Iraq

Ever since 2002, Iraq has dominated both the administration's thinking and the controversies that have swirled around it. The invasion was always contentious, but in 2005 the relentless violence and successive scandals finally convinced a majority of Americans that things were not going to plan. The anti-war movement got into its stride after Cindy Sheehan, a mother who lost her son in Iraq, staged a vigil outside Bush's Texas ranch. The year was marked by scandals over the administration's response to critics of the war and its detainee treatment policy. Many Republicans in Congress became uneasy, and demanded greater transparency over progress and tactics. The unease has been deepened by the huge financial costs of the conflict and the strain this has placed on deficit-laden public finances.

So will 2006 see the administration finally shake off its Iraq demons? On the upside, the December Iraqi elections proceeded encouragingly and the country should gain a government in 2006 with some real legitimacy. The hope is that support amongst Sunnis will then drain from the vicious insurgency, and that the United States will progressively be able to reduce its political role. The administration was hinting at the end of 2005 that troop numbers would start to fall over 2006, even if it pointedly refused to adopt a timetable. The trial of former president Saddam Hussein, meanwhile, offers Iraq a chance to move on from his dictatorship and come to terms with his era. All these arguments represent optimistic scenarios, however. There is equally a risk of protracted political deadlock after the election, the trial of Saddam Hussein could exacerbate sectarian tensions further, and the insurgency could intensify. There are also ongoing Iraq-related scandals in the United States that will continue to unfold over 2006 (see below). The domestic political impact of whatever transpires in Iraq will be affected by how the Democrats decide to play things. To date they have not exploited the administration's discomfort as effectively as they might have, wary of undermining troops in the field. Less prominent Democrats have called for accelerated troop withdrawal, but key figures with an eye on the presidency, such as Hillary Clinton, have been much more cautious.

Natural Disasters

Any review of 2005 cannot ignore the part that nature played in the administration's discomfort. Although the southern states are well used to storms, Hurricanes Katrina and Rita were of a different order. Katrina struck close to the city of New Orleans, overwhelming its flood defences and inundating the bowl-shaped area. Many other towns along the Gulf Coast were also devastated by wind damage and storm surges. The administration was not blamed for the hurricane itself, nor for the inadequate flood defences, but the emergency response was woefully lacking. Bureaucratic wrangles and poor preparation meant that thousands of survivors spent several days in a parlous state. On a wider level, Katrina painfully highlighted the economic and social inequalities that persist in the United States. The victims of Katrina were mostly black, and lacked the financial resources to escape the floodwaters and subsequently to rebuild their homes. The scenes have made Congress more reluctant to authorise tax cuts and welfare reforms that would seemingly widen the economic divide further.

Over 2006 the southern states must brace themselves for another disastrous season. Forecasters believe that the current cycle has yet to peak, although what is all-important is where the storms make landfall. Billions will be invested to protect New Orleans better in future, but this will not be complete by next year. From a political perspective, however, the administration should be able to limit damage much better. Lessons were clearly learnt before Rita and Wilma hit later in 2005, and the preparations were much more effective.

Scandals

At various points throughout 2006, ongoing scandals involving key Republicans will reappear and potentially cause grave embarrassment for the administration. Two are particularly severe. Firstly, there is the culmination of the scandal surrounding the unmasking of undercover Central Intelligence Agency (CIA) operative Valerie Plame. Former chief of staff to Vice-President Dick Cheney, I. Lewis 'Scooter' Libby, has been indicted after allegedly perjuring himself during the investigation. Administration figures are thought to have outed Plame in revenge for her husband's criticism of the Iraq war. Libby has already resigned, and a conviction should not damage the administration unduly, but the investigation could yet hook bigger fish. Moreover, it ensures that controversy over how the Iraq war was justified stays in the headlines. The second major scandal revolves around former House majority leader Tom DeLay. He has been indicted over possible campaign finance irregularities and there are suggestions that the scandal could widen considerably. DeLay had close relations with lobbyist Jack Abramoff, whose activities involving many different lawmakers are the subject of wide-ranging investigations. Whether or not convictions are secured, the scandals will continue to damage the image of the Republicans, and appear to contradict Bush's pledge to leave the 'scandal-ridden' era of former president Bill Clinton (1993-2001) behind.

Supreme Court Nominations

Another major setback for Bush in 2005 was the withdrawal of White House counsel Harriet Miers from consideration for one of the two Supreme Court vacancies. She is a long-standing associate of Bush's, and her rejection by many Republicans was a major personal setback for the president. The replacement nominee, Samuel Alito, is similarly controversial, not because of lack of experience, but rather on account of his conservative credentials. The Democrats have mobilised in Congress to give Alito a rough ride, and this is set to be a major story of the first months of 2006. Their reaction contrasts with the relatively easy ride given to Bush's first Supreme Court nominee, John G. Roberts (now Chief Justice).

Areas of Opportunity?

Reform Agenda

Amid all the problems described above, a number of the administration's key domestic policy pledges were mothballed over 2005. This may not have cost much voter support to date, but Bush is in danger of looking impotent and bereft of strategy over 2006. The centrepiece of domestic policy is supposed to be the overhaul of Social Security (the state pensions system), but there is not much sign of momentum going into 2006 as yet. There remains great uncertainty over how to approach the reform, and many Republicans have lost their appetite for austerity after Hurricane Katrina. Another major reform goal is the rewriting of the tax code, but again the outlook for 2006 is not promising. The administration has had enough problems ensuring the extension of existing tax cuts and pushing through the defence spending bill, without having to embark on a complete overhaul of the tax system. In the end, the administration is likely to calculate that pressing ahead with these reforms ahead of the mid-terms would be more of an electoral liability than asset. The groundwork may, however, be laid for more determined action in 2007.

The Economy

The robust economy did not help Bush as much as it might have been expected to during 2005, and the administration will hope to change this ahead of the 2006 elections. Over 2005 the resilience of the economy in the face of record-high oil prices and hurricane shocks was indeed remarkable. However, in 2006 it will start to go off the boil, and the administration will have to hope that the 'feel-good factor' will persist long enough to assist in the elections. Global Insight sees GDP growth over 2006 at 3.5%, a small drop on the 3.7% in 2005, but this masks a marked deterioration over the second half of the year. The slowdown in vote-important consumer spending and housing will be most marked, offset in the overall figures by strength in capital spending and exports. The capital spending will receive a major boost from hurricane-related reconstruction. The stage is therefore set for a below-trend 2.9% growth rate come 2007.

International Relations

Bush's presidency has not been noted for its success in deepening U.S. overseas ties and fostering multilateral consensus, but there were signs in 2005 that the situation was starting to change. There were important trade breakthroughs with countries such as China and Canada, and the United States made some bold pledges ahead of the last stretch of the World Trade Organization's Doha Round negotiations. Relations with Europe may also start to look up as Iraq recedes from the headlines and new German Chancellor Angela Merkel looks to change the mood. Vis-à-vis the United States' 'backyard' in Latin America, the picture is more mixed. There has been some progress with the Central American Free Trade Agreement (CAFTA), but the bigger trade initiatives are not going anywhere fast. The administration will also be watching nervously as a series of elections threaten to bring in left-wing administrations.

Conclusion: Don't Write Off the Republicans Just Yet

On the face of it the Republicans do not have a great deal to look forward to in 2006. A number of problems seen in 2005 should dissipate, but in other areas there are severe troubles ahead. There are opportunities for the administration to present itself in a better light before the mid-term elections, but these are relatively few. This does not, however, mean that the Republicans are about to lose control of either the Senate or the House of Representatives. Both are in reach for the Democrats, but it will take a considerable swing before they can gain the upper hand. The Republicans have shown in the recent elections that they have a very strong support base, and a well-drilled and -financed organisation that can defy poll predictions. Electoral district changes have also helped in a number of cases. At the time of writing, moreover, there were already signs that Bush's popularity was past its lowest ebb. The ABC News/Washington Post poll released on 19 December 2005 showed Bush's approval rating at its highest since March 2005, at 47%. It should be stressed that this could prove a temporary blip, but it was nonetheless a remarkable improvement on the 39% support seen in November 2005.

Contact: Raul Dary

24 Hartwell Ave.
Lexington, MA 02421, USA
Tel: 781.301.9314
Cel: 857.222.0556
Fax: 781.301.9416
raul.dary@globalinsight.com

www.globalinsight.com and www.wmrc.com