A New Mideast Push

WSJ.com - By FREDERICK KEMPE :: Thinking Global: "It has taken five years since 9/11 to get there, but the Bush administration this weekend will announce its most ambitious multilateral action yet for promoting democratic and economic change across the Mideast.

Secretary of State Condoleezza Rice on Saturday at a G-8 sponsored meeting in Bahrain will announce something the world hasn't seen before: a grant-making private foundation with as much as $50 million in startup funds aimed at democratizing the Mideast. Months of difficult diplomacy have won symbolically significant backing from the European Union and some Arab states that seemed unlikely until recently.

Ms. Rice at the same time will announce a $100 million-plus enterprise fund that will take equity positions to promote small and medium-size corporations across the region. The fund will launch its operations in Egypt and Morocco with some $50 million of U.S. funding. Importantly, Egypt and Morocco will each put up $20 million. The EU is likely to participate through a $30 million contribution from the European Investment Bank.

The two measures -- known as "The Foundation for the Future" and "The Fund for the Future" -- have significance beyond their initially modest backing. That is because of the G-8 imprimatur and because their broad, nongovernmental nature could make them lasting institutions that become a magnet for the region's fledgling pro-democracy forces. The U.S. is pushing the initiative now partly so that the G-8's support for democratizing the Mideast doesn't evaporate when Russia replaces the United Kingdom presidency next year.

The fund and foundation also are the first institutions to be established inside the region that embody what could be one of the Bush administration's legacies after 9/11, the linking of security with democratic change after years of backing authoritarian regimes. Mr. Bush's first speech on the subject came at the National Endowment for Democracy in 2003, which he followed with his second inaugural address, and now officials involved say they are "operationalizing the rhetoric."

Both the fund and the foundation are aimed at creating a larger "democratic space" with the immediate aim of helping defuse a ticking demographic bomb. Fifty million more Mideast young will enter the work force by 2007 and some 100 million by 2013. The State Department calculates that it would take 6-7% regional economic growth over that period to absorb them all; current growth is only half of that. Without jobs or a government perceived as responsive to their plight, the danger is that millions more Arab young will become terrorist recruits.

The nonprofit foundation's aim is to provide them new political channels and organizations to join, while the enterprise fund would create more jobs to employ them. The hope is that both will be more successful than Bush administration reform efforts that have fallen largely within the Middle East Partnership Initiative, or MEPI. That project was launched in 2002 with $300 million of government funding (some of which will go to these new programs). But insiders say the money has only been partially deployed and that MEPI has suffered from leadership turnover, stunted creativity, charges of U.S. meddling and Washington's unwillingness to stand up to recalcitrant Mideast leaders. (See related article.)

By creating these more independent and multilateral institutions, U.S. officials hope they can overcome MEPI'S inherent weaknesses.

Role for a Cheney

Elizabeth Cheney, the senior official responsible for the new push, is very familiar with MEPI. After working in her father's vice-presidential campaign, she returned to the State Department early this year to run MEPI. The Cheney name, associated as it is with the Iraq war, won't play well on the Arab street. But Ms. Cheney, the vice president's eldest daughter, has proven an effective advocate among European and Arab elites, who have seen that level of White House involvement as a demonstration of seriousness.

The initiative, which few would have given a chance two years ago, grows out of the artful diplomacy that is becoming a hallmark of Ms. Rice's talent-laden State Department. The team has been led by Scott Carpenter, a deputy assistant secretary who worked on democratization efforts in Iraq before returning to Washington. Most importantly, the highest ranks of the State Department have pushed the initiative. Those involved include senior officials who drove Eastern European change, such as Daniel Fried and Kurt Volker, and they are now applying the lessons learned there to the Mideast.

The nonprofit democratization foundation has been the most controversial of the two initiatives, as more than a few Mideast leaders realize that its goal of bolstering civil society organizations could translate into better organized opposition to their own rule. It's no wonder that long-time American allies Egypt and Saudi Arabia haven't signed on.

The U.S. has deflected parties that might impede the foundation's independence and freedom of movement. Washington is also helping to craft charter principles that would satisfy Congress that the foundation won't unwittingly support Islamist movements.

That said, the list of countries that have promised support is an impressive one. The U.S. will pony up $35 million over two years, the European Union some $5 million. With the minimum price of admission set at $1 million, other countries that have committed are Spain, Italy, Denmark, the U.K., the Netherlands, Hungary, Turkey, Switzerland, the United Arab Emirates, Lebanon, Morocco, Bahrain and possibly Kuwait.

French Resistance

France hasn't joined because it much prefers acting in the Mideast through a 10-year-old EU initiative known as the Barcelona Process. Germany won't be able to decide about joining until its new government is fully formed. Spain's involvement was a critical diplomatic victory, however, as it helps mend one of the most troubled U.S. relationships in Europe and brings on board the country that was the home of the Barcelona initiative.

The U.S. and European countries would like to see the foundation based in a Mideast country where it can operate relatively freely, so Lebanon is a favorite -- though Jordan, Morocco and even Yemen have put up their hands.

The enterprise fund is a more straight-forward affair, patterned after initiatives in Eastern Europe after the Soviet bloc's implosion. What the U.S. learned was the such efforts succeed only in countries committed to reform that are also willing to contribute themselves. Hence, the emphasis is on Egypt and Morocco.

In Poland, a similar fund had $240 million in capital for just 40 million people, so the target of $100 million is small for 30 million Moroccans and 80 million Egyptians. The U.S. wants to see some success before further expansion. It envisions attracting board members with the clout -- names being bandied about include Jack Welch and Robert Rubin -- to get Egyptian leader Hosni Mubarak on the phone to complain, for example, that he needs to free up pharmaceutical prices if a private drug industry is to flourish in Egypt.

State Department officials are under strict rules not to use the "H" word when describing this weekend's Bahrain meetings. It was the Helsinki agreements of 1975 that helped set off the changes that ultimately brought democracy and free markets to the former Soviet bloc. The challenges are far different in the Mideast, where the people doubt American motives and the governments they hope to change have long been American friends.

Yet U.S. ambitions for what one senior State Department official calls "the Bahrain process" are no less."