The success of UN General Secretary Kofi Annan in defusing the crisis in the Persian Gulf has thrown partisan politics into a state of confusion. Nobody quite knows if this is a victory for Saddam Hussein or for the Clinton administration or for the GOP warhawks who scared Saddam into submitting to unfettered inspections. When the smoke clears, it should be evident that Saddam has accomplished what he set out to do last fall when he kicked the American inspectors off the UNSCOM team -- purposely fomenting a crisis so the United States would be forced to pay attention to him in a way that would finally lead to a lifting of the sanctions. I agree with New Jersey Democrat Sen. Bob Torricelli, who has just returned from the Middle East. He told the NYTimes Monday: “From the outset, the U.S. believed this was a military contest, and Saddam Hussein believed it was a political fight. In retrospect, [Saddam] was probably right. It may be incredible for most Americans to accept, but Saddam Hussein actually won the public relations battle.”
When Kofi announced Monday that as part of the deal the sanctions are on the table, it should have taken nobody by surprise. Now that Saddam has played his only bargaining chip, the opening of every square foot of Iraq to inspections, it will be almost impossible for the United States to insist on keeping the inspections on after the inspectors snoop around the palaces and find nothing remotely resembling a weapon of mass destruction. Instead of only the Russians and the French urging a lifting of the sanctions, Baghdad will now have the Secretary General on its side. If Monday’s commentary in the House of Commons is any guide, Britain’s Prime Minister Tony Blair will not be able to resist support for Kofi at the point he argues sanctions should be lifted. Our UN Ambassador, Bill Richardson, turns out to be the chief hawk in the administration. He still insists the sanctions will not be lifted even if the inspectors find nothing. Anyone who thinks the inspectors are going to find evidence of stuff as they roam around has to realize they have never found anything without the help of the Iraqi government, and nothing at all has been found and destroyed since 1992. In its March 2 issue, for example, Newsweek reports that the inspectors destroyed several tons “since 1991.” The press corps has been pitiful on this issue.
Kofi may have saved the Clinton presidency. Had the Republican leadership gotten behind the initiative of Jack Kemp, which is essentially all the Kofi Annan plan amounts to, it would have been able to take credit for solving a crisis that Clinton could not. As it is, the President is able to take credit for using diplomacy to resolve the crisis at a point where the GOP hawks were counseling carpetbombing as a prelude to ground troops. We are left with the nagging feeling that if Clinton were not around, President Al Gore might have been pushed to military action in order to prove his manhood. The moment seems to be ripening for the President to come clean on his relationship with Monica Lewinski, apologize for not telling the truth about it earlier, and throw himself on the mercy of public opinion. Special Prosecutor Ken Starr could then unload his findings on the House Judiciary Committee, but if the President pulls enough heartstrings with his confession, Judiciary Chairman Henry Hyde will not have any Democrats prepared to vote impeachment. The Comeback Kid will have demonstrated he could function effectively for the remainder of his second term. Had he been forced to drop bombs in Iraq, with no reasonable end game to follow-up, the reaction of the rest of the world would have persuaded the electorate that we might as well have Al Gore in the Oval Office.
It is my belief that Jack Kemp’s January 7 idea of snap inspections of all of Iraq, in exchange for a lifting of the sanctions by a date certain, paved the way for Kofi. After columnist Bob Novak subsequently interviewed Iraq’s UN Ambassador Nizar Hamdoon and found him “interested” in the Kemp proposal, I met with Hamdoon at the Iraq mission in NYC on January 28, to explain the proposal. I found enough encouragement to be sure Baghdad was using the palaces as a bargaining chip and would be willing to open up everything as long as it could be certain the sanctions would be lifted when the inspectors found nothing. Kemp tried to get Trent Lott and Newt Gingrich behind the idea, but they opted to push Clinton harder toward a military solution. The White House knew they would have at least one important Republican, Kemp, on its side in the kind of deal cut by Kofi. Before he left for Baghdad with Kofi last week, Hamdoon told me he would discuss the Kemp initiative with his government, and if need be would invite Kemp to Baghdad to discuss it. Instead, Kofi had enough leeway from Clinton to pull it off himself. At an important speech he delivered Monday night at the Los Angeles World Affairs Council, Kemp praised Kofi’s work and vowed to help him get the sanctions lifted if UNSCOM finds no evidence in its inspections. The Republican hawks will pull all the stops to discredit Kemp, but he will soon be seen in a stronger position for the 2000 nomination than he has had since the 1996 campaign. There may have been more than one Comeback Kid this week.
FEDWATCH: Alan Greenspan’s Humphrey-Hawkins testimony is once again leaving the markets to ponder the curious contradictions that have become the mark of the world’s leading central banker. He acknowledges price stability now is a practical reality, and points with evident satisfaction to the Fed having effected a “passive” tightening of policy by maintaining a steady 5.5% funds rate despite a rapid fall both in reported statistical inflation and inflation expectations. At the same time, against this historically high and rising real rate, he presents a policy outlook so finely balanced, one could easily surmise that the Fed’s next move would a rate hike as a rate cut. Although until fairly recently he was an unabashed price-rule advocate, Greenspan’s testimony is devoid of any reference to the signals for policy direction that he once espoused -- commodity prices, yield curves and foreign exchange. To do so would have pointed to recognition that the Fed has become excessively tight, while Greenspan now squarely hews to a demand-management paradigm that now places the uncertain real economic impact of the Asia crisis as the policy linchpin. In other words, if the domestic effects of Asia are less significant than consensus estimates, the Fed will again be on high alert for “wage inflation” and “resource constraints.” Under the framework he presented yesterday, a policy easing would be unlikely unless the real economic effects of Asia are worse than now expected. It is difficult to avoid the conclusion that Fed preemption is now a one-way street -- willing to act expeditiously against the risk of “excess aggregate demand,” but satisfied to accept the real economic costs of overly tight policy before moving to ease. For all that, as we suggested last week, the downside risk in bonds remains limited. In the post-testimony bond market fall yesterday, the 30-year Treasury found considerable support after once again testing the 6% level, a yield that represents attractive real value in a no-inflation environment.