International Institute For Security and Cooperation Rodolfo Peikov Member of the Advisory Board...

International Institute For

Security and Cooperation

Rodolfo PeikovMember of the Advisory Board

IISC

ECONOMIC TERRORISM(The impact of terrorism on global economy)

UNWE, SofiaDecember 16, 2010

ECONOMIC TERRORISM

•This presentation is intended only to furnish you with a basic knowledge of terrorism and economic related terrorism, and could be a starting point for further and more detailed study.

•It is not to be taken as a complete or detailed work but, rather, as an introduction to a very complex and dynamic subject.

•It gives a minimum essential background knowledge required to properly analyze the terrorist threat and its impact on the world’s economy.

ECONOMIC TERRORISM• DEFINITION OF TERRORISM:• The Intelligence Community is guided by the

definition of terrorism contained in Title 22 of the US Code, Section 2656f(d):

• The term "terrorism" means premeditated, politically motivated violence perpetrated against noncombatant targets by subnational groups or clandestine agents.

Source: Central Intelligence Agency. Terrorism FQAsLast Reviewed: Apr 06, 2007

ECONOMIC TERRORISM

• The term “international terrorism” means terrorism involving the territory or the citizens of more than one country.

• The term “terrorist group” means any group that practices, or has significant subgroups that practice, international terrorism.

Source: Central Intelligence Agency. Terrorism FQAsLast Reviewed: Apr 06, 2007

ECONOMIC TERRORISM

According to Webster Dictionary:Terrorism is: “The state of being terrorized or the act of terrorizing; the use of intimidation to attain one’s goals, or to advance one’s causes.”

So, ‘Economic Terrorism’ is the act by any group or state for the sole and illegal purpose of creating economic chaos and collapse as a means of destroying the attendant society, for military, social, political, or religious purposes.

Source: Small Wars Journal Magazine. July 2005. Professor Shawn O'Connell Adjunct Professor of Rhetoric at St Thomas University in Miami, Florida, USA

ECONOMIC TERRORISM• On 11-12 July 2005, the GCSP organized a

roundtable in Lausanne, Switzerland, on ‘economic terrorism’ in cooperation with the U.S. Defense Threat Reduction Agency (DFTA). The roundtable brought together close to 45 participants from Europe and the United States, with representatives from governments, international institutions, the private sector, and independent consultants and counter-terrorism experts.

Source: Roundtable of the GCSP, Geneva 11-12 July 2005 Annual Report 2005, published May 2006.

ECONOMIC TERRORISM

• The roundtable's main objective was to analyze a category of terrorist threats with potentially large-scale impact on complete economies, hence the term

• ECONOMIC TERRORISM.


ECONOMIC TERRORISM

• For your information, Bulgaria is a member of the GCSP since 2002.

• With: • Ambassador Gancho Ganev

Permanent Representative of the Republic of Bulgaria to the UN and other International Organizations, Geneva


ECONOMIC TERRORISM• Terrorists are increasingly looking to inflict

economic damage on Western economies, a study says. "Islamic terrorism's future devices will focus on targets that will yield the most economic damage," according to Gabriel Weimann, professor at the University of Haifa in Israel, author of the book ‘Terror on the Internet’.

Source: UPI Asia, 2 March 2010 Gabriel Weimann

ECONOMIC TERRORISM

• "For the jihadists, the present economic crisis signifies an ideal opportunity and platform to leverage an economic terrorist campaign," said Weimann, who scrutinized 7,000 radical Islamic Web sites and forums over 11 years.

Source: UPI Asia, 2 March 2010

ECONOMIC TERRORISM• Islamist terrorist organizations have grown

more interested in operations that will cause the most economic damage such as attacks on Western multinational corporations, Muslim boycotts of their projects and assassinations of Western economic leaders.

• Terrorist leaders realize Western power lies in economic strength and have concluded jihad should focus on eroding it.


ECONOMIC TERRORISM• Weiman traced the focus on economic

terrorism to the September 11, 2001, attack on the World Trade Center in New York.

• Al-Qaeda leader Osama bin Laden, the professor noted, has said on videotapes the attack cost $500,000 and inflicted $500 billion in U.S economic damage.


ECONOMIC TERRORISM

World Trade Center, New York, USA, September 11, 2001Over 3000 dead, over 6000 woundedWorld Trade Center, February 26, 1993

6 dead, over 1000 wounded

PENTAGON

189 dead

PENNNSYLVANIA44

dead

• The U.S. Commission Report on the September 11, 2001 attacks to the Twin Towers in New York, Pentagon in Washington and the Pennsylvania crash, stated that it might have cost Al-Qaeda between $400,000 and $500,000 to execute them considering that the operatives spent more than $270,000 in the United States.

ECONOMIC TERRORISM

Source: The 9/11 Commission Report, Executive Summary, page 14. 2004.

• “ …we have not been able to determine the origin of the money used for the 9/11 attacks. Al Qaeda had many sources of funding and a pre 9/11 annual budget of $30 million.

• If a particular source of funds had dried up, Al Qaeda could easily have found enough money elsewhere to fund the attack…“.

ECONOMIC TERRORISM


ECONOMIC TERRORISM

• Allegations that Al Qaeda used a variety of illegitimate means to finance itself, both before and after 9/11, continue to surface. The most common involve the drug trade, conflict diamonds, and state support; none can be confirmed…


ECONOMIC TERRORISM• On September 11, 2001, human toll was equal to the

number of deaths of transnational terrorism from 1988 to 2000.(1)

• Besides the personal human loss in a terror attack, there is also the business world which does not go unaffected by these human losses; the loss in labor force and other key players in a company can cause significant negative effects.(2)

1. Source: Sander 2004.2. Source: Terror Market Effect.

ECONOMIC TERRORISM• In the September 11th attack, the lives of many were

lost, including top level executives from Morgan Stanley, Merrill Lynch, American Express, and many other publicly traded companies.

• Not only did these companies lost a corps of wonderful human beings, but many lost their most important leaders and thinkers. The result was a tragedy for the victims’ families and the companies, as well.

Source: Terror Market Effect.

ECONOMIC TERRORISM• It should be not forgotten that a total of 411

emergency workers died as they attempted to rescue people and fight fires.

• The New York Fire Department (FDNY) lost 341 firemen and 2 FDNY paramedics.

• The New York Police Department (NYPD) lost 23 officers.

• The Port Authority lost 37 officers, and 8 additional doctors and paramedics from private units were killed.

Source: New York Times, USA Today, CNN 2002.

ECONOMIC TERRORISM

• On September 11, 2001, the opening of the New York Stock Exchange, the American Stock Exchange were delayed when the first plane crashed into the World Trade Center North Tower and trading for the day was canceled after the second plane crashed into the South Tower and so did other exchanges such as Mercantile, etc.

• The Exchanges remained closed until the following Monday.

Source: Congressional Research Service. CRS-4. September 27, 2002.

ECONOMIC TERRORISM• Trading on the United States bond market also

ceased, as the leading government bond trader, Cantor Fitzgerald (who lost 658 employees) was based in the World Trade Center.

• The timely re-opening of the Stock Exchanges on September 17, 2001, ensured the return to normal operations by the financial system, and was also a major boost to confidence.


ECONOMIC TERRORISM• When the stock market re-opened on September 17, 2001,

the Dow Jones Industrial Average (DJIA) stock market index fell 684 points, or 7.1%, to 8921, a record-setting one-day point decline.(1)

• By the end of the week, the DJIA had fallen 1,369.7 points (14.3%), then the largest one week point drop in history, (though later surpassed in 2008 during the global financial crisis). U.S. stocks lost $1.4 trillion in value for the week.(2)

• This is equivalent to $1.72 trillion in present day terms.(3)

1.Source: Chicago Tribune. September 17, 2001 (Markets reopen, plunge by Bill Barnhart).2.The Philadelphia Inquirer. September 22, 2001 (U.S. Markets Decline Again by Bob Fernandez)

3. Federal Reserve Bank of Minneapolis. Consumer Price Index (Estimate) 1800-2008.

ECONOMIC TERRORISM• The use of commercial airplanes as assault vehicles

to wreak havoc on the United States has no precedent in aviation history. At the time of September 11 2001, the airline industry was already in financial trouble. 9/11 severely compounded the industry’s financial problem.(1)

• The airline industry reported losses of about $30billion since the attacks and the loss of 100,000 jobs since September 11, 2001. (2)

1. Source: Congressional Research Service. CRS-4, September 27, 2002.2. Source: BBC News. April 1, 2003

ECONOMIC TERRORISM

• Even though the federal government quickly responded with an aid package that gave the airlines access to up to $15 billion (consisting of $5 billion in short-term assistance and $10 billion in loan guarantees), airlines had to undergo a major reorganization.(1)

• U.S. Airways filed for Chapter 11 bankruptcy on August 11, 2002 and, after receiving a government guaranteed loan was able to exit bankruptcy in 2003.(2)

1. Source: Congressional Research Service. CRS-4. September 27, 2002.2. Source: U.S. Airways information

ECONOMIC TERRORISM

• United Airlines filed for Chapter 11 bankruptcy on December 2002 and after loans, reductions and other means was able to exit bankruptcy only on February 1, 2006. (1)

• American Airlines, the world’s largest carrier, at that time, was able to avoid Chapter 11 bankruptcy procedures by reaching in 2003 a last-minute wage deal with its three major unions. (2)

1. Source: United Airlines information.2. Source: BBC News. April 1, 2003

ECONOMIC TERRORISM• In the aftermath of September 11:• Alitalia, considered cutting 2,500 jobs (and eventually was saved by

the government in 2008).

• Swissair grounded its planes for lack of cash in late September and went bankrupt on March 31, 2002. The Swiss government eventually bailed out the company to form Swiss.

• • Belgian carrier Sabena filed for bankruptcy as a result of its

connection with Swissair and closed business on November 7, 2001. Only on November 2006 Brussels Airlines was created.

International Review, Geneva, Switzerland. January 29, 2002.

ECONOMIC TERRORISM

• KLM Royal Dutch Airlines planned to reduce capacity by 15 percent and asked its workers to take a "substantial" pay cut.

• Scandinavia's SAS, suffering a 20 percent drop in business-class traffic since September 11, reduced flight capacity by 12 percent in 2002 and cut about 1,100 jobs.

International Review, Geneva, Switzerland. January 29, 2002.

ECONOMIC TERRORISM• Balkan Airlines went bankrupt in October 29, 2002

(procedure started in March) in the wave of international problems, but mostly because it was out of cash.

• Even Moscow cancelled Balkan landing privileges at Sheremetievo airport for a debt of $26,000.

• Privatized in 1993, in 1999 the majority was taken over by an Israelian group with the resulting loss of the lucrative Arab market.

• Bulgaria Air was immediately (November 2002) created by the Bulgarian Transportation Ministry and privatized in 2006.

Source: Nation Master. Encyclopedia – Balkan Bulgarian Airlines

ECONOMIC TERRORISM• Insurance was one of two industries profoundly

affected by 9/11. The loss of life and property gave rise to the largest property/casualty claim in history, estimated at $40 billion.

• Since the government is responsible for the safety of the country against terrorism, questions have been raised about a possible federal role in providing compensation to companies that are adversely affected by future terrorist attacks should they occur.

Source: Congressional Research Service. CRS-4-5. September 27, 2002.On Information from: Insurance Information Institute, New York, NY.

ECONOMIC TERRORISM• Insurance loss associated with 9/11 topped $80

billion and caused insurance companies to end insuring terrorist induced loss.

• Half of the losses of 9/11 were covered by insurance companies:

• $11 billion lost business• $2 billion workers compensation• $3.5 billion property loss in the World Trade Center• $2.5 billion aviation liability.Source: Dealing with Extreme Events: Challenges for Terrorism Risk Coverage in the United States (working papers).

Howard Kunreuther & Erwann Michel-Kerjan, 2004.Source: The Political Economy of Terrorism. © Walter Enders – Todd Sandler. Cambridge University Press. 2006.

ECONOMIC TERRORISM• In the days following the 9/11 attack, the agriculture sector

experienced some initial economic setbacks due to the halt of commodities futures trading and losses from delayed shipments of perishable commodities by air and by truck along U.S. borders with Canada and Mexico.

• These losses proved transitory; nonetheless, the changing geopolitical developments that have followed 9/11 have injected a significant amount of uncertainty into any predictions about world markets and their effects on the U.S. farm sector’s longer term financial health, which is highly dependent upon trade.


ECONOMIC TERRORISM• The destruction of the World Trade Center towers, nearby

businesses, and human lives had a major impact on the economy of New York City. Gross City Product (GCP) was estimated to have reduced by approximately $27.3 billion over the last 3 months of 2001 and all of 2002.

• The latest estimates put the tax loss stemming from the

reduced economic activity at just over $2 billion in FY2002 and another $1 billion in FY2003. The tax revenue loss and the the extraordinary expenditures for relief and recovery after 9/11 severely strained the New York City budget.


ECONOMIC TERRORISM• To date, federal aid to New York City has been

delivered in three phases:• $11.2 billion appropriated in September 2001 for

debris removal and direct aid to affected individuals and businesses;

• $5 billion in economic development incentives was approved in March 2002;

• $5.5 billion for a variety of infrastructure projects for New York City was approved in August 2002.


ECONOMIC TERRORISM• Nearly 18,000 businesses were dislocated, disrupted or

destroyed by 9/11.• Most were in and around the World Trade Center complex.• Using existing programs, the Small Business • Administration, in cooperation with other federal, state,

local, and charitable groups worked to alleviate the distress.• As of May, 2002, 4591 loans had been made to firms near

the World Trade Center complex and 96 loans in Virginia including those made to businesses at Reagan National Airport.


ECONOMIC TERRORISM• Overlaid on a labor market already weakened by recession

were 462 extended mass layoffs attributable to September 11 that displaced nearly 130,000 employees.

• Although legislation initially introduced was directed at workers adversely affected by September 11, the legislation that ultimately passed dealt with the economy-wide recession.

• Throughout August 2002, nearly 3800 individuals in New York and Virginia had received such benefits.


ECONOMIC TERRORISM• In New York City, there were approximately the equivalent

of over $3 billion in lost wages, which occurred in the three months following the September 11 attacks.

• The economic effects were mainly focused on the city's export economy sectors.(1)

• Since the 9/11 attacks, substantial resources have been put towards improving security, in the areas of homeland security, national defense, and in the private sector it decreased.(2)

1. Source: “9/11 and the New York City Economy” (Monthly Labor Rewiew- M. Dolfmann, S. Wasser) , 20042. Source: Congressional Research Service. CRS-2. September 27, 2002.

ECONOMIC TERRORISM• Tourism in New York City plummeted, causing

massive losses in a sector which employed 280,000 people and generated $25 billion per year.

• In the week following the attack, hotel occupancy fell below 40%, and 3,000 employees were laid off.

• Tourism and hotel occupancy also fell drastically across the nation.

Source: U.S. Travel Association. Washington, D.C. 2002.

ECONOMIC TERRORISM• The Bureau of Economic Analysis (BEA) in 2001 stated

that damages to structures and equipment (including the destruction of the World Trade Center) amounted to $16.2 billion.

• As a result of wage disruption, layoffs and two days partial work stoppage, wage and salaries of private sector employees fell by $3.3 billion.

• Strange enough this loss was partially offset by wage gains of $0.8 billion by state and local government employees, mostly police and firemen.

Source: The Political Economy of Terrorism. © Walter Enders – Todd Sandler. Cambridge University Press. 2006.

ECONOMIC TERRORISM• Clean up cost was estimated at $10 billion.

• Compensation for pain and suffering were set at $250,000 for each deceased victim plus an additional $100,000 for the victim’s spouse and each dependent.

• Average compensation paid to date to 7407 families of those who died in the September 11, 2001 attack is 2,082,128.

• Individual death compensation amounts ranged from $250,000 to $7.1 milllion.


ECONOMIC TERRORISM• The fund also settled 2682 personal injury claims with

awards ranging from a low $500 to a high of over 8.6 million.

• Total payments (including insurance and charities) to victims (dead or injured) and their families totaled $38.1 billion.

• Families of military personnel killed in war zones such as Iraq and Afghanistan receive a death benefit of $250,000.


ECONOMIC TERRORISM• Since 2002 the United States Department of Homeland

Security (DHS) budget has grown by over 60% to $36.2 billion for Fiscal year (FY) 2004.(1)

• In 2005 there was added another 10% to $40.2 billion.(1)

• In 2002 U.S. Congress passed the Terrorist Risk Insurance Act (TRIA) to cover up to $100 billion of terrorist related insurance through end of 2005.(2)

1. Source: DHS 2004-2005 2. Source: Dealing with Extreme Events: Challenges for Terrorism Risk Coverage in the United States (working papers).

Howard Kunreuther & Erwann Michel-Kerjan, 2004.

ECONOMIC TERRORISM• The State Department and International Affairs budget

request for FY 2003 is $25.4 billion, up $1.4 billion from last year.

• About $5 billion of $25.4 billion international affairs budget request for FY 2003 request is officially designated for the war on terrorism.

• This includes:

• $3.4 billion for programs such as International Military Education and Training (IMET), Foreign Military Financing (FMF), and Economic Support Funds (ESF).

Source: World Policy Institute. October 4, 2002

ECONOMIC TERRORISM

• $88 million for programs in Russia and other former Soviet Union states.

• $50 million for the International Atomic Energy Agency.

• $69 million for counter-terrorism programs, including training and equipment to help other countries fight global terror.


ECONOMIC TERRORISM

• The 2003 Economic Support Fund (ESF), budget request is $2.29 billion.

• Top recipients include:• $600 million for Israel• $615 million for Egypt• $200 million for Pakistan• $60 million for Indonesia• $25 million for India


ECONOMIC TERRORISM


• The 2003 Foreign Military Financing (FMF) budget request of $4.107 billion includes:

• $2.1 billion for Israel• $1.3 billion for Egypt• $20 million for the Philippines• $50 million for Pakistan• $50 million for India• $98 million for Colombia

ECONOMIC TERRORISM• The 2003 International Military Education and Training

(IMET) $80 million budget request represents a 27.5% increase over 2001. Top recipients include major allies in the war on terrorism:

• India• Pakistan• Uzbekistan• Georgia• Philippines, Jordan, Oman, and Yemen


ECONOMIC TERRORISM• Time is passing.

• Yet, for the United States of America, there will be no forgetting September the 11th.

• We will remember every rescuer who died in honor.

• We will remember every family that lives in grief.

• We will remember the fire and ash, the last phone calls, the funerals of the children.

Source: President George W. Bush, November 11, 2001.

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International Institute For Security and Cooperation Rodolfo Peikov Member of the Advisory Board...

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