Two leading congressmen are calling on the Obama administration to use its leverage in international financial institutions to press for greater fiscal transparency in Burma, formally known as Myanmar, and ensure progress in the human rights situation in the Southeast Asian country as it emerges from decades of isolation.
The two leaders of the House Committee on Financial Services, Chairman Spencer Bachus (R-AL), and ranking Democrat Barney Frank (D-MA) wrote a letter Aug. 22, obtained by The Cable, to Treasury Secretary Timothy Geithner asking him to safeguard the fragile reform process in Burma and ensure that Burma's opening to the world is done according to international financial management standards and with respect to the welfare of the Burmese people. Today Burmese President Thein Sein reshuffled his cabinet, replacing key ministers with reform minded appointees.
The lawmakers specifically called out the Myanmar Oil and Gas Enterprise (MOGE), which saw sanctions relief from the U.S. government despite suspected corruption and ties the Burmese military. Obama lifted the ban on U.S. companies doing business with MOGE in July, over the objections of Nobel Peace Prize winner Aung San Suu Kyi, now a member of the circumscribed Burmese legislature.
"We are cautiously optimistic that Burma will continue to implement necessary reforms, but we believe vigilance on questions of government transparency and human rights remain critical," the lawmakers wrote. "We urge the administration to use its leadership at the IFIs [international financial institutions] to emphasize fiscal transparency, systems of accountability and respect for human rights and to insist that the institutions pay close attention to the urgent social needs of the Burmese people."
They want the IMF's Code of Good Practice on Fiscal Transparency enforced on all branches of the Burmese government, including the military and MOGE. The code would require the government and its state enterprises (including MOGE), in essence, to publish their revenues and expenditures and subject them to public and parliamentary oversight, as well as an independent auditing process.
"Such transparency is necessary is necessary not only to allow the IFIs to properly supervise the use of multilateral aid but also to help end corruption and the off budget funding of the Burmese military," the letter states.
Burma is a resource-rich county that could provide for its people but remains mired in corruption and mismanagement, Tom Malinowski, Washington director of Human Rights Watch, told The Cable.
He said that IFI lending for big infrastructure projects, absent fiscal transparency reforms, could reinforce those bad habits, making the promotion of fiscal transparency central to the IFIs' mission. The IFIs hold good leverage over the Burmese government because infrastructure development is one of the regime's key goals.
"The key question in Burma's reform process is whether elected civilians will wrest full control over the country from the military establishment, including control of revenues from Burma's lucrative oil and gas and mineral exports. It's not just Aung San Suu Kyi who wants this - Burma's reformist president and its new parliament also have a huge stake in figuring out where the money is and asserting their authority to oversee how it's spent," Malinowski said. "It would help them if the IFI's prioritized fiscal transparency - providing technical assistance to help the Burmese get there, and holding up lending for big infrastructure projects until they do."
Coming soon from the Congress that brought you the sanctions against the Central Bank of Iran: new legislation to sanction every single Iranian bank.
Members of both the House and Senate from both parties are moving forward soon with legislation that would expand financial sanctions against Iran to include all Iranian financial institutions -- whether government-affiliated, private, inside Iran, or controlled abroad. According to multiple congressional aides who previewed the legislation for The Cable, this would effectively cut off every Iranian financial institution from the international community -- subjecting any bank that conducts transactions with an Iranian bank or holds money for an Iranian bank to risk losing its own access to the U.S. market.
Currently, only the 18 Iranian banks designated by the U.S. Treasury Department and the Central Bank of Iran are subject to such sanctions -- leaving more than 25 banks free to conduct business with the international community, which the legislations' sponsors see as a major hole in U.S. policy. According to congressional aides involved with the legislation's development, the ban on all Iranian banks would contain a humanitarian exemption, the oil exemptions built into the Menendez-Kirk amendment passed into law last December, and would provide the president with the authority to issue a national security waiver.
The legislation, being developed by the office of Senator Mark Kirk (R-IL) in coordination with other offices, including Rep. Brad Sherman (D-CA) and House Foreign Affairs Chairwoman Ileana Ros-Lehtinen (R-FL), may be offered as early as next week as an amendment to the new Senate Iran sanctions bill that was approved by the Senate Banking Committee last month.
"This would really be a one-two punch combination if Congress extended sanctions to all Iranian financial institutions," one aide involved in the legislation told The Cable. "When you land a clear blow to a boxer's chin, you don't back off and wait to see if he'll fall -- you throw another punch and make sure he does."
Mark Dubowitz, executive director of the Foundation for the Defense of Democracies, a conservative policy organization in Washington, told The Cable that the new measures were necessary to prevent the Iranian regime from simply changing its banking tactics to focus on banks not yet sanctioned.
"Money is like water; it searches for cracks in a foundation exploiting even hairline cracks that provide an entry point," he said. "Existing cracks in sanctions laws are leaving entry points to the global financial system for scores of unsanctioned Iranian financial institutions. This allows the Iranian regime to shift its transactions to those still allowed access and to freely move money through the global financial system."
The full text of the new language is here.
Iran sanctions are extremely popular on Capitol Hill these days. After the Obama administration initially opposed the Kirk-Menendez amendment to sanction the Central Bank of Iran, the Senate added that legislation to the fiscal 2012 defense authorization bill by a vote of 100-0.
Meanwhile, the European Union's high representative for foreign affairs, Catherine Ashton, replied positively via letter today to Iran's Feb. 14 letter on resuming nuclear talks with the P5+1 countries, which included the five permanent members of the U.N. Security Council plus Germany.
According to Ashton's letter, the international community is willing to resume talks with Iran. Those discussions would have to focus on Iran's nuclear program, but initial steps could focus on confidence-building measures between the two sides.
"Looking forward to a sustained aimed at producing concrete results and in order not to repeat the experience of Istanbul, I would propose that we resume our talks at a mutually convenient date and venue as soon as possible," she wrote.
The Treasury Department today designated Iran's third-largest bank, Bank Tejarat, as subject to new sanctions, on the same day the EU announced a complete oil embargo of Iran.
"At a time when banks around the world are cutting off Iran and its currency is depreciating rapidly, today's action against Bank Tejarat strikes at one of Iran's few remaining access points to the international financial system," Treasury Undersecretary for Terrorism and Financial Intelligence David Cohen said in a statement. "Today's sanction against Bank Tejarat will deepen Iran's financial isolation, make its access to hard currency even more tenuous, and further impair Iran's ability to finance its illicit nuclear program."
Bank Tejarat is being sanctioned for providing financial services to Bank Mellat, the Export Development Bank of Iran (EDBI), the Islamic Republic of Iran Shipping Lines (IRISL), and the Ministry of Defense for Armed Forces Logistics (MODAFL), all of which were previously sanctioned for the involvement in the proliferation of weapons of mass destruction.
Treasury also sanctioned Iran's Trade Capital Bank, a Minsk-based subsidiary of Bank Tejarat, bringing the total number of Iranian financial institutions under U.S. sanctions to 23, according to a Treasury Department fact sheet. Because the banks are being sanctioned under the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (CISADA), any foreign bank that does business with these Iranian banks risks losing access to the U.S. financial system.
In its statement, Treasury accused Bank Tejarat of facilitating the movement of tens of millions of dollars to the Atomic Energy Organization of Iran (AEOI) for the purchase of uranium. Treasury also said the bank has helped other Iranian organizations circumvent sanctions, including the Islamic Revolutionary Guard Corps (IRGC).
"Iran's economic isolation seems to worsen each day as reflected in its plummeting currency, the Iranian rial," a senior Treasury official told reporters in a Monday afternoon briefing."
The official said the Iranian government is going to extraordinary lengths to prop up the rial.
"In recent weeks, the government has tried to ban the sale of Western currency. It reportedly has restricted citizens' ability to communicate by blocking text messages containing the word ‘euro' or ‘dollar.' Plainclothes police officers are reportedly patrolling the currency exchanges to enforce currency restrictions and arrest violators," the official said.
The Treasury and State Departments are also in the process of implementing the Menendez-Kirk sanctions on the Central Bank of Iran, which the official said would cause more pain for the Iranian economy.
"The economic hardship it is currently facing will only increase in the months to come, and will continue to increase as long as Iran refuses to meaningfully engage with the international community regarding its nuclear program," the official said.
A reporter asked the official when Treasury would issue the implementation rules for the new CBI sanctions. Lawmakers are concerned the rules may be crafted in a way to allow some partner countries to avoid cutting off all business with Iran.
"As soon as they are ready," the official said.
Vice President Joe Biden made waves this week when he told Newsweek that "the Taliban per se is not our enemy." The State Department said this week it agrees with that assertion, as new reports surfaced that an initial confidence building deal with the Taliban in the works had fallen apart
"There is not a single statement that the president has ever made in any of our policy assertions that the Taliban is our enemy because it threatens U.S. interests," Biden said. "If, in fact, the Taliban is able to collapse the existing government, which is cooperating with us in keeping the bad guys from being able to do damage to us, then that becomes a problem for us."
Biden went on to say that there is a dual-track policy in place: One track is continuing to put pressure on al Qaeda, and the other is convincing the Taliban that reconciliation and a renunciation of international terrorism is in its best interests.
Republicans pounced on Biden's remarks. GOP presidential hopeful Mitt Romney tweeted that the comments were "an outrageous affront to our troops carrying on the fight in Afghanistan." Sen. John McCain (R-AZ) told Fox News that the comments were an "insult to the men and women who are serving today."
White House spokesman Jay Carney, however, backed up Biden, saying, "It is a simple fact that we went into Afghanistan because of the attack on the United States on Sept. 11, 2001. We are there now to ultimately defeat al Qaeda, to stabilize Afghanistan and stabilize it in part so that al Qaeda or other terrorists who have as their aim attacks on the United States cannot establish a foothold again in that country."
The Cable asked State Department spokeswoman Victoria Nuland if she agreed with Biden that the Taliban were not "per se" the enemy of the United States.
"Obviously we've made clear that those Taliban who are willing to come off the battlefield, renounce violence, break ties with al Qaeda, support the constitution of Afghanistan, be part of a political process -- we would support reconciliation with them led by the Afghans," Nuland said. "We're less interested in what folks call themselves, as we've said in other parts of the world. We're more interested in what they do and in the actions that they take."
The Washington Post reported today that months-long negotiations between the United States and the Taliban have broken down. According to the Post, the deal would have included the transfer of five Afghans out of the U.S. prison at Guantanamo Bay, in exchange for the Taliban publicly renouncing international terrorism. The Taliban prisoners would have been allowed to live under house arrest in Qatar , where the Taliban plan to open an office.
The deal reportedly broke down due to the objections of Afghan President Hamid Karzai. On Dec. 18, Karzai told CNN's Fareed Zakaria that months of negotiations with the Taliban were revealed to be a farce when the purported Taliban negotiators assassinated Karzai's top negotiator, former Afghan President Burhanuddin Rabbani.
"The assassination of President Rabbani brought us in a shock to the recognition that we were actually talking to nobody, that those who came in the name of the peace process were assassins, were killers, were terrorists rather than negotiators," Karzai said.
"We've seen ups, and we've seen significant downs in the Afghans' efforts to create a reconciliation process," Nuland said on Dec. 19, before the reports of the secret negotiations surfaced. "I mean, the Rabbani assassination was obviously a very serious step backwards. With regard to, you know, whether we're going to have serious steps forward, I think, you know, only time will tell."
For the third time in two years, hundreds of Chinese officials are meeting with hundreds of their U.S. counterparts to discuss dozens of bilateral topics in dozens of meetings. After the first day of the two-day event, there aren't any new bilateral agreements to announce, and officials say there aren't any expected soon.
"Now more than ever, with two years of dialogues behind us, success depends on our ability to translate good words into concrete actions on the issues that matter most to our people. So as we begin this third round, we will keep that goal in clear focus," Secretary of State Hillary Clinton said in her Monday morning remarks at the opening of the U.S.-China Strategic and Economic Dialogue, which is being held at various locations in downtown Washington.
She praised the new high level participation of senior officials from China's People's Liberation Army and rattled off a long list of issues that would be discussed, including: military-to-military relations, the situation in the Middle East, the need to rebalance the global economy, Iran sanctions, the North Korean nuclear crisis, and human rights.
Vice President Joseph Biden delivered the strongest message on Chinese human rights practices in his Monday morning remarks, when he said, "We have vigorous disagreement in the area of human rights."
"We've noted our concerns about the recent crackdown in China, including attacks, arrests and the disappearance of journalists, lawyers, bloggers and artists," Biden said. "I recognize that some in China see our advocacy [on] human rights as an intrusion and Lord only knows what else. But President Obama and I believe strongly, as does the secretary, that protecting fundamental rights and freedoms such as those enshrined in China's international commitments, as well as in China's own constitution, is the best way to promote long-term stability and prosperity of any society."
Jeffrey Bader, the recently departed senior director for Asia at the National Security Council, wrote in a Brookings Institution policy brief that the dialogue "was not conceived as a mechanism to deal with bilateral crises or to produce specific ‘deliverables,' but to develop a richer, more intensive dialogue between senior officials on the two sides than would be possible in the usual quick in-and-out visits, and to break down bureaucratic stovepipes among agencies, particularly on the Chinese side, not accustomed to coordinating effectively with each other."
On Sunday, Clinton awarded Bader the Secretary's Distinguished Service Award, standing alongside Chinese State Councilor Dai Bingguo.
Critics of the Obama administration's China policy see the event as yet another example of the administration placing style over substance, and raising expectations of progress in the U.S.-China relationship without delivering results.
"By far the most important economic issue for America and China is the related imbalances in our economies," wrote the Heritage Foundation's Derek Scissors. "The U.S. recognized this several years ago and has repeatedly raised the matter. Result: Both economies are now more imbalanced than when the dialogue began. The main reason is simple: Neither country wants to bear the pain of rebalancing. Instead, they take to telling the other side why it should rebalance."
A senior administration official, speaking to reporters after the conclusion of the first day's meetings, said that the primary discussion of tough economic issues will be held on Tuesday.
"Tomorrow the focus is on how the U.S. and China can rebalance our economies so we can strengthen our recoveries. Monetary and exchange rate policies are certainly be a focus of those discussions," the official said. But he warned not expect any major announcements. "[The Chinese currency] is not moving enough and no one's satisfied, but it's appreciated more than 5 percent against the dollar [over the last year]," he noted.
Undersecretary of State for Economic, Energy, and Agricultural Affairs Robert Hormats took the Chinese to task for their policy of giving regulatory, financial, and legislative support to state-owned enterprises.
"The biggest challenge in addressing these issues effectively is forging a common understanding that state-controlled competition is not competition, and that competitiveness cannot be bestowed by decree. The trade distortions created by the ‘China Model' are disadvantageous to our U.S. companies trying to compete for opportunities around the world, and a direct threat to U.S. jobs and competitiveness," Hormats said.
And Deputy Secretary of State James Steinberg told an audience at the Center for Strategic and International Studies on Monday afternoon that climate change, specifically short-term climate change forces, was a major topic of discussion between Energy Secretary Stephen Chu and his Chinese counterparts.
As for the military component of the talks, Assistant Secretary of State Kurt Campbell told reporters last week that the United States intends to engage "not just traditional players in the Foreign Ministry but also other players in the Chinese government, including the military."
Dan Blumenthal, a former China desk officer at the Pentagon and now a senior fellow at the American Enterprise Institute, said that while increased military dialogue and the building of relationships is good, the administration must not depend on such dialogue to halt the growing tension in the bilateral security relationship.
"The Chinese are moving very cautiously, the political leadership in China is very adverse to making any bold decisions, and the PLA has very little interest in talking to us about anything of substance," he said. "The summits matter less than what we are doing on the ground in response to what China is doing."
Seven Republican senators are demanding that the Obama administration take tougher measures to punish banks still doing business in Iran, and they are threatening to stall the nomination of a top Treasury Department official unless they get their way.
The dispute between the White House and Congress revolves around implementation of the Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA) of 2010, the wide-ranging law signed into law last year. The Treasury Department issued a draft rule last week that lays out how it intends to implement a key provision of the law, which deals with Iran's banking partners in countries around the world. And that rule raised the ire of seven GOP senators, who expected Treasury to enforce the law much more stringently.
The key provision, section 104(e), directs the administration to punish any international financial institutions still doing business with Iran by cutting them off from the U.S. financial system.
"We were extremely unhappy with the draft rule to implement section 104(e) of CISADA publish by the Treasury Department last week," wrote Sens. Jon Kyl (R-AZ), Mark Kirk (R-IL), Roger Wicker (R-MS), David Vitter (R-LA), Jerry Moran (R-KS), Mike Crapo (R-ID), and Mike Johanns (R-NE), in a previously unreported letter sent Tuesday, and obtained by The Cable.
The letter was addressed to David Cohen, the acting undersecretary for terrorism and financial intelligence at the Treasury Department. Cohen took over for Stuart Levey, the previous sanctions chief at Treasury, who moved on to the Council on Foreign Relations last month after more than 4 years on the job.
The senators are threatening to hold up Cohen's nomination if their demands regarding enforcement of the sanctions provisions aren't met. Cohen had his confirmation hearing before the Senate Banking Committee on Tuesday and, afterwards, Kirk sent Treasury a list of follow-up questions he says must be answered before he'll allow Cohen's nomination to move forward.
"The acting undersecretary's response to our letter and questions for the record will weigh heavily in any confirmation decision," Kirk told The Cable.
Kirk also identified 44 international financial institutions servicing Iranian banks and 18 U.S. institutions that are working with those who do business inside Iran. He got this list from a 2010 report entitled "Iran's Dirty Banking", which sourced the information to the Banker's Almanac.
Kirk wants Treasury to require all U.S. banks to certify that any foreign banks they deal with aren't dealing with Iran. He also wants those foreign banks to certify that any banks they are dealing with aren't doing business with Iran. But Treasury's current plan calls for banks to provide such information only if and when the Obama administration asks for it.
"The object is to make sure we are doing anything and everything we can to drive Iranian business out of our banking system and this is how to do it," one senior GOP senate aide said.
"Large American banks and foreign banks that are operating here have not been hauled before Congress and have not been forced to tell the people and shareholders why they have not complied with the law," said another senior GOP aide.
Specifically, the aide said that the senators who signed the letter want Treasury to publish a final rule on implementation of the provision that requires audits of all banks' interactions with Iran on an ongoing basis. If that happens, the Cohen nomination can go through.
All of the senators who signed the letter, except for Kyl, are on the banking committee.
In his Tuesday testimony, Cohen defended the Treasury Department's efforts to tighten the noose around Iran's banking sector, including the passing of U.N. Security Council Resolution 1929 and subsequent successful efforts to convince European and northeast Asian countries to drop their Iranian banking ties.
Since 2006, Treasury has sanctioned 20 Iranian state-owned banks involved in facilitating Iran's nuclear program for penalties, and officials have traveled the world to try to convince foreign governments to take similar actions.
Cohen also said that sanctions against foreign owned banks that are working with Iran aren't necessarily the best tool in all cases, and indicated that there are more penalty decisions coming soon, such as the designation of more third country banks.
"The first best option is to get them to stop. Our second best option is to apply sanctions. And without getting too much into the details of any particular investigation that we're conducting, I can tell you that we are, I would say, close to a decision point on several institutions," he testified.
Matthew Levitt, a former deputy assistant secretary for intelligence and analysis at the Treasury Department and now a senior fellow at the Washington Institute for Near East Policy, said that Treasury was not against congressionally mandated sanctions, but believes they should only be used after all efforts to persuade foreign banks to shape up fail.
"What you have here is a struggle between two branches of government trying to get the same job done, but using two different paths to the same end," he said. "In some instances, it may be, you will get more compliance if you don't hit them with the hammer."
Levitt also defended the Treasury's efforts to put pressure on Iran's financial activities. "It's almost silly for anyone to claim the Treasury Department has been soft on Iran," he said.
The State Department confirmed that it is engaged in an intensive effort to assist over three dozen embassies in Washington who are all facing the possible closing of their U.S. bank accounts due to a growing movement by several major banks to drop embassies from their rolls.
The embassy of Angola in Washington was the first foreign embassy to have all of its U.S. bank accounts closed against its will. Bank of America closed all five of its accounts Nov. 9, after warning the Angolans of the decision through an unsigned letter only a week before with no explanation whatsoever, according to an Angolan diplomat speaking with The Cable. The State Department is working furiously to resolve the issue -- but if it doesn't succeed, the Angolan government is considering taking action against U.S. diplomats and businesses in Angola in retribution.
The Angolans have been imploring the State Department to help them sort through the problem, and as of Nov. 9 can no longer conduct regular embassy business, such as paying bills and salaries. They even cancelled their planned Nov. 16 event celebrating the 35th anniversary of their country's independence. The State and Treasury Departments have been trying to help, but have taken the position that the U.S. government has no ability to force American banks to do business with the Angolan government.
"It's not just an Africa issue, it's an issue with missions from around the world," said a State Department official, speaking to The Cable on background. "We're aware that some banks are looking to reduce their involvement with this type of business… But the U.S. government does not control U.S. banks. We cannot require them to maintain accounts with any client."
The official said that up to 37 embassies in Washington could soon face a similar situation, as various banks are moving to get rid of their accounts. Seventeen of those embassies represent countries in Africa. The official declined to identify the names of the other foreign embassies affected or the names of other U.S. banks moving to drop embassy business.
The Angolans, frustrated and running out of options, are considering reciprocity measures, such as closing the bank accounts of the U.S. embassy in Angola, refusing to receive the credentials of incoming U.S. Ambassador Christopher McMullen, or closing the banks accounts of U.S. companies in Angola, such as Chevron, Exxon, BP, and Boeing, according to a source in the American business community with interests in Angola and who is closely monitoring the crisis.
"We don't know why it is happening," the Angolan diplomat said. "In the context of the Vienna Convention, we hope the American administration is going to take measures for us to operate here. The administration says that Angola is a strategic partner to the U.S., so we would like at least to be treated as a strategic partner… A diplomatic mission cannot operate anywhere without a bank account."
Article 25 of the Vienna Convention of 1961 on Diplomatic Relations states, "The receiving State shall accord full facilities for the performance of the functions of the mission."
Why are the banks running away from embassy business? According to the State Department official, several banks, including Bank of America, are calculating that the effort spent making sure government accounts are not being abused for money laundering purposes, sometimes with suspected links to terrorism, is becoming too complicated and costly to justify keeping the accounts.
"Some banks feel it's just not worth their time anymore, it's a cost of business they don't want to deal with," the State Department official said.
Assistant Secretary of State for African Affairs Johnnie Carson has had several conversations with Angolan officials about the matter and briefed Secretary of State Hillary Clinton on the crisis last week. Deputy Assistant Secretary of Treasury Daniel Glaser met with Angolan Ambassador Josefina Diakité twice before she was called back to the Angolan capital of Luanda for consultations on Nov. 16.
"The Department of State seriously regrets the inconveniences -- in some cases, very serious inconveniences -- that African embassies and others have been subjected to as a result of actions by a number of American commercial banks," Carson said in an interview Nov. 15.
The official acknowledged that the discussion of the issue inside the State Department "reaches all the way to the top," and said he was hopeful that a new bank had been found to handle the funds of the Angolan embassy, although nothing was final.
The Angolans are certainly hoping the State Department can come to their rescue. "Both countries are interested in having bilateral relations. I hope that the two governments can solve the problem," the Angolan diplomat said.
Bank of America's decision to close the Angolan embassy's accounts came only three months after their accounts with another bank, HSBC USA, were dropped as well. Our sources say the action is partly related to a February report issued by the Senate Permanent Committee on Investigations, led by Sen. Carl Levin (D-MI), which cited Angola "for an ongoing corruption problem, weak anti-money laundering (AML) controls, and a cash-intensive banking system."
Bank of America spokesman Jefferson George told The Cable, "Due to confidentiality, we can't comment on specific client relationships. In general, Bank of America Merrill Lynch is actively committed to providing banking services for the diplomatic community. This includes countries in Africa, where we have a number of clients."
The official White House readout of the bilateral meeting between U.S. President Barack Obama and Chinese President Hu Jintao focused on Iran, but the real movement in the U.S.-China relationship may come first on the issue of China's undervalued currency.
When Hu finally agreed to attend the 47-nation Nuclear Security Summit, which officially began today in Washington, there was widespread speculation that in exchange, the Obama administration had agreed to delay a Treasury Department report that was scheduled for an April 15 release and would have weighed in on whether China should be labeled a "currency manipulator" because its currency is artificially pegged to the U.S. dollar and greatly undervalued.
Not so, say our well-placed diplomatic sources, who described a more complex and nuanced set of interactions that include but aren't limited to the U.S. pressuring China to let its currency float, even a little, toward a more equitable rate.
The Treasury Department wouldn't have delayed the report (indefinitely) unless it had received some serious assurances from the Chinese side that some form of currency movement was being considered for announcement soon, our sources said. Following Monday's meeting, U.S officials feel confident that movement is in fact coming.
The question going forward is how soon ... and how much.
And when the announcement comes, the Chinese will want to explain it as a domestic necessity. Their economy is beginning to overheat, they will say, making a small currency adjustment prudent. They can't very well be seen as bowing to U.S. pressure, especially considering their view of how the United States has handled its own economy.
Inside Tuesday's Obama-Hu meeting, Obama "reaffirmed his view that it is important for a global and sustained and balanced global economic recovery that China move toward a more market-oriented exchange rate," Jeffrey Bader, the NSC's senior director for Asia, said after the meeting. "The president also noted his concern over some market-access issues, market-access barriers, in China and the need to address them as part of the rebalancing effort."
Our sources said the U.S. officials at the meeting came out with a positive reaction, feeling that the meeting went much better than Obama's last bilateral with Hu in November in Beijing.
Robert Hormats, the U.S. under secretary of state for economic, energy and agricultural affairs, was in Beijing this week and called for a "rebalancing" of the Chinese economy. "We need more consumption from the Chinese side and more saving and exports from the U.S. side," he said.
Hormats spoke about Chinese market protectionism, intellectual property, innovation, and a host of other economic issues, but did not mention currency once in his April 9 speech at a Chinese think tank -- showing the sensitivity and private approach the administration is taking with China on the issue.
On Iran, Bader said of the Chinese, "They're prepared to work with us."
"The two presidents agreed that the two delegations should work on a sanctions resolution in New York, and that's what we're doing."
Many reports depicted that as some sort of shift, but as Bader noted, the Chinese had already agreed to work with the P5+1 countries at the U.N., and those talks are ongoing. China agreed to no specific commitments or deadlines within the meeting, our sources relate.
Obama was very tough and resolute when talking about the Iran issue to Hu and said he wanted to see some progress by the end of April, we're told. Meanwhile, the Chinese, while not making any specific promises, are accepting the principle of a dual-track approach toward Iran, mixing engagement with pressure, and are working with the other countries in good faith, our sources report.
As one put it, "They're coming around."
Ron Sachs-Pool/Getty Images
John Hudson reports on national security and foreign policy from the Pentagon to Foggy Bottom, the White House to Embassy Row, for The Cable.