had reduced the projected 10 year surplus by as much as $1.8 trillion over 10 years. With the Federal surplus dwindling, both democrats and republicans warned against using surpluses in the social security and Medicare programs to cover for budget short-falls in other government programs including defense and education. All such concerns have now disappeared as leaders in both parties acknowledge that the U.S. government will be forced to use social security funding to cover increased expenses for defense, intelligence, counter-terrorism, reconstruction and support for private industries at risk. The Congress has already approved a $40 billion dollar supplemental to the regular budget that includes approximately $20 billion for reconstruction efforts in New York.

In this process Democrats have conceded that they can no longer gain political advantage, at least at this point, by arguing that the administration made a mistake in pushing for tax cuts that have dramatically reduced the budget surplus. The mood of the country seeks consensus, not disagreements on policy. An illustration of this came earlier this week when Senate Democrats agreed to remove cuts and restrictions in President Bush’s request for support for his anti-ballistic missile program from the defense appropriation measure. It also seems likely that Democrats, who hoped to cut Bush’s request for an additional $18.4 billion for the Pentagon next year, will join Republicans in supporting even higher spending levels.

In the new political equation of Washington, both parties and the president have had to concede policy preferences that would have been unthinkable two weeks ago. The Democrats have had to give up their push for greater social spending on domestic programs. Many Democrats (and some libertarian Republicans) have also had to accept that laws are likely to be approved that will give law enforcement agencies more flexibility in carrying out their work to the possible detriment of privacy and civil liberties. Republicans and President Bush have had to consider reversing their long-standing opposition against public subsidies of private sector firms in financial difficulties. This is particularly true with regard to the airline industry that faces massive bankruptcy unless the Federal Government provides it with direct support that may also run into the billions of dollars. Government financing could result in significant federal involvement in the industry and renewed regulations, reversing a policy that goes back to the Reagan Administration.

Both parties, in agreeing on increased spending that could lead to deficits, have also acknowledged that in the current economic climate government expenditures may constitute an important stimulus to an economy that was already weak and is now suffering the additional effect of lack of confidence and fear that has paralyzed many activities. This is a particularly bitter pill for conservative Republicans who have long argued against Keynesian fiscal policies aimed at reversing the negative shifts of the business cycle.

Overall, however, it is the Democrats that probably have been hurt politically the most by the events of this past week. They are no longer in a position to criticize the president for an "irresponsible" tax cut nor can they forcefully argue for priorities on domestic spending when the nation is focused on the campaign to eradicate terrorism. In times of crisis Americans rally around their leaders and insist on consensus. This means that it is unlikely that there will be significant changes in the mid-term elections next year. The Democrats may retain the Senate because there are several key open seats that the Republicans are vacating and more the Republicans have more seats on the line. The division of the House is a narrow won, but Democrats will be hard-pressed to make significant inroads if the political discourse over the next year remains focused on a U.S. war effort.

What about President Bush’s own fortunes? Bush had not earned his credentials yet as a leader. He is now going through the defining moment of his presidency. He has been able to count on broad public support and sympathy across the political spectrum in the wake of the terrorist attacks as all citizens look to him for answers and action. At the same time, but mostly in private, many leaders in both parties have wondered whether the President has really been able to rise to the occasion. The White House seemed disoriented in the first hours after the attack and Bush’ harsh militaristic rhetoric has concerned many who believe that he might be promising more than he can realistically deliver. At the same time, Bush earned praise for his words at the National Cathedral Memorial Service and for visiting a Mosque in Washington and arguing that the United States does not view Islam per se as the enemy.

The greatest concern is whether the administration will be able to exercise patience in seeking to build an international response to terrorism and implement concrete measures to destroy the terrorist threat. Although few doubt that the U.S. will require a strong and decisive anti-terrorist campaign that will seek to punish the perpetrators of the terrorist attacks while dismantling their organizations, many caution that the U.S. must move very deliberately, mindful of the fact that the primary challenge is one of intelligence, police work, and commando units and less overt military engagement. Already there appear to be differences of opinion in the U.S. administration, with Secretary of State Colin Powell arguing for restraint, broad scale international consultation and coordination, and careful planning of military actions while some conservative civilian leaders at the Pentagon (notably Deputy Secretary Paul D. Wolfowitz) have called for a wider war including possible attacks on Iraq and efforts to remove Saddam Hussein from office.

For Bush the political risks are high. This crisis comes too early in his administration for him to be able to approach Election Day with the backing of a country united because of the terrorist tragedy. By the time he faces reelection either the United States will have to have proven that it can bring about a more stable world and cripple the terrorist threat, or the President runs the risk of being blamed for miring the country in a long running crisis. The experience of previous presidents who faced serious international crisis is a sobering one. Johnson, Carter and Bush’s father gained extremely high approval ratings as international crises forced them to respond (Vietnam, Iran, Iraq). But in each case the early approval ratings soon dissipated.

Johnson chose not to stand for reelection and Carter and Bush were defeated. In both Johnson and Carter’s case the lingering international crises doomed their presidencies. In Bush’s case victory over Iraq and a strong military action in Panama failed to give the president sufficient popularity to overcome the discontent with a declining economy. (A problem that President Kennedy would also have faced had he survived, despite his success in dealing with the Cuban missile crisis.) The current president faces an intractable problem: he has to appear to have overcome the immediate threat to the United States from terrorism and he needs to assure that the economy will come back lest he also face the prospect of defeat. Whether he has the personal qualities of leadership to accomplish these aims remains to be seen.

At a broader structural level, the terrorist attacks may have an additional consequence--- reversing the decline of presidential power vis-à-vis the Congress on foreign policy matters. After the Vietnam War and earlier episodes of U.S. support for authoritarian regimes, the U.S. Congress imposed significant limitations on the President’s conduct of foreign policy, including military policy. This week the Congress has signaled its intention to return broad powers to the president. It is still not clear whether terrorism may have the same effect as "anti-communism" in giving chief-executives considerable latitude on foreign policy matters or that this trend will be permanent. A case could be made that the defuse nature of terrorism and its ability to penetrate all societies might give the executive a greater range of discretional powers than in the past. On the other hand, sharp disagreements on these issues could well reemerge after the immediate crisis period dissipates.

Finally, what is the impact of the political change in Washington on Latin America? It is still too early to tell. From one point of view it is clear that Latin America will clearly drop on the foreign policy priority list of the United States. Mexico will be particularly hurt because it is doubtful that the U.S. will be able to move vigorously on the "open border" proposals and guest worker programs envisioned by President Fox when U.S. authorities are examining further restrictions and controls on travel and access to the United States. Mexico’s initial unwillingness to support convening the Rio Treaty, by contrast with the position of Argentina and Brazil, has also left a bad taste in White House circles.

At the same time, and despite hopes in Colombia that the attack on terrorism might lead to a heightened involvement of the United States in eradicating Colombian terrorism, it is clear that the U.S. will have to prioritize its efforts and go after those organizations that more directly threaten the immediate security and welfare of Americans. This does not mean that heightened efforts to control the financing of terrorism, including money laundering and money transfers could not have a significant effect on Colombia’s insurgencies that are so dependent on narco-trafficking income for its survival. But direct U.S. involvement in Colombia is simply out of the question.

What about free trade? Ironically, the new bipartisan climate in Washington may help the progress on free trade. The administration realizes more than ever that the FTA negotiations begun by President Clinton with Jordan, Vietnam and Singapore need to be concluded and that there would be great benefit in helping to secure support in the anti terrorist effort by moving ahead with Indonesia, the largest Muslim country in the World. Besides, the weakening economy is pushing leaders from both parties to look for formulae to avoid a more severe downturn in the world economy and progress on trade could be viewed as an important tool.

Both Democrats and Republicans signaled their willingness to compromise on defense matters, they are likely to signal a similar willingness now to compromise on trade by giving the President trade promotion authority. By the same token in order to signal progress the Bush administration may be willing to make more tangible concessions to the Chileans to get an agreement with Chile by the end of the year as an additional impetus to getting the FTAA process back on track while also pushing for renewal of the Andean Trade Preference Act.

Ultimately, Latin America will be more affected by the fortunes of the U.S. economy than by the war on terrorism or progress on trade. A serious recession in the United States will be difficult for Mexico and more devastating for other countries. Latin America will also be affected if the United State’s budget surplus disappears and the U.S. is forced to enter the markets to finance its deficit. That would have the effect of pushing interest rates higher, adding to the difficulties of countries like Argentina to finance their own deficits. A robust U.S. economy is necessary to help pull the international economy out of this serious downturn.

Ironically, the terrorist campaign has already forced the U.S. to take far more concerted action to deal with the economic downturn by adding fiscal stimulus measures to reductions in interest rates. But a prolonged war and uncertainty could negate these factors. From a world full of optimism at the turn of the millennium, we now face a world of acute uncertainty. The daunting task is to help forge a more secure and even just world order that will enable the promise of globalization to be fulfilled.