agricultural resources from the food sector. With global food shortages, grain-exporting countries will not ease up on export restrictions, which will exacerbate the situation.

And, of course, good harvests in 2008-2009 are not guaranteed. The upcoming season could be impacted by any number of things, including weather, locusts, war and bad governance. At best, the 2008-2009 harvest season will bring a short-lived respite in the global food crisis. After that it will likely be more of the same.

Copyright 2008 Strategic Forecasting, Inc.