Arms And Influence: How The Saudis Took Donald Trump For A Ride

Authored by Ben Freeman and William D. Hartung via,

It’s another Trump affair — this time without the allegations of sexual harassment (and worse), the charges and counter-charges, the lawsuits, and all the rest. So it hasn’t gotten the sort of headlines that Stormy Daniels has garnered, but when it comes to influence, American foreign policy, and issues of peace and war, it couldn’t matter more or be a bigger story (or have more money or lobbyists involved in it). Think of it as the great love affair of the age of Trump, the one between The Donald and the Saudi royals. And if there’s any place to start laying out the story, it’s naturally at a wedding, in this case in a tragic ceremony that happened to take place in Yemen, not Washington.

On Sunday, April 22nd, planes from a Saudi Arabian-led coalition dropped two bombs on a wedding in Yemen. The groom was injured, the bride killed, along with at least 32 other civilians, many of them children.

In response, the Saudis didn’t admit fault or express condolences to the victim’s families. Instead, they emphasized that their “coalition continues to take all the precautionary and preventative measures” to avoid civilian casualties in Yemen. This disconnect between Saudi rhetoric and the realities on the ground isn’t an anomaly — it’s been the norm. For four years, the Saudis and their allies have been conducting airstrikes with reckless abandon there, contributing to a staggering civilian death toll that now reportedly tops 10,000.

The Saudis and their close ally, the United Arab Emirates (UAE), have repeatedly reassured American policymakers that they’re doing everything imaginable to prevent civilian casualties, only to launch yet more airstrikes against civilian targets, including schools, hospitals, funerals, and marketplaces.

For example, last May when Donald Trump landed in Saudi Arabia on his first overseas visit as president, Saudi lobbyists distributed a “fact sheet” about the prodigious efforts of the country’s military to reduce civilian casualties in Yemen. Five days after Trump landed in Riyadh, however, an air strike killed 24 civilians at a Yemeni market. In December, such strikes killed more than 100 Yemeni civilians in 10 days. The Saudi response: condemningthe United Nations for its criticisms of such attacks and then offering yet more empty promises.

Through all of this, President Trump has remained steadfast in his support, while the U.S. military continues to provide aerial refueling for Saudi air strikes as well as the bombs used to kill so many of those civilians. But why? In a word: Saudi Arabian and UAE money in prodigious amounts flowing into Trump’s world — to U.S. arms makers and to dozens of lobbyists, public-relations firms, and influential think tanks in Washington.

Trump’s Love Affair with the Saudi Regime

Saudi Arabia’s influence over Donald Trump hit an initial peak in his first presidential visit abroad, which began in Riyadh in May 2017. The Saudi royals, who had clearly grasped the nature of The Donald, offered him the one thing he seems to love most: flattery, flattery, and more flattery. The kingdom rolled out the red carpet big time. The fanfare included posting banners with photos of President Trump and Saudi King Salman along the roadside from the airport to Riyadh, projecting a five-story-high image of Trump onto the side of the hotel where he would stay, and hosting a male-invitees-only concert by country singer Toby Keith.

According to the Washington Post, “The Saudis hosted the Trumps and the Kushners at the family’s royal palace, ferried them around in golf carts, and celebrated Trump with a multimillion-dollar gala in his honor, complete with a throne-like seat for the president.” In addition, they presented him with the Abdul-Aziz al-Saud medal, a trinket named for Saudi Arabia’s first king, considered the highest honor the kingdom can bestow on a foreign leader.

The Saudis then gave Trump something he undoubtedly valued even more than all the fawning — a chance to pose as the world’s greatest deal maker. For the trip, Trump brought along a striking collection of CEOs from major American companies, including Marillyn Hewson of Lockheed Martin, Jamie Dimon of JPMorgan Chase, and Stephen Schwarzman of the Blackstone Group. Big numbers on the potential value of future U.S.-Saudi business deals were tossed around, including $110 billion in arms sales and hundreds of billions more in investments in energy, petrochemicals, and infrastructure, involving projects in both countries.

The new president was anything but shy in claiming credit for such potential mega-deals. At a press conference, he crowed about “tremendous investments in the United States… and jobs, jobs, jobs.” On his return to the U.S., he promptly bragged at a cabinet meeting that his deal-making would “bring many thousands of jobs to our country… In fact, will bring millions of jobs ultimately.” Not surprisingly, no analysis was offered to back up such claims, but it’s already clear that some of these deals may never come to fruition and many of those that do are more likely to create jobs in Saudi Arabia than in the United States.

Still, President Trump’s love affair with that country’s royals only intensified, leading to a triumphant U.S. visit last month by Saudi Crown Prince Mohammed bin Salman, the power behind the throne in that nation. He is also the architect of its brutal Yemeni war, where, in addition to those thousands of civilians killed thanks to indiscriminate air strikes, millions have been put at risk of famine due to a Saudi-led blockade of the country. But neither of these activities that, Democratic Congressman Ted Lieu has noted, “look like war crimes” nor Saudi Arabia’s abysmal internal human rights record drew a discouraging word from Trump or anyone in his cabinet. First things first. There were business deals to be touted — and so they were.

Mohammed bin Salman’s visit to the White House took place on the very day that the Senate was considering a bill to end U.S. support for Saudi Arabia’s Yemeni bombing campaign. While senators debated the constitutional authority of Congress to declare war and the human-rights impact of U.S. support for the Saudi war effort, Trump was boasting yet again about all those jobs that arms sales to Saudi Arabia would create, adding — in a sign of the total success of the Saudi charm offensive — that the relationship between the two countries “is now probably as good as it’s really ever been” and “will probably only get better.”

The centerpiece of Trump’s meeting was a show-and-tell performance focused on how Saudi arms sales would boost American jobs. As he sang the praises of those Saudi purchases, he brandished a map of the United States with the legend “KSA [Kingdom of Saudi Arabia] Deals Pending” above a red oval that said “40,000 U.S. jobs.” Prominent among them were jobs in the swing states that put Trump over the top in the 2016 elections: Pennsylvania, Ohio, Michigan, and Florida. Score another point for Saudi influence in the form of Trump’s firm belief that his relationship with that regime will bolster his future political prospects.

So the public courtship of Trump by the Saudi royals is already paying large dividends, but public flattery and massive arms deals are just the better-known part of the picture. The president has been heavily courted privately as well, both through personal connections and through an expansive lobbying operation, which it’s important to map out, even if there’s no administration show-and-tell on the subject.

The Personal Courtship

As a start — as has been widely publicized — Jared Kushner, the president’s son-in-law and officially anointed point man on Middle Eastern peace (an outcome he is uniquely ill-equipped to deliver), has struck up a beautiful friendship with Saudi Crown Prince Mohammed bin Salman. Their relationship was solidified at a March 2017 lunch at the White House, followed by numerous phone calls and several Kushner visits to Saudi Arabia, including one shortly before the prince cracked down on his domestic rivals. Though that crackdown was publicly justified as an anti-corruption move, it conveniently targeted anyone who could conceivably have stood in the way of bin Salman’s consolidation of power. According to Michael Wolff in Fire and Fury, after bin Salman’s power play, Trump joyfully toldKushner, “We’ve put our man on top!” — an indication that Kushner had offered a Trump stamp of approval to the prince’s political maneuver during his trip to Riyadh.

The friendship has clearly paid off handsomely for the Saudis. Kushner was reportedly the main advocate for having Trump make his first foreign visit to that country — over the objections of Secretary of Defense James Mattis, who felt it would send the wrong signal to allies about Trump’s attitudes towards democracy and autocracy (as indeed it did). Kushner also strongly urged Trump to back a Saudi-UAE blockade and propaganda campaign against the Gulf state of Qatar, which Trump forcefully did with a tweet: “So good to see the Saudi Arabia visit with the King and 50 countries already paying off. They said they would take a hard line on funding extremism and all reference was pointing to Qatar. Perhaps this will be the beginning of the end to horror of terrorism!”

Trump later changed his mind on this issue — after learning that Qatar hosts the largest U.S. military air base in the Middle East and after Qatar launched a PR and lobbying offensive of its own. That small, ultra-wealthy state hired nine lobbying and public relations firms, including former Attorney General John Ashcroft’s, in the two months after the Saudi-UAE blockade began, according to filings under the Foreign Agents Registration Act. Most notably, the Qataris agreed to spend $12 billion on U.S. combat aircraft just weeks after Trump’s tweet.

Wherever Trump ultimately ends up on the campaign against Qatar (driven in part by a Saudi belief that its emir hasn’t sufficiently toed a tough enough line on Iran), Kushner’s role in the affair gives new spin to the old phrase “The personal is the political.” According to a source who spoke to veteran reporter Dexter Filkins, Kushner’s antipathy toward Qatar may have been driven in part by anger over its unwillingness to bail his father out of a bad Manhattan real estate investment with a massive loan.

Another snapshot of the Saudi-UAE urge to get up close and personal with The Donald lies in the strange case of George Nader, a political operative and senior advisor to the UAE, and Elliott Broidy, who reportedly can get face time with President Trump as needed. Nader evidently successfully persuaded Broidy to privately press Trump to take positions ever more in line with Saudi and UAE interests on Qatar and in their urge to see Secretary of State Rex Tillerson head for the exit. Whether or not Broidy’s appeals were instrumental in Trump’s decisions, he can’t be faulted for lack of effort. His exploits underscore how far both countries are willing to go in their efforts to bend U.S. foreign policy to their needs and interests.

In his campaign to win over Broidy, Nader gave him a cool $2.7 million to fund an anti-Qatar conference sponsored by the Foundation for Defense of Democracies, a sum that was also followed by more than $600,000 in donations for Republican candidates.

The keynote speaker at that conference was House Foreign Affairs Committee Chairman Ed Royce, who then crafted a sanctions bill against Qatar and — miracle of miracles — shortly thereafter received a campaign contribution from Broidy. Wherever those funds came from, it strains credulity to believe that this was all coincidental. To sweeten the deal, Nader also dangled the prospect of major contracts for Broidy’s private security firm, Circinus. One deal with the UAE, for $200 million, has already been sealed, while a Saudi one is in the works. At this point, who knows whether any of this was illegal, but in the world of Washington influence peddling, what’s legal is often as scandalous as what’s not.

The Lobbying Courtship

If such deep connections between Saudi Arabia and the Trump administration sometimes seem to surface out of nowhere, they all too often stem from an extraordinarily influential, if largely unpublicized, Saudi lobbying and public relations campaign.

Following the November election, the Saudis wasted no time in adding more firepower to their already robust influence operation in this country. In the less than three months before Trump was sworn in as president in January 2017, the Saudis inked contracts with three new firms: a Republican-oriented one, the McKeon Group (whose namesake, Howard “Buck” McKeon, is the recently retired chairman of the House Armed Services Committee); the CGCN Group, a firm well connected to conservative Republicans whose clientele also includes Boeing, which sells bombs to Saudi Arabia; and an outfit associated with the Democrats, the Podesta Group, which later dissolved after revelations about its work with Paul Manafort, Trump’s former campaign manager, and Russian banks under sanction.

Before Trump even made it to Riyadh that May, according to an analysis of Foreign Agents Registration Act records, the Saudis signed contracts with six more public relations firms and then added two more immediately after severing diplomatic ties with Qatar in early June. All told, in just the first year of the Trump administration, the Saudis spent more than a million dollars monthly on more than two dozen registered lobbying and public relations outfits. The UAE was not far behind, boasting 18 registered lobbying and public relations firms in 2017, including more than $10 milliondollars that year alone that went to just one of them, the Camstoll Group.

All this lobbying firepower gave those two countries an unparalleled ability to steer U.S. foreign policy on the Middle East. Among other avenues of influence, their campaign included a steady stream of propaganda flowing to policymakers about the war in Yemen.

Large foreign lobbies of this sort also enjoy an even more direct path to influence through campaign contributions. While it’s illegal for foreign nationals to make such contributions in U.S. elections, there’s an easy workaround for that — just hire lobbyists to do it for you. Such firms and figures have, in the past, admitted to serving as middlemen in this fashion and are known to have sometimes given handsomely. For example, a study by Maplight and the International Business Times found that registered lobbyists working at just four firms hired by the Saudis gave more than half a million dollars to federal candidates in the 2016 elections.

Another important avenue of influence for the Saudis and Emiratis: their financial contributions to Washington’s think tanks. The full extent of their reach in this area is hard to grasp because think tanks and other non-profits aren’t required to disclose their donors and many choose not to do so. However, an eye-opening New York Times exposé in 2014 revealed an expansive list of think tanks that received money from the Saudis or Emiratis, including the Atlantic Council, the Brookings Institution, the Center for Strategic and International Studies, and the Middle East Institute. In the age of Trump, it’s a reasonable bet that it has only gotten worse.

A War Alliance?

There is more at stake in Washington’s present web of ties to those two lands than just business. The uncritical embrace of such reckless, extreme, and undemocratic regimes by President Trump and many members of Congress has far-reaching implications for the future of American foreign policy in the Middle East.

Saudi Crown Prince Mohammed bin Salman has asserted that Iranian leader Ayatollah Ali Khamenei “makes Hitler look good” and has suggested military action against Iran on a number of occasions. Add to this the prince’s successful efforts to keep the Trump administration on board in supporting his war in Yemen, plus Riyadh’s political interference in Qatar and Lebanon, and there is a real danger that Trump’s uncritical embrace of the Saudi regime could spark a regional war. The indiscriminate killing of Yemenis by the Saudi coalition, with the help of U.S. weapons, has already contributed to the world’s largest humanitarian crisis, while reportedly making the al-Qaeda franchise in Yemen “stronger than ever.”

There is much concern in official Washington about Trump’s seemingly cavalier attitude towards longstanding U.S. alliances, but in the case of Saudi Arabia, a major change of course would undoubtedly be advisable. The least we can do is help make sure that the people of Yemen don’t fear for their lives at their own weddings.

Israel Deploys Tanks To Contested Border Region After Attacks On Syria

After the Israeli military purportedly took out “all of the Iranian infrastructure” in Syria during a skirmish with Syrian and Iranian troops last night (a charge which Iran denies), the IDF has moved a line of tanks to the Golan Heights, the contested boarder area between Israel and Syria.

Of course, one can’t help but wonder: Despite Israel’s claims that it isn’t planning any more strikes “unless provoked”, is the IDF preparing for a land invasion of Syria?

One could be forgiven for suspecting that this is exactly what’s happening.




Of course, the US “condemns the Iranian regime’s provocative rocket attacks from Syria against Israeli citizens, and we strongly support Israel’s right to act in self-defense,” according to a White House statement.

It’s like they say…



Escobar: The Art Of Breaking A Deal

Authored by Pepe Escobar via The Asia Times,

Donald Trump’s decision to leave the JCPOA will not open the path to an Iranian nuclear weapon

Breaking the unwritten rules of global diplomacy, the Trump administration is now in violation of the multilateral Joint Comprehensive Plan of Action, or in plain language the Iran nuclear deal. Nuance is notoriously absent in what can only be described as a unilateral hard exit. 

All suspended United States sanctions against Iran will be reinstated, and harsh additional ones will be imposed.

It does not matter that the International Atomic Energy Agency, or IAEA, repeatedly confirmed Iran was complying with the JCPOA as verified by 11 detailed reports since January 2016. Even US Secretary of Defense James Mattis vouched for the stringent verification mechanisms.

Facts appear to be irrelevant, though. The JCPOA is the Obama administration’s only tangible foreign policy success, so, for domestic political reasons, it had to be destroyed.

President Donald Trump’s opening address to the “Iranian people” during his White House speech also does not cut it. The overwhelming majority of Iranians support the JCPOA, and counted on it to alleviate their economic plight.

Moreover, Trump’s regime change advisers support the exiled People’s Mojahedin Organization, or MEK, which is despised beyond belief inside Iran.

As a minor subplot, rational geopolitical actors are asking what sort of national security advisor would strategically “advise” his boss to blow up a multilateral, United Nations-endorsed, working nuclear deal? 

To cut to the chase, the US decision to leave the JCPOA will not open the path to an Iranian nuclear weapon. Supreme Leader Ayatollah Khamenei, who has the last word, repeatedly stressed these are un-Islamic.

Regime change

It will not open the path toward regime change. On the contrary, Iran hardliners, clerical and otherwise, are already capitalizing on their interpretation from the beginning – Washington cannot be trusted. 

And it will not open the path toward all-out war. It’s no secret every Pentagon war-gaming exercise against Iran turned out nightmarish. This included the fact that the Gulf Cooperation Council, or GCC, could be put out of the oil business within hours, with dire consequences for the global economy. 

President Hassan Rouhani, in his cool, calm, collected response, emphasized Iran will remain committed to the JCPOA. Immediately before the announcement, he had already said: “It is possible that we will face some problems for two or three months, but we will pass through this.”

Responding to Trump, Rouhani stressed: “From now on, this is an agreement between Iran and five countries … from now on the P5+1 has lost its 1… we have to wait and see how the others react.

“If we come to the conclusion that with cooperation with the five countries we can keep what we wanted despite Israeli and American efforts, Barjam [the Iranian description of the JCPOA] can survive.”

Clearly, a titanic internal struggle is already underway, revolving around whether the Rouhani administration – which is actively working to diversify the economy – will be able to face the onslaught by the hard-liners. They have always characterized the JCPOA as a betrayal of Iran’s national interest.

Following Rouhani, “others” reacted quickly. The European Union’s big three of Germany, France and Britain made it clear that trade and investment ties with Iran would not be sacrificed. Those views were echoed by the EU’s leading diplomat Federica Mogherini in a statement.

Still, the key question now is how, in an interlinked global economy, European banks will be able to manage trade facilitation. 

Diplomats in Brussels told Asia Times that the EU is already devising a complex mechanism to protect European companies doing business in Iran. This is something that has been discussed between Iranian and the EU3 diplomats.

Yet in the event the EU3 capitulates, even with support from Russia and China, the JCPOA will be effectively over with unpredictable consequences. These would include Iran’s possible exit from the Nuclear Non-Proliferation Treaty.

On the crucial oil front, Gulf traders told Asia Times that even with new US sanctions, and the possibility of crude being priced way beyond the current US$70-a-barrel, up to 1 million barrels a day of Iranian oil would simply disappear from global markets.

If the EU, which imports 5% of its oil from Iran, buckles under too much pressure, these exports will be relocated to Asian customers such as China, India, Japan and South Korea. 

The US decision has also cast a shadow over the upcoming US-North Korea summit. The perception in Pyongyang – not to mention Beijing and Moscow – will be inevitable – the US can not be trusted.

For all its faults, the JCPOA remains a complex, painstakingly designed multilateral agreement, which took 12 years of diplomacy to broker, and was sanctioned by the UN.

Key hub

The geopolitical consequences are massive. To start with, strategically, Washington is isolated. The only actors applauding the decision to rip up the deal are Israeli Prime Minister Benjamin Netanyahu and Saudi Arabia’s Crown Prince Mohammed bin Salman.

As Iran is a key hub of the ongoing Eurasia integration process, the trade-investment partnership with both Moscow and Beijing will be even stronger as Asia Times has reported.

On the military front, nothing will prevent Russia from supplying Iran with S-400 missile systems or China with its “carrier-killers.”

The JCPOA was a dizzyingly complex technical undertaking. In parallel, it is no secret the US establishment never got over the 1979 Islamic revolution. The privileged roadmap in the Beltway remains regime change.

The real US objective – way beyond the JCPOA’s technicalities – was always geopolitical. And that meant stopping to Iran from becoming the leading power in Southwest Asia.

That still applies as seen by the United States Central Command’s recent drive “to neutralize, counterbalance and shape the destabilizing impact Iran has across the region…” Or, in Trump terminology, to curtail Iran’s “malign activities.”     

CENTCOM commander, Gen. Joseph Votel, went straight to the heart of the matter when he told the US House Armed Services Committee in February that “both Russia and China are cultivating multidimensional ties to Iran … Lifting UN sanctions under the joint comprehensive plan of action opens [the] path for Iran to resume application to the Shanghai Cooperation Organization.” 

In a nutshell, this betrays the entire project which is to thwart the Eurasia integration process, which features Russia and China as peer competitors aligning with Iran along the New Silk Roads. 

Predictably, we are back to the late Dr. Zbigniew Brzezinski’s book, The Grand Chessboard.    

“…Potentially the most dangerous scenario would be an ‘anti-hegemonic’ coalition united not by ideology but by complementary grievances… a grand coalition of China, Russia, perhaps Iran… reminiscent in scale and scope of the challenge posed by the Sino-Soviet bloc, though this time, China would likely be the leader and Russia the follower,” he wrote. “Averting this contingency… will require US geostrategic skill on the western, eastern, and southern perimeters of Eurasia simultaneously.” 

So, Trump has reshuffled the Grand Chessboard. Persians, though, happen to know a thing or two about chess.

Malaysia’s Post-Election Maelstrom: What Happens Next?

Malaysia’s 14th general election resulted in a surprise victory for an opposition coalition for the first time since Malaysia’s independence. In a stunning political comeback, 92-year-old Mahathir Mohamad – the former authoritarian leader – was sworn in as prime minister on Thursday.

As AP reports, the election result is a political earthquake for the Muslim-majority country, sweeping aside the 60-year rule of the National Front and its leader Najib Razak, whose reputation was tarnished by a monumental corruption scandal, a crackdown on dissent and the imposition of an unpopular sales tax that hurt many of his coalition’s poor rural supporters.

Mahathir, prime minister for 22 years until stepping down in 2003, was credited with modernizing Malaysia but was also known as a heavy-handed leader who imprisoned opponents and subjugated the courts.

“We need to have this government today without delay,” Mahathir, 92, said before the ceremony. “There is a lot of work to be done. You know the mess the country is in and we need to attend to this mess as soon as possible and that means today.”

Former premier Najib Razak, 64, said he accepted the “verdict of the people” and tweeted that he had “recently congratulated Tun Dr Mahathir on his appointment as the seventh prime minister,” and added, “I’m willing to help a smooth transition.”

We are sure he is – as the specter of the 1MDB corruption debacle looms ever larger now, since, as The Australian reports, newly-elected Mahathir Mohamad has warned the man he toppled, Najib Razak, that he will have to “face the consequences” if he has done anything wrong over the theft of US$4.5bn ($6bn) from the country’s sovereign wealth fund, 1MDB.

In a strong indication his government will reopen probes into 1MDB that were quashed by Mr Najib’s government, Dr Mahathir yesterday said “the law will be fully implemented in this country”.

He also flagged investigation of a 55bn ringgit ($16.8bn) loan from China to fund Malaysia’s East Coast Railway Link secured by Mr Najib and linked by his opponents to the 1MDB debacle.

John Lee, a former adviser to Foreign Minister Julie Bishop, said the anger against Mr Najib over 1MDB felt by educated Malaysians will leave Dr Mahathir with little choice but to restart investigations into the alleged theft — even though Mr Najib was a minister in Dr Mahathir’s government when both were members of UMNO.

“He doesn’t have much to lose,” Mr Lee, a fellow at the US think tank the Hudson Institute, told The Australian. “If you kept it just to 1MDB, I think he will be safe. Certainly he couldn’t really assess the whole Malaysian political economy, because he set that up – the crony capitalism stuff.”

London journalist Clare ­Rewcastle-Brown, who is wanted for arrest in Malaysia for coverage of the 1MDB scandal on her Sarawak Report website, said Malaysian authorities would investigate with “full force and vigour”.

While he has denied wrong­doing, Mr Najib has been unable to provide a convincing explanation for how up to $US1bn passed through his bank account at ­Ambank, which is one-quarter owned by Australia’s ANZ. Before the poll, opposition figures led by lawyer Zaid Ibrahim, a former UMNO minister, were investi­gating a class action against ANZ over its alleged role in 1MDB.

In court documents, the US Department of Justice claims almost $US30m filched from the fund was used to buy jewellery for Mr Najib’s wife, Rosmah Mansor.

The alleged architect of the heist, Malaysian Jho Low, is accused of spending about $US9m on jewellery he gave to Australian model Miranda Kerr in 2014 — some of it handed over during a tryst aboard his yacht Equanimity, which he bought using money allegedly stolen from 1MDB.

Millions allegedly found their way to Ms Mansor’s son, Riza Aziz, who used some of it to fund movies including Leonardo DiCaprio’s The Wolf of Wall Street.

Australian Federal Police has restricted its probe to proceeds of crime, including property on the Gold Coast, reaped by those involved in siphoning money away from 1MDB.

Asked whether Mr Najib would be prosecuted, Dr Mahathir said his coalition was “not seeking revenge… We do not want to punish people because they do not agree with us but the law will be fully implemented in this country.

Of course, one glance at Malaysia’s bond, stock, and FX markets in the last 24 hours and one knows immediately that the surprise win has significant macro implications, mostly in fiscal policy according to Goldman Sachs.

While Goldman does not see immediate implications for monetary policy in the near term, higher policy uncertainties, as well as typical post-election currency patterns, may point to near-term weakening in the MYR.

Main points: Surprise win for an opposition coalition, for the first time in history, has significant macro implications

Malaysia’s 14th general election resulted in a surprise victory by the opposition coalition, Pakatan Harapan (PH), led by former Prime Minister Mahathir Mohamad. The Election Commission reported that PH has won 121 seats in Parliament, over the threshold (of 112 seats) to form a government, compared with 79 seats for the incumbent Barisan Nasional (BN) coalition and remaining 22 seats from other smaller opposition parties (CNN, May 10, 2018; Exhibit 1).

The election marks the first defeat for the ruling UMNO party and its coalition (BN as well as its predecessor, the Alliance) since Malaysia’s independence in 1957. Dr. Mahathir will likely be returning to the PM post after 15 years, but policy uncertainty may rise as Malaysia awaits its first major transition in government.

Dr. Mahathir, who is 92 years old, served as the Prime Minister from 1981 to 2003, including during the Asian Financial Crisis and is well known for introducing capital controls together with a currency peg at 3.8 against the USD in September 1998.

The surprise win bears significant macro implications in our view, mostly for fiscal policies (see our “Malaysia election–Fiscal and monetary policy implications“, Asia in Focus, April 19, 2018). One of PH’s 10 election pledges (to be fulfilled within the first 100 days of office) was the repeal of the goods and services tax (GST), to be replaced by the previous sales and services tax (SST). This could lead to net revenue losses, at least in the short term, in our view, given the relative efficiency of GST administration and the previous vulnerability of SST to collection loopholes. After its introduction in 2015, GST accounted for about 20% of total government revenues and 3.4% of GDP in 2016.

Despite a possible revenue slippage from a GST abolishment, government spending needs may rise. As part of the 10 election pledges, PH also promised to raise the minimum wage with half of the increase subsidized by the government (and potentially follow through with subsequent hikes over next the five years to reach RM1500 per month from RM1000 currently in peninsular regions). More broadly, PH has called for more social spending and infrastructure development, as well as a possible revival of fuel subsidies. While details on the subsidy plan have not been disclosed, fuel subsidies cost some RM20bn (US$5bn, or around 2% of GDP) per annum before their abolishment in November 2014. Given that the government needs to operate under a public debt ceiling of 55% of GDP, not far from the current public debt level of 50.9% of GDP, more spending would imply some combination of tax hikes, improved tax administration, or a potential breach of the debt limit.

Market implications

1. MYR might see weakening pressures in the near term. The typical post-election pattern (of currency weakening) is a factor that could repeat this time as well. Fiscal implications of PH’s election promises, notably the GST repeal, reintroduction of oil subsides, and subsidized minimum wage hikes, could affect sentiments of bond investors although it remains to be seen how the election promises are implemented. While higher oil prices will help improve government revenues (about 0.2% of GDP for a $10/barrel increase of oil prices, in Ministry of Finance’s estimates), windfall energy revenues may not be sufficient to offset the pressure for larger fiscal deficits arising from the implementation of election promises. Foreign holdings of government securities increased to around 45% of the market at end-March 2018 up from 38% in April 2017, boosted by some US$7bn foreign inflows over the 12-month period (Exhibit 2).

Therefore, bond yields and the MYR could be sensitive to fiscal news and broader sentiment on the new government’s policies; our USDMYR forecast is under review given the increased near-term uncertainties.

2. Fiscal expansion at a time of above-potential growth (5.5-6.0% in 2018 in BNM forecastversus its potential growth estimate of 5.0-5.5%) could add to inflation pressures. A minimum wage hike, if implemented within the first 100 days of government formation as promised, should also show partial pass-through to consumer prices (as for example seen recently in the case of Korea). We maintain our view that the next 25bp policy rate hike will take place in 1H of 2019 given currently low core inflation and sequential moderation in growth later this year. That said, a possible rise in inflation expectations or significant weakening in the MYR could may tilt the BNM towards a more hawkish direction in the coming months.

Finally, AP notes that Bridget Welsh, a Southeast Asia expert at John Cabot University in Rome, said it was hugely ironic that Mahathir, who damaged Malaysia’s democratic institutions with his strong-arm rule, has returned as its political savior.

“It is not just a comeback,” she said. “It is about making amends about his mistakes and moving Malaysia forward.”

We shall see…

WSJ: The FBI Hid A Mole In The Trump Campaign

On Wednesday we reported on an intense battle playing out between House Intel Committee Chairman Devin Nunes (D-CA), the Department of Justice, and the Mueller investigation concerning a cache of intelligence that Deputy Attorney General Rod Rosenstein refuses to hand over – a request he equated to “extortion.”

On Tuesday, the Washington Post reported that Nunes was denied access to the information on the grounds that it “could risk lives by potentially exposing the source, a U.S. citizen who has provided intelligence to the CIA and FBI.

After the White House caved to Rosenstein and Nunes was barred from seeing the documents, it also emerged that this same intelligence had already been shared with Special Counsel Robert Mueller as part of his investigation into alleged Russian involvement in the 2016 US election.

On Wednesday afternoon, however, news emerged that Nunes and House Oversight and Government Reform Committee Chairman Trey Gowdy (R-SC) would receive a classified Thursday briefing at the DOJ on the documents. This is, to put it lightly, incredibly significant.

Why? Because it appears that the FBI may have had a mole embedded in the Trump campaign

In a bombshell op-ed in the Wall Street Journal, Kimberly Strassel shares a few key insights about recent developments. Perhaps we should start with the ending and let you take it from there. Needless to say Strassel’s claims, if true, would have wide ranging implications for the CIA, FBI, DOJ and former Obama administration officials.

Strassel concludes: 

“I believe I know the name of the informant, but my intelligence sources did not provide it to me and refuse to confirm it. It would therefore be irresponsible to publish it.”

Authored by Kimberley Strassel, op-ed via The Wall Street Journal,

About That FBI ‘Source’

Did the bureau engage in outright spying against the 2016 Trump campaign?

The Department of Justice lost its latest battle with Congress Thursday when it allowed House Intelligence Committee members to view classified documents about a top-secret intelligence source that was part of the FBI’s investigation of the Trump campaign. Even without official confirmation of that source’s name, the news so far holds some stunning implications.

Among them is that the Justice Department and Federal Bureau of Investigation outright hid critical information from a congressional investigation. In a Thursday press conference, Speaker Paul Ryan bluntly noted that Intelligence Chairman Devin Nunes’s request for details on this secret source was “wholly appropriate,” “completely within the scope” of the committee’s long-running FBI investigation, and “something that probably should have been answered a while ago.” Translation: The department knew full well it should have turned this material over to congressional investigators last year, but instead deliberately concealed it.

House investigators nonetheless sniffed out a name, and Mr. Nunes in recent weeks issued a letter and a subpoena demanding more details. Deputy Attorney General Rod Rosenstein’s response was to double down—accusing the House of “extortion” and delivering a speech in which he claimed that “declining to open the FBI’s files to review” is a constitutional “duty.” Justice asked the White House to back its stonewall. And it even began spinning that daddy of all superspook arguments—that revealing any detail about this particular asset could result in “loss of human lives.”

This is desperation, and it strongly suggests that whatever is in these files is going to prove very uncomfortable to the FBI.

The bureau already has some explaining to do. Thanks to the Washington Post’s unnamed law-enforcement leakers, we know Mr. Nunes’s request deals with a “top secret intelligence source” of the FBI and CIA, who is a U.S. citizen and who was involved in the Russia collusion probe. When government agencies refer to sources, they mean people who appear to be average citizens but use their profession or contacts to spy for the agency. Ergo, we might take this to mean that the FBI secretly had a person on the payroll who used his or her non-FBI credentials to interact in some capacity with the Trump campaign.

This would amount to spying, and it is hugely disconcerting. It would also be a major escalation from the electronic surveillance we already knew about, which was bad enough. Obama political appointees rampantly “unmasked” Trump campaign officials to monitor their conversations, while the FBI played dirty with its surveillance warrant against Carter Page, failing to tell the Foreign Intelligence Surveillance Court that its supporting information came from the Hillary Clinton campaign. Now we find it may have also been rolling out human intelligence, John Le Carré style, to infiltrate the Trump campaign.

Which would lead to another big question for the FBI: When? The bureau has been doggedly sticking with its story that a tip in July 2016 about the drunken ramblings of George Papadopoulos launched its counterintelligence probe. Still, the players in this affair—the FBI, former Director Jim Comey, the Steele dossier authors—have been suspiciously vague on the key moments leading up to that launch date. When precisely was the Steele dossier delivered to the FBI? When precisely did the Papadopoulos information come in?
And to the point, when precisely was this human source operating? Because if it was prior to that infamous Papadopoulos tip, then the FBI isn’t being straight. It would mean the bureau was spying on the Trump campaign prior to that moment. And that in turn would mean that the FBI had been spurred to act on the basis of something other than a junior campaign aide’s loose lips.

We also know that among the Justice Department’s stated reasons for not complying with the Nunes subpoena was its worry that to do so might damage international relationships. This suggests the “source” may be overseas, have ties to foreign intelligence, or both. That’s notable, given the highly suspicious role foreigners have played in this escapade. It was an Australian diplomat who reported the Papadopoulos conversation. Dossier author Christopher Steele is British, used to work for MI6, and retains ties to that spy agency as well as to a network of former spooks. It was a former British diplomat who tipped off Sen. John McCain to the dossier. How this “top secret” source fits into this puzzle could matter deeply.

I believe I know the name of the informant, but my intelligence sources did not provide it to me and refuse to confirm it. It would therefore be irresponsible to publish it. But what is clear is that we’ve barely scratched the surface of the FBI’s 2016 behavior, and the country will never get the straight story until President Trump moves to declassify everything possible. It’s time to rip off the Band-Aid.

Baltimore Police Chief Darryl De Sousa Charged With Failing To File Taxes

Baltimore Police Commissioner Darryl De Sousa acknowledged Thursday that he failed to file federal and state income tax returns for three consecutive years after the Department of Justice (DOJ) slapped him with three misdemeanor counts of failure to file taxes.

In a statement published on Twitter, De Sousa said: “there is no excuse for my failure to fulfill my obligations as a citizen and public official, my only explanation is that I failed to sufficiently prioritize my personal affairs.”

The DOJ charged De Sousa for not filing federal returns for tax years 2013, 2014 and 2015. In his statement, De Sousa did indicate he filed taxes for 2016 and received an extension for 2017.

“Naturally, this is a source of embarrassment for me and I deeply regret any embarrassment it has caused the Police Department and the City of Baltimore. I accept full responsibility,” he added.

The Department of Justice said De Sousa could face as much as one year in prison and a $25,000 fine for each of the three counts.

Greg Tucker, a spokesman for Mayor Catherine Pugh, said the mayor expressed confidence in De Sousa following the DOJ announcement of the charges.

“He made a mistake in not filing his taxes for the years in question. He is working to resolve this matter and has assured me that he will do so as quickly as possible,” Pugh said in a statement.

Pugh said she has “full confidence” in De Sousa and believes that “he will continue to focus on our number one priority of reducing violence.”

According to The Baltimore Sun, “De Sousa earned $93,104 in 2013 when he is first accused of failing to file taxes. He earned $101,985 in 2014 and $127,089 in 2015.” In 2018, he could be earning as much as $210,000 per year, as he was recently promoted to commissioner.

Official DOJ Charging Document: Baltimore Police Chief Darryl De Sousa charged with failure to file taxes 

The Baltimore Sun said De Sousa became Baltimore’s top cop in January, after Mayor Pugh fired ex-Commissioner Kevin Davis, citing a surge of violent crime after the 2015 Baltimore Riots.

De Sousa expressed himself as “a chess player,” but as we have found out — the DOJ had the winning piece with a checkmate. The Baltimore Sun details De Sousa’s climb up the Baltimore Police ladder, as his tenure with force has been more than two decades.

“A personable commander, De Sousa easily won official confirmation to the commissioner position on a 14-1 vote by the Baltimore City Council — without debate — in late February. He is the first commissioner to come up through the ranks of the department since Frederick H. Bealefeld III, who served from 2007 to 2012. Davis and former commissioner Batts were hired from outside.

During his rise through the department, De Sousa held various leadership roles, mostly in the patrol division. He was made a deputy commander of the Northeast District in 2008, then became the commanding officer of the same district in 2011. In 2012, he was appointed lieutenant colonel overseeing the neighborhood patrol division, then colonel and chief of patrol in 2013.

De Sousa, 53, is a native of New York City but has lived in Baltimore since moving here to attend Morgan State University in 1983. When he was named to the department’s top position in January, De Sousa described himself as “a chess player” who has always been focused on the operational side of policing.”

Lt. Gene Ryan, president of the local police union in Baltimore, said he was not at liberty to discuss the ongoing case, as he was not familiar with “any of the circumstances behind these charges.”

“Obviously income taxes are a personal thing,” he said. “We will see how it pans out.”

While the Baltimore Sun notes the police department usually suspends it officers accused of misdemeanors pending the outcome of the case, we will discover De Sousa’s fate shortly as Baltimore’s top cop. Stay tuned!