The economic crisis is now the top US security concern, with a prolonged downturn raising the worldwide risk of “regime-threatening instability,” the US intelligence supremo said on Thursday.
Social unrest in Europe has already highlighted the security risks unleashed by the crisis, and many poorer nations are ill-prepared to cope, US Director of National Intelligence Dennis Blair said.
There is the deeper menace of tit-for-tat trade barriers going up and so “unleashing a wave of destructive protectionism,” the retired admiral told Congress in presenting the US intelligence community’s annual risk assessment.
“The primary near-term security concern of the United States is the global economic crisis and its geopolitical implications,” Blair said in testimony to the Senate Select Committee on Intelligence.
“Time is probably our greatest threat. The longer it takes for the recovery to begin, the greater the likelihood of serious damage to US strategic interests,” he said.
Blair said about a quarter of the world’s countries, notably in Europe and the former Soviet Union, had already experienced “low-level instability,” including government changes.
While two-thirds of countries have sufficient financial means to limit the impact for now, “much of Latin America, former Soviet Union states and sub-Saharan Africa lack sufficient cash reserves” or access to aid or credit.
“Statistical modeling shows that economic crises increase the risk of regime-threatening instability if they persist over a one to two year period,” Blair said.
“Besides increased economic nationalism, the most likely political fallout for US interests will involve allies and friends not being able to fully meet their defense and humanitarian obligations.”
Even fast-growing China and India have taken a hit, Blair said, and much of East Asia cannot export its way back to health as was the case in the region’s 1997 to 1998 crisis, because the crisis today is so widespread.
“Indeed, policies designed to promote domestic export industries — so-called beggar-thy-neighbor policies such as competitive currency devaluations, import tariffs, and/or export subsidies — risk unleashing a wave of destructive protectionism,” he cautioned.
US economic leadership is under threat given the widely held view that excesses by Wall Street and inadequate regulation from Washington were to blame for the global crisis.
“It already has increased questioning of US stewardship of the global economy and the international financial structure,” Blair said, with trading partners already upset over a “Buy American” provision in a US stimulus bill.
One geopolitical beneficiary could be China, he said, if Beijing “can exert a stabilizing influence by maintaining strong import growth and not letting its currency slide.”
But the economic crisis also gives opportunities for renewed US leadership in international forums such as the WTO and the G20 club of rich and developing nations.
“The US tradition of openness, developed skills and mobility probably puts it in a better position to reinvent itself,” the US intelligence chief said.
Global coordination is essential to rebuild trust in the financial system and to ensure that the crisis does “not spiral into broader geopolitical tensions,” he said.
The steep fall in oil prices triggered by the worldwide slowdown could lead to a “serious supply crunch” if crude producers choke off investment, Blair said.
But it could also “put the squeeze on the adventurism of producers like Iran and Venezuela.”
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