Does Wikileaks Really Matter?

Much has been made of the 251,287 semi-secret cables published by Wikileaks earlier this week, and the supposedly catastrophic impact they have wrecked on U.S. foreign policy and national security. U.S. Secretary of State Hillary Clinton even called it an “attack on US foreign policy and the international community”.

Really?

That seems like a vast exaggeration to me. Leaving aside the issue of legality, let me evaluate the impact it has actually had thus far.

For starters, I don’t think the leak contributes anything groundbreaking in terms of new content. I doubt those of us who follow current events were surprised to hear that Moammar Gaddafi of Libya travels with a “voluptuous blonde”, that Medvedev is Putin’s Robin, or that South Korean diplomats have openly discussed the potential collapse of North Korea.

Nor do I think the leak will significantly change the way the United States is perceived in the world. I think most people understand there is a gap between what is said officially and what is whispered behind closed doors, even if some of the language in the documents may be more vivid and frank than some of us may have expected. If anything, this will just confirm suspicion that (god forbid) the United States may not be entirely honest and straightforward in its foreign policy.

Where this may have some effect, I think, is in two areas.

First, it could possibly make U.S. diplomats’ jobs harder. If other countries feel like secrets they are disclosing might end up in the front page of the New York Times a few months from now, they might theoretically be more guarded about the information they reveal, which would in turn make information-gathering more arduous.

In reality, however, I think this change will actually be much less significant than some are making it out to be now. For one, individuals could just choose to carry out their off-the-record conversations in a more secure way and still pass on information, and diplomats could also channel information more through word of mouth than in written form. Furthermore, information can still be secured through tried and true methods that outlast any ‘leaks’: by figuring out who is willing to talk, by offering incentives, by building a sense of trust, and, most importantly, by attending cocktail parties and private gatherings where the people that matter may be much more amenable to talk after some intoxication.

Second, there will need to be some minor changes within the United States as to how secrets are kept and shared. That doesn’t necessarily seem like a bad thing to me. After 9/11, when information sharing between various government agencies was encouraged and the priority was on “connecting the dots”, the State Department adopted the SIPR (Secret Internet Protocol Router) network in order to facilitate joint intelligence exchanges with the military. Now I think the emphasis will be on how to control and monitor which individuals within the U.S. government have access to what information within that system, since the information came from US Army intelligence analyst who downloaded it from a secure US communications system. The Pentagon has also just detailed new security safeguards on small computer flash drives which will make it harder for one person to steal and reveal so many secrets.

What I hope does not happen is that this reverses a trend over the last few years of classifying only data that really needs classifying. As others have noted, millions of documents each year are already unnecessarily classified even if over 95% of the classified information is already publicly available. What we need is a balance between the fact that some information needs regulation because the right to know exists alongside other priorities such as national security, and the acceptance that there can never be total secrecy in a system where over 3 million people have security clearances.

I hope the U.S. government realizes this as the plugging proceeds after Wikileaks, rather than making alarmist claims about national security being undermined.

Does Microfinance in South Asia Need Regulation?

The Thanksgiving dinner I attended last night at a professor’s residence had generous servings of turkey, fine wine, and, of course, a lovely side of international affairs debates.

One particularly heated conversation was about the growing regulatory backlash in South Asia against the microfinance industry, which some say has been partly transformed from a pro-poor solution as pioneered by Nobel laureate Muhammad Yunus into an exploitative profit-making machine. In response to complaints about usurious rates and coercive collection tactics, India’s microfinance industry recently agreed to a voluntary 24 percent interest rate cap on microloans in the southern state of Andhra Pradesh, while Bangladesh has restricted interest rates to 27 percent.

Is this increased regulation necessary or should the free market be left to find its own equilibrium?

In my view, increased regulation is clearly necessary. There is clear evidence of abuse on the part of these microfinance institutions (MFIs). In Andhra Pradesh for example, deaths have been attributed to exorbitant interest rates and abusive lending practices, and women who have fallen behind their payment schedules have been subjected to bullying, harassment, and public vilification. Getting exact numbers on this is tricky, but this pattern is clearly visible and even those opposed to regulation admit there are problems. Consequently, the poor, who are often ill-informed, illiterate and innumerate, do need some form of protection against these profit-seeking companies. The market hasn’t worked thus far.

The counterarguments also don’t make much sense to me. Some say these MFIs are angelic compared to ruthless moneylenders who charge rates beyond 100 percent (MFIs now charge a median of 28 percent). But just because a better option is more desirable than worse one doesn’t mean we shouldn’t try to make much-needed improvements to that better option to strive for the best possible outcome.

Others claim that many MFIs will go out of business if interest rates are capped. I suspect this threat is highly exaggerated. As was mentioned before, the median interest rate was 28 percent in 2009, and the capped rates of 24 percent and 27 percent are not radically lower than that rate. Plus, it’s not like these companies are barely floating above the water right now. One study by the Consultative Group to Assist the Poor (CGAP) found that MFIs earned an average 2.1 percent return on assets annually, which is 50% higher than the 1.4 percent earned by banks. There is also no evidence that this will adversely affect the health of nations’ financial systems.

Some fear that if interest rates are lowered, MFIs will cut their outreach to the poorest and most isolated areas due to higher transaction costs. But, again, these MFIs are by some accounts already cutting costs by poaching loan officers from their rivals, targeting the same borrowers and neglecting investing in new communities (which require additional training and preparation) in order to collect greater returns on equity. It thus doesn’t seem like regulation would prevent them otherwise reaching out to the most vulnerable.

I recognize that while interest rate caps may spur innovation and cost-cutting, they alone aren’t a panacea. Governments recognize this too. That’s why Bangladesh, for instance, included bans on forced deductions, caps on administrative charges and required loan grace periods as part of a package of restrictions in addition to interest rate caps. I suspect other smart measures will also follow suit, such as making it mandatory for all companies publicly disclose their loan costs (which caused rates to drop 3.5 to 5 percent in Cambodia) and other consumer protection legislation on complaint resolution procedures and education.

But there’s no question in my mind that some degree of regulation is required in the microfinance industry.

Making Sense of the Korean Shelling

Like most foreign policy geeks, I’ve been trying to figure out what motivated North Korea to trigger one of the most dramatic confrontations since the end of the Korean War in 1953 a few days ago.

Here is my short analysis of the situation thus far, with two caveats: 1) I don’t claim to have any special knowledge of North Korea beyond what I’ve read, studied and heard others say; 2) the extent to which one can make sense of the actions of a hermetic and unpredictable regime like Pyongyang, needless to say, is quite limited.

It is tempting to read the skirmish as simply a response by an irritated North Korea. According to most press reports, North Korea warned South Korea to halt military drills near their sea border, and only began shelling when Seoul refused and began firing artillery into disputed waters (but away from the North Korean shore). I don’t think this argument holds up though. South Korea holds such exercises four times every year, and confrontations have not occurred on such a level previously. Why did they occur this time?

Furthermore, most analysts who have studied North Korean behavior for years insist that Pyongyang is a remarkably strategic actor, and thus tend to ascribe more strategic motivations to the incident beyond just a reaction to alleged South Korean provocations (see here for commentary from experts Victor Cha and the Fletcher School’s own Professor Sung-Yoon Lee).

In this vein, I think the first North Korean motive was to use the incident as part of an effort to burnish the credentials of Kim Jong Il’s youngest son and heir-apparent, Kim Jong Un, who is still in his mid-20s amidst an ongoing succession process. From this perspective, the  revelation of a new, surprisingly advanced uranium enrichment plant a few days ago, combined with the brazen shelling, could be central to building a personality cult of a futuristic and brave leader committed to strengthening the nation’s technological and military prowess. After all, the untested and inexperienced Kim Junior no doubt needs something to earn the respect of the country’s military.

But the particular timing of the incident suggests to me that the succession explanation alone is insufficient. The provocation occurred just as U.S. special envoy for North Korea (and my current dean) Stephen Bosworth was planning to visit the region, days after the unveiling of a new uranium enrichment program, and a week after the North Korean government told a team of visiting experts that it was willing to effectively dismantle one of its nuclear weapons programs if Washington again pledged that it had “no hostile intent” toward the current government.

Piece all those things together and I think this is partly Pyongyang’s way of telling the United States that it is interested in bilateral talks, and that the status quo of ‘containing’ the North Korean threat will not work since it will otherwise continue to bolster its nuclear program and destabilize the Korean Peninsula through its traditional path of brinkmanship. While this mixture of intimidation, revelations and airing of new deals may fall right in line with the pattern of North Korean behavior as others have suggested, U.S. officials have indicated that this North Korean offer was “unusually explicit”.

Of course, the fact that North Korea is simply ‘interested’ in talks alone may not in and of itself inspire a lot of enthusiasm about the situation in the Korean Peninsula given the regime’s history of duplicity. What is clear to me though is that there are few good options going forward to deal with a nation that escalates provocations to the most dangerous levels if ignored and extracts concessions with a sketchy record of honoring its side of the bargain if engaged (as a South Korean report concluded a week ago). I’m guessing the Obama administration will continue to urge all sides to exercise restraint, demonstrate solidarity with its South Korean ally, attempt to lean on China to pressure North Korea, and perhaps at least consider Pyongyang’s proposals for talks.  I wouldn’t expect sunshine anytime soon.

Photo: BBC News