Friday, June 26, 2009

Whats Global Recession?

What is a global recession?

Unemployed workers at an employment office in Spain

Many individual countries are now in recession, and the world economy is flagging badly. Leading economic organisations and business leaders are talking about "a global recession".

But it is not easy to define. BBC World Service economics correspondent Andrew Walker looks at the tricky business of working out whether we are in "a global recession".

It really depends what you mean.

Even for national economies the word "recession" has more than one meaning.

It can apply to two consecutive quarters of declining output (GDP), a decline in annual GDP, or in the case of the US, it is the judgement of a committee of economists at the National Bureau of Economic Research.

But although there is more than one, these definitions are are widely used and understood.

That is less true of global recessions.

Some people are talking about one now, and for what it's worth, I have little doubt that by the end of this episode most people will agree that we have been through one. But what is it?

Different thresholds

Quarterly data are a problem at the global level. The International Monetary Fund (IMF) has concerns about the consistency across countries so it doesn't publish any quarterly global aggregates.

Whatever label we choose, the underlying reality matters a great deal to people who lose their jobs, have their incomes cut or whose business fails

So that brings us to annual figures and I have heard several different thresholds from IMF chief economists for judging whether a year counts as a recession.

Global output growth below 3%, 2.5%, and 2% have all been suggested.

Another idea is growth per capita of below zero. Global population grew at about 1.2% last year, which gives another, lower threshold.

Or some people just take recession to mean a very sharp slowdown in global growth.

There is also a wrinkle when it comes is adding up national output figures, in different national currencies.

The obvious thing to do is to use actual exchange rates, but that tends to make items produced in a developing country count for less than a similar item made in a developed one.

You can adjust for that by using made-up conversion rates known as Purchasing Power Parities, or PPPs.

If there is a global recession, it will be this year - let's hope no more than that.

So there are no real data. All we have to go on is forecasts.

The most recent one from the IMF is growth of 0.5% using PPPs, and minus 0.6% using market exchange rates.

If the forecast is right it's a recession by all those measures.

Political banana skin

But does it matter? For a journalist, it is more convenient to know for sure one way or the other.

Many people called 2001 a global recession, but the IMF decided it was a near miss. For the sake of balance I felt obliged to take account of that in how I wrote.

Whatever label we choose though, the underlying reality matters a great deal to people who lose their jobs, have their incomes cut or whose business fails.

It is also worth asking whether the word itself makes things worse, by depressing confidence.

It is arguable that when the National Bureau announced the current US recession, it added to the gloom on Wall Street - though it was a bad day for investors anyway.

There certainly is a history of wariness about using the R-word.

Last year the US Treasury Secretary Henry Paulson invented a new term - "down-climb".

It was such an odd choice that it really only succeeded in showing he was trying to avoid a nastier one.

In the more distant past, there's a story about a senior official in Jimmy Carter's US administration, an economist by the name of Alfred Kahn.

He was told off for frightening people by talking of recession and even depression.

So what did he do? Was he chastened?

No. He was witheringly sarcastic. He decided, the story goes, to substitute another word - banana.

The US was in danger of experiencing the worst banana in 45 years.

In a way it was a case of turning on its head a famous line from Shakespeare's Romeo and Juliet: "That which we call a rose by any other name would smell as sweet".

But this time it's not a rose that we can smell. It's an increasingly rotten banana.

Monday, June 01, 2009

Deffects in the Afghan-Pak Strategy of the US....

Holes in the US Afghan-Pakistan strategy
Shahzad Chaudhry
Lahore, Pakistan - The affable US Secretary of State Hillary Clinton needs to pay close attention to the serious gaping hole in US President Barack Obama's "AfPak" (Afghan-Pakistan) strategy: the absence of a cooperative geo-political security regime in the larger Afghanistan-Pakistan-India region.

The United States is in a unique and historical position in terms of its influence with all three countries. Pakistan holds the key to the long-term stability of South and West Asia. An unstable or socially fragmented Pakistan could mean an entirely unstable Afghanistan, regardless of the quality and expanse of democratic dispensation there.

Inalienably, there is a need to provide a sense of assurance to Pakistan's 28 million Pashtuns, who live predominantly in the North West Frontier Province and the Federally Administered Tribal Areas of Pakistan. To achieve this, Pakistan itself needs to be secure and stable. This realisation is entirely missing from the proposed political construct the United States wishes to use to deal with the region. The United States' emphasis continues to be on a transactional relationship with returns from Pakistan. This irks the Pakistani sense of self-respect, national pride and dignity.

Pakistan's nuclear status haunts the Western world, mostly for the wrong reasons. It is not the command and control mechanisms that should be of any serious concern; it is the insidious aspersions on the quality and character of the human resources engaged in the strategic programmes that betray a transparent and unsavoury attempt to demean Pakistan's credentials as a nuclear power.

The United States does not understand the very strong sense of nationalism that the nuclear programme evokes in the Pakistani people, which in a strange paradox becomes a shield against any attempt to retrench, dislodge or dismantle its capability. Similarly, any effort to attach religious definition to Pakistan's nuclear capability is mala fide and a figment of the West's imagination. Pakistanis neither give the capability any religious association, nor do they accept such a classification.

For the much larger majority, Pakistani nationalistic pride will override religious identification. More than the nuclear arsenal, it is the socio-political and economic instability of Pakistan that should haunt the world.

If there is anything that triggers Pakistan's nationalistic sentiment more than its nuclear capability, it is events in the Indo-Pakistan context.

By excluding India from the larger mosaic of declared American intent in its "AfPak" policy, Americans have denied themselves the assurance of a sustainable, secure and stable region. This is the missing kernel in the political stability equation for South Asia, and a major omission in the new strategy.

Socio-political stability, lying at the heart of regional stability, is the key to forging a cooperative regional mechanism built around shared stakes and progressive, prosperous futures. Trade, food safety nets, energy corridors and enhanced connectivity can weave threads of interdependence in the entire region that can only augur a better tomorrow.

To reach that end though, the prescriptive methodology will need to be replaced with an inclusive, cooperative framework, far different than what the new American establishment is currently willing to entertain. For America to be the honest broker, it is imperative that its own credibility within the larger region too is established without doubt.

Two things can be done by the Americans straight away: one, provide a de facto acceptance of Pakistan's nuclear status by concluding a treaty similar to the one signed with India. This would lay to rest the bogey that American ambivalence to Pakistan is intended to bring into dispute Pakistan's nuclear assets, and that the United States wants to de-fang Pakistan of her nuclear capability.

Second, the United States should use newly gained influence with India to encourage it to work with Pakistan to resolve long-standing issues. Since a solution to the Kashmir issue was nearly ready about two years ago, it may need just a little more attention. With a resurgent Congress in India and a reassured and more confident prime minister, Manmohan Singh, perhaps now is the time for the United States to help remove the biggest strategic roadblock in the Indo-Pak relationship.

Without these two nations evolving their relationship on a more cooperative and even keel, a better future for South Asia can never be ensured. But, if that proves too sensitive as a triggering platform, the United States would do well to arbitrate the more pervasive issue of managing shared water resources.

If these steps cannot be part of the US agenda, there is precious little that the United States can ever hope for beyond its transactional objectives. There too, the credibility of intent will always be seriously questioned on both sides.

Even more disconcerting, the post-American environment will be greatly more fractious and unstable with newer issues coming to the fore. The American effort to expand, enlarge, re-equip and re-train the Afghan military – which may in future establish even deeper links with India – will place Pakistan in a crunch. This in turn is likely to push Pakistan into a corner.

Pakistan can be more secure socio-politically only if it is included in regional and global linkages as a trusted partner and equal player. Prescriptive hierarchies will be the antithesis of a stable end-state that should be the prime international objective. It is imperative to understand the psycho-social make up of the Pakistani mind and its likely responses to emotive issues. What may appear clever can only have countervailing consequences. Transparency and cooperative engagement alone can move the region forward smoothly.


* Shahzad Chaudhry ( is a security and defence analyst. This abridged article is distributed by the Common Ground News Service (CGNews) with permission from the Daily Times. The full text can be found at

Source: Daily Times, 25 May 2009,
Copyright permission is granted for publication.

Sunday, May 24, 2009

Massage Economics: Is China declaring its actual economic growth?

PART of the recent optimism in world markets rests on the belief that China’s fiscal-stimulus package is boosting its economy and that GDP growth could come close to the government’s target of 8% this year. Some economists, however, suspect that the figures overstate the economy’s true growth rate and that Beijing would report 8% regardless of the truth. Is China cheating?

Economists have long doubted the credibility of Chinese data and it is widely accepted that GDP growth was overstated during the previous two downturns. In 1998-99, during the Asian financial crisis, China’s GDP grew by an average of 7.7%, according to official figures. However, using alternative measures of activity, such as energy production, air travel and imports, Thomas Rawski of the University of Pittsburgh calculated that the growth rate was at best 2%. Other economists reckon that Mr Rawski was too pessimistic. Arthur Kroeber of Dragonomics, a research firm in Beijing, estimates GDP growth was around 5% in 1998-99, for example. The top chart, plotting the official growth rate against estimates by Dragonomics, clearly suggests that some massaging of the government statistics may have gone on. The biggest adjustment seems to have been made in 1989, the year of political protests in Tiananmen Square. Officially, GDP grew by over 4%; Dragonomics reckons it actually declined by 1.5%.

China’s growth in the first quarter of this year has led some to conclude that the government is up to the same old tricks. According to official figures, GDP was 6.1% higher than a year earlier. Yet electricity production in the first quarter was 4% lower than it had been a year earlier; in comparison, production grew by 16% in the year to the first quarter of 2008. In the past, GDP and electricity output have moved broadly together, although it is not a one-to-one relationship (see bottom chart). But the gap between the two lines is now wider than it has ever been. Given that power statistics are less likely to have been tampered with than politically sensitive GDP figures, is this evidence that the latter have been fiddled?

Probably not. Paul Cavey, an economist at Macquarie Securities, argues that the discrepancy is explained by the fact that energy-guzzling heavy industries, such as steel and aluminium, bore the brunt of the slowdown last year. Mr Cavey calculates that the metals industry accounted for 40% of the growth in electricity consumption in 2001-07, but only 16% of the increase in industrial production. Steel output fell by more than 10% in the year to the fourth quarter, so it is hardly surprising that energy use dropped.

Distrust of the GDP numbers has prompted Capital Economics, a research firm based in London, to create its own proxy of economic activity, which includes electricity output, domestic freight volumes, cargo traffic at ports, passenger transport and floor area under construction. It suggests that GDP growth slowed to only 4% in the year to the first quarter. However, it tracks mostly industrial activity, and thus excludes two-fifths of the economy, most notably services, which are growing faster.

Then there are government tax revenues. These have fallen by 10% over the past year, compared with a surge of 35% in early 2008, suggesting that incomes and output have tumbled. But Stephen Green, an economist at Standard Chartered, says that revenues were inflated in early 2008 by a sharp rise in taxes from the boom in land sales, which has since subsided. Another possible distortion is that local officials may be hiding tax revenue to make their finances appear worse, in order to get more money from Beijing to finance infrastructure projects.

Overall, Dragonomics’s Mr Kroeber thinks that GDP growth in the year to the first quarter of 2009 was not significantly overstated. One reason why others are more suspicious is the fact that the National Bureau of Statistics (NBS) does not publish quarterly GDP figures as developed economies do; its year-on-year changes give it more scope to smooth growth rates (for example, output probably did stall over the past two quarters). To be fair, many developing countries do this as well. One reason is that seasonal adjustment is tricky in such countries where the shift from agriculture to industry changes the pattern of seasonality over time, says Mr Kroeber.

Cutting the fudge

And for all today’s misgivings, Beijing’s growth estimates consistently proved to be too low until recently. One of the quirks of Chinese data has long been that the provinces reported higher numbers than the central government did—a phenomenon that was put down to the fact that local officials inflated growth rates in order to get promoted. Yet the NBS GDP figures have almost always been revised upwards. For example, growth in 2007 was first reported as 11.4%, but in January it was marked up to 13%.

The NBS has improved its data-gathering methods in recent years, by extending its coverage of services, for example. This month Beijing also introduced new penalties for officials who falsify statistics. But the real test is whether the government itself is prepared to publish politically embarrassing bad news. There are encouraging signs that it is becoming more open. On May 14th an essay on the NBS website by Xu Xianchun, the bureau’s deputy director, was surprisingly frank about some of the flaws in Chinese statistics. Mr Xu admitted, for example, that the retail-sales numbers include some purchases by companies and the government, which should not be counted as consumption. He estimated that consumer spending in the first quarter grew by 9%, compared with the 15% increase reported for retail sales.

Andy Rothman, an economist at CLSA, a regional broker, believes that Chinese statistics are much more trustworthy than they used to be. This is partly because there are alternative numbers to go on; CLSA, for example, produces its own purchasing-managers’ index. There are also more private-sector economists keeping tabs on China than there were a decade ago. The more eyes there are on China, and the more crucial its economic performance becomes for the rest of the world, the harder it is for officials to tamper with the speedometer.

Tuesday, May 19, 2009

Same Problems with the New Guard?

New leaders face old problems in Mid-East

Israeli Prime Minister Benjamin Netanyahu listens to US President Barack Obama speak.
The two leaders have differing views on the Palestinian territories

By Jeremy Bowen
Middle East editor, BBC News

When you are dealing with a conflict that has gone on for a very long time, it is wise not to infer too much from a single meeting between two men who are new to their jobs.

But new leaders usually have a better chance of changing things than they do after they have been bruised and battered by a few years in office, so it does not do to be too cynical either.

Before the meeting between US President Barack Obama and Benjamin Netanyahu, Israel's new prime minister, there were predictions of a rift between them.

There are precedents. When Mr Netanyahu was prime minister between 1996 and 1999, he had a difficult relationship with President Bill Clinton.

Then President Clinton with Mr Netanyahu in 1998
The relationship between President Clinton and Mr Netanyahu was difficult

But if that is going to happen with President Obama, it is probably too early, and the rest of us are not likely to hear about it for a while.

Two leaders anyway do not have to be best buddies to run an alliance.

Do not forget that there are important links between the United States and Israel that are about as immutable as anything else in international affairs.

Ever since President Harry Truman gave Palestine's Jews vital diplomatic help when they were creating the state of Israel in 1947-48, the relationship has become closer and closer.

At the moment Messrs Obama and Netanyahu are agreed that they do not want Iran to get nuclear weapons.

That has been apparent for some time. Iran denies they are developing a weapon, but its arguments are not winning many of the sceptics over.

The Israeli government does not have much faith in the Obama administration's plan to talk Iran out of enriching uranium.

But it can hardly tell the president not to try.

Mr Netanyahu would have liked a tough deadline to be built into any talks, when they start properly.

Instead President Obama promised to view the way they are going at the end of the year. It is a deadline of sorts.

Israeli supporters rally outside the White House, 18 May 2009
The US and Israel agreed that they do not want Iran to have nuclear weapons

But does it just give the Iranians a warning that by December they need to have found a way to play for more time?

On the Palestinian front, President Obama reiterated his belief that the best chance of peace lies with the creation of a Palestinian state alongside Israel.

He emphasised Israeli as well as Palestinian obligations.

For example, he said that Israel was right not to tolerate its citizens being rocketed from Gaza.

Then he went on to say that Israel needed to loosen its blockade of the territory because despair in Gaza was bad for peace and bad for Israeli security.

Mr Netanyahu, on the other hand, does not believe in Palestinian independence.

He talks about a plan for economic peace and limited self-government, which he says is necessary because otherwise Israel would open itself up to unnecessary risks.

He warns that Palestinian independence in east Jerusalem and the West Bank could create a forward missile base for Hamas and Iran.

Collision course?

The starkly different views of a Palestinian state mean President Obama and Prime Minister Netanyahu have built the chance of a collision into their new relationship.

Damage in Gaza after an Israeli air strike on a smuggling tunnel
Israel's blockade caused despair in Gaza, Mr Obama has said

President Obama is expected to announce a new peace plan in a speech in Cairo on 4 June.

If it is to be serious, it will have more details that Mr Netanyahu and his mainly right-wing coalition will find hard to swallow, especially on the continuing expansion of Jewish settlements in the occupied Palestinian territories, which is against international law.

Officials who are travelling with Mr Netanyahu are talking confidently to Israeli journalists who are travelling with them, suggesting that any problems will be ironed out in joint US-Israeli work committees that are being set up.

It might not be that easy.

Israel and the US are natural allies. But only partially obscured by the mutual compliments at the White House were differences of tone and substance that would have been inconceivable under President George W Bush.

If President Obama is serious about making peace in the Middle East, tough choices will be required from all sides, and that means there could be some bumpy moments ahead in the relationship between Israel and its best friend.

Thursday, May 07, 2009

Strong Statesmanship

There is no alternative

May 7th 2009
From The Economist print edition

The permanence of Thatcherism and the politics of unpopularity

Illustration by Steve O'Brien

POLITICS has turned funereal. New Labour was buried by ululating commentators after last month’s flawed budget. Now the -ism that spawned Tony Blair’s hybrid creed is apparently following it into oblivion. The 30th anniversary of the Iron Lady’s first general-election win in May 1979 has been marked by reports, often exultant, of the death of Thatcherism.

There are two strands to this diagnosis. One is that Margaret Thatcher’s deregulatory reforms, in particular the “Big Bang” of 1986, caused the financial crash; in this critique Mrs Thatcher (as she was in office) personally dispensed bankers’ bonuses from her handbag. The wider point is that the economic model she advocated, and which her apostate Labour successors embraced, has been discredited. Neo-liberal, Thatcherite economics, runs this argument, was fatally undermined by its own internal weaknesses, then interred after the crunch amid a mêlée of Keynesian splurges and nationalisations. None of us is a Thatcherite now.

The first charge is true only in the way that, say, the Versailles treaty “caused” the second world war. There have been too many intervening years, factors and governments for the case to stand up—though it reflects Mrs Thatcher’s mythic status that, for some, she must be to blame. The wider argument is plain wrong. The themes of British politics in the next few years will be recognisably Thatcherite. So will many of the policies.

Conviction and confusion

One nostalgic motif may be confrontation with trade unions. Of course, they are not the destructive power in the land that they were in 1979: Mrs Thatcher saw to that. Their membership has shrunk; their leaders are saner. All the same, the squeeze on pay and pensions in the public sector that may be needed to help cut Britain’s deficit will doubtless provoke a serious punch-up.

Another is privatisation. Admittedly, the state has temporarily taken charge of the new commanding heights of the economy, the banks. But elsewhere the process of privatisation begun by Mrs Thatcher and furthered by her heirs continues: witness the row between Gordon Brown and Labour MPs over plans for Royal Mail. More importantly, in areas that Mrs Thatcher only nibbled at—health, education and welfare services—politicians will push on with bringing in private provision and applying the rigours of the market to the functions of the state.

Then there is the question of tax. The new top rate of income tax, of 50% for earnings over £150,000 ($225,000), is cited as evidence of Thatcherism’s combustion. Yet the angry response has shown how widespread and ingrained is the doctrine that Mrs Thatcher preached: that low tax is good for both enterprise and government revenues. Moreover, while the latest increase may be myopic, it is scarcely the sort of confiscatory levy imposed before she took over: the realm of the possible in taxation has shrunk. Taxes may rise in the immediate future (as they did after the notorious budget of 1981); but a 1980s-style backlash against over-taxation across the whole spectrum of wealth may well follow. There could be a renewed push for tax reform, shifting the burden, as Mrs Thatcher did, from income tax to other kinds.

Britain is not the place it was in 1979: it is more complex, more tolerant and hedonistic, haunted less by imperial decline than by pseudo-imperial overstretch. Its problems are different too. Thirty years ago, taming inflation and making the country governable were Mrs Thatcher’s first priorities. Now one pressing need is to fulfil an aspiration she never realised: a dramatic reduction in the proportion of national wealth consumed by the state. For all the excitable short-term neo-Keynesianism, the basic long-term solution is Thatcherite: stringent economic discipline.

Imposing that discipline will bring with it two other Thatcher trademarks: controversy and intermittent unpopularity. The atmosphere of politics, like some of its content, is set to be Thatcherite. And Mrs Thatcher’s experience offers her successors a template for the uses and management of opprobrium.

For Mr Brown, the comparison is shaming. Shortly after he moved into Number 10, he invited Mrs Thatcher round for tea, describing them both as “conviction politicians”. Yet whereas her premiership was controversial in pursuit of a transformative goal, his has been a study in purposeless unpopularity.

Meanwhile David Cameron, the current Conservative leader, is in one sense the first post-Thatcherite holder of that office; only now have the clefts in the party left by her ousting healed. Mr Cameron is a different sort of Tory: less of an economic determinist than Mrs Thatcher, more socially liberal, more in the party’s “one nation” tradition. But he has assimilated at least one major lesson of her often misremembered career. She was a revolutionary but also an incrementalist, whose biggest upheavals were mostly not announced in her manifestos.

Mr Cameron is being similarly cautious. He now lauds Mrs Thatcher where once he seemed to distance himself from her, using her name as a byword for political bravery—but without saying precisely what form his own bravery will take. His Tory colleagues talk about how loathed they expect to be after six months in government—but not exactly why. The outstanding question is this: for all the shortage of upfront details, Mrs Thatcher knew what she wanted to achieve. Do the Cameroons?

At a recent press conference Mr Cameron was asked about the Thatcher anniversary. Serendipitously, as he answered, a military band struck up outside the window; Mr Cameron clenched his fist and talked with mock bombast about giving “pride back to Britain”. He is of a generation for whom invisible, ironising inverted commas hang above any grand or portentous statement. They didn’t for Mrs Thatcher. Her lesson is that Mr Cameron needs to know his mission, stick to it and hold his nerve.

Saturday, May 02, 2009

On the prowl

China's sovereign-wealth fund is back on the acquisition trail

Having kept a relatively low profile after big paper losses on its early overseas investments, China's fledgling sovereign wealth fund, China Investment Corporation (CIC), is hunting for acquisition targets once more. Such a move, combined with the more aggressive expansion plans of other Chinese companies, will reinforce speculation that China aims to exploit the global economic crisis by securing strategic assets at fire-sale prices. In truth, the CIC's agenda is more about seeking solid investment returns while helping the government to diversify China's foreign-exchange reserves. Still, Chinese outward investment will remain controversial.

Comments by the CIC's chairman, Lou Jiwei, in mid-April underlined the firm's renewed appetite for foreign investment. Mr Lou talked in particular of the CIC's interest in cautious expansion into Europe. Most importantly, he said that the economic crisis had changed the investment climate. Not only does the collapse in asset prices mean there are bargains for investors like the CIC, but many potential target firms' desperate need for cash is likely to clear away some objections to Chinese investment (particularly when non-controlling stakes in companies are involved).

This is a marked departure from the CIC's hesitant behaviour in the past half-year, when it avoided high-profile foreign investments. That stance was a response to the intensification of the global financial crisis in September and October last year, which hit the value of the CIC's portfolio. A key part of the fund's mandate is to make reasonable returns on its holdings of China's foreign reserves. But the company has been burned by the financial meltdown--in particular by unsuccessful investments in US financial companies.

Curbed appetite

So what has the CIC been up to? During its apparent hibernation, when many overseas markets were too turbulent to invest in, the CIC concentrated on internal restructuring and on domestic investments. As foreign financial institutions sold stakes in China's largest state-owned commercial banks, the CIC stepped in. The fund began purchasing sizeable quantities of shares in domestic banks from September 2008 and continued to do so into January 2009. According to the state-run China Daily newspaper, the CIC now holds shares worth US$22.5bn in China Construction Bank, US$22bn in the Bank of China, and US$22bn in Industrial and Commercial Bank of China.

The recent shift in focus for the CIC, which was established less than two years ago with around US$200bn in capital from China's foreign reserves, underlines the fact that global financials are now unappetisingly risky. Yet Mr Lou's recent remarks on investing in Europe do not necessarily herald the start of an unrestrained shopping spree. Indeed, the need for large overseas investments is becoming less urgent. The downturn in exports has diminished the importance of rebalancing the country's capital flows--a purpose that the CIC's outward investments indirectly serve. In 2007 and 2008 huge inflows of foreign exchange caused significant domestic liquidity issues, but the size of inflows has fallen off since mid-2008. The Economist Intelligence Unit forecasts that China's trade surplus will contract by more than one-third from US$361bn in 2008 to US$230bn in 2013. Inflationary pressure is also easing. The consumer price index is now in negative territory, and the fading away of the food- and oil-price shocks of early 2008 has also made sterilising foreign-currency inflows less urgent.

With the decline in one of its primary roles, the CIC has taken the opportunity to tighten up its operations, reshuffle staff and move into cheaper and less-risky assets. The company hired Zhou Yuan as the new head of its alternative-investment team in December 2008, in the hope that Mr Zhou's experience with UBS, a Swiss bank, would help the unit to improve returns. CIC's recent pursuit of mining investments--for example, with Fortescue, an Australian iron-ore miner--would also suggest a shift towards a more conservative portfolio, as officials seem to regard mining companies as safer and more consistent with national strategic goals than those in the financial sector.

"Go global" and prosper

Despite the easing of capital inflows, China will continue to have very large foreign reserves, and the CIC's mission will remain to diversify those reserves. As such, its investments will remain potentially controversial. The company is therefore keen to avoid the perception that it is on a mission to take controlling stakes in target companies' management or to buy up politically sensitive natural resources. Mr Lou underlined this in a speech in early April. He also stressed the CIC's adherence to the Santiago Principles, a new set of guidelines for sovereign wealth funds that China helped to draft. Undoubtedly, his efforts to present the CIC as a responsible investor are part spin, designed to reduce foreign opposition to the firm's investment plans. But they also suggest that the CIC will err on the side of making cautious and non-controversial investments for the next few years.

The CIC's low-profile approach contrasts with the more aggressive strategies of industrial state-owned enterprises (SOEs), whose investment bids--such as those in the mining sector--continue to make headlines. The SOEs' bolder strategy is being encouraged by the central government's "go global" policy (also referred to as the "going out" policy), the aim of which is to establish a larger Chinese presence in the international arena. The policy focuses on foreign acquisitions, brand-building and boosting international competitiveness. Chinese SOEs are being attracted by the low valuations of increasingly desperate foreign targets. Zheng Xinli, an influential economist with the Chinese Communist Party's top think tank, said in February 2009 that, with the exception of financial firms, China's SOEs should be bold in making overseas investments, particularly in strategically important sectors such as energy and resources. As international raw-material prices and shipping costs plummet, Chinese policymakers see a rare (and cheap) opportunity for Chinese enterprises to develop new markets abroad.

However, the global crisis swings both ways, and China has not gone unscathed. It seems that many Chinese companies, particularly in export-oriented sectors like high technology and textiles, are reluctant to risk overseas investments. Many have financial problems themselves. Despite the high-profile mergers and acquisitions being inked in the resources sector, a recent survey by a government trade promotion body showed that most firms are actually planning to cut down investment overseas.

Friday, May 01, 2009

Is There a real war between Pakistan and the Taliban?

As the Pakistani army launches a new assault on the Taliban, America hopes it is now more serious about defeating the militants


WHEN Barack Obama unveiled his new policy on Pakistan and Afghanistan in March, he gave a warning that al-Qaeda, the Taliban and other jihadist gangs were “killing Pakistan from within”. The generals who guard Pakistan’s national security had shown only “mixed results” in combating the threat, he said. They would no longer enjoy a “blank cheque”; they must show that they are fighting in good faith.

On April 26th, Pakistan gave a glimpse of this: by launching an attack on the Pakistan Taliban in parts of North-West Frontier Province (NWFP) recently overrun by the militants. It began with an assault in Lower Dir, near the border with Afghanistan, in which the army claims to have killed 70 militants and lost ten soldiers, and which displaced some 30,000 people.

On April 28th the army launched a bigger offensive in the scenic Buner valley, just 100km (62 miles) from Islamabad, Pakistan’s capital. As helicopter gunships and jets strafed their positions, the Taliban took around 70 policemen and soldiers hostage. But showing more resolve than it had previously, the army said airborne troops had been dropped behind Taliban lines and freed 18 of the captives. Major-General Athar Abbas, a military spokesman, said 50 militants had been killed in the first two days of fighting. He said it would take a week to drive the Taliban out of Buner.

This sudden violence seems to have been provoked, in part, by embarrassing media reports of the Taliban’s capture of Buner. Many of the bearded fighters had come from the neighbouring district of Swat, a Taliban stronghold, where NWFP’s government, at the army’s urging, had brokered a ceasefire with the militants in February. Under the terms of this pact, the government promised to institute Islamic law, sharia, throughout the Malakand division (whose seven districts, including Swat and Buner, make up about a third of NWFP’s area). In return, the local Taliban, led by a zealot called Mullah Fazalullah, were to lay down their arms.

The Taliban’s advance into Buner, which had resisted Talibanisation, was a violation of the deal, but at first neither the government nor the army seemed concerned. America, which had opposed the Swat deal from the start, was furious. On April 22nd Hillary Clinton, the secretary of state, said Pakistan was becoming a “mortal threat” to the world; its government and people needed to “speak out forcefully against a policy that is ceding more and more territory to the insurgents”. On April 25th she expressed concern for the safety of Pakistan’s nuclear arsenal if the Taliban were to “topple the government”.

Some Western diplomats considered this scaremongering. The Taliban are near Islamabad because the capital, a 1960s new town, was built close to the rugged border area where these Pushtun tribesmen live. But there is no chance of their seizing Islamabad. If, unthinkably, the disparate warlords who make up the Pakistan Taliban were to mass together for a frontal attack, Pakistan’s army, which is 620,000-strong and well-drilled for conventional warfare, could crush them. Indeed, many pundits reckon that an Islamist takeover in Pakistan would be possible only with the army’s support.

The Taliban, almost exclusively Pushtun, are not popular in Pakistan. Though often anti-American, and bothered by a growing extremist fringe, most Pakistanis are moderate. Unlike some Taliban leaders, Mullah Fazalullah is not known to have links to al-Qaeda. Yet Mrs Clinton’s warning points to an uncomfortable fact: since 2001, despite lavish American sponsorship, including over $10 billion in military aid, Pakistan has only become more turbulent and violent.

Even the country’s president, Asif Zardari, has conceded that the Taliban hold “huge amounts of land”. The army deserves much of the blame. During a seven-year campaign in NWFP and the Pushtun tribal areas adjoining it, where 120,000 troops are currently deployed, it has oscillated between fighting militants and making deals that, typically, give militants the run of their areas in return for a promise (rarely kept) of good behaviour.

The Taliban in Pakistan are linked by ideology and Pushtun tribal kinship to those fighting in Afghanistan. In South and North Waziristan, two ever-hostile tribal areas, the local commanders, including Baitullah Mehsud, leader of the Pakistani Taliban, are widely believed to play host to al-Qaeda’s core leadership. They also send their long-haired gunmen across the border to fight Western and Afghan forces.

For America, Britain and other Western countries there is a direct connection between militancy along the lawless “Af-Pak” borderlands and jihadist bombings in Western cities. Yet Pakistan is the biggest victim of the militant tide. Around half a million people are estimated to have been displaced by fighting in the north-west. From their havens there, many jihadist terrorist groups have launched attacks on the state. Pakistan has suffered over 60 suicide-bombings in each of the past two years, on hotels, restaurants and mosques in Peshawar, Lahore and Islamabad, and on army facilities. Benazir Bhutto, Mr Zardari’s wife, a two-time former prime minister and leader of the Pakistan People’s Party (PPP) who was murdered in December 2007, was one high-profile victim. Foreigners are also at risk. In Peshawar, NWFP’s increasingly nervy capital, two Afghan diplomats and one Iranian have been kidnapped. America’s consul last year had her (bulletproof) car sprayed with bullets.

Even if the Taliban cannot conquer Islamabad, they might soon grab some lesser strategic place—just imaginably, Peshawar; or they could close down the motorway linking it to Islamabad. Mr Obama’s new policy, which treats Pakistan as the main threat to regional stability, is intended to arrest this slide. It will come with a lot more money, including $1.5 billion a year in non-military aid over the next five years. At a conference in Tokyo on April 17th America, Britain, Japan, Saudi Arabia, South Korea and other “friends of Pakistan” also pledged $5.3 billion in budget support and other aid. Pakistan will be expected to provide better accounting for how it spends this money; for years its squandering of America’s war-on-terror cash has been an open joke.

The mess in Malakand

Like a spectre, the Malakand ceasefire had been waiting to test America’s renewed commitment to securing Pakistan. It was agreed between NWFP’s provincial government and a veteran Swati Islamist, Sufi Muhammad, who is Mullah Fazalullah’s father-in-law, shortly before the inaugural visit to Islamabad of Richard Holbrooke, Mr Obama’s “Af-Pak” envoy. America considered the pact yet another abdication to the Taliban by an army that has sometimes inexplicably underperformed. By one Western estimate, it has lost 70% of its battles against the Taliban. It has also lost over 1,500 soldiers.

Another cause for alarm is that Swat is not like the tribal areas, which have always been largely beyond the writ of Pakistan. Swat, by contrast, is a thickly populated former tourist destination, famous for honeymooning couples and Pakistan’s only ski-lift. The Taliban’s capture of Swat therefore contained a promise of further militant expansion, even into Punjab, Pakistan’s richest and most populous province. Nor, judged on the failure of earlier deals, did the ceasefire ever seem likely to weaken the militants, as the government hoped it would. When it was eventually approved on April 13th by Mr Zardari after much anxious foot-dragging, an American spokesman said it violated the principles of democracy and human rights.

But most Pakistanis seemed to welcome the deal, believing it would end recent carnage in Swat. Since mid-2007, when Mullah Fazalullah and his followers took up arms in protest at an army raid on a jihadist citadel in Islamabad, the Red Mosque, they have blown up 200 non-Islamic schools in the district, beheaded scores of government workers and alleged spies, and periodically kidnapped companies of soldiers sent to fight them. Preaching class warfare, as well as jihad, they have seized hundreds of houses and landholdings, including many of Swat’s prized orchards. Half of the district’s police officers and many administrators have fled, as have most landowners. Around 800 people have been killed, most during a heavy-handed army action that began last October, and displaced at least 100,000 people.

AP The Taliban in Buner, with Koran and Kalashnikov

The Taliban behaved repellently during that offensive. Residents of Mingora, Swat’s biggest town, awoke daily to find still-dripping corpses littering its central plaza, or dangling from lamp-posts there. They dubbed it Khooni Chowk, or “Bloody Square”. Yet almost all agree the army killed more civilians than did the militants. “The army was aiming its shells at ordinary people. Or else, did they hit our houses every day by mistake?” asks Fazal Rahman Nono, a local resident.

If few Swatis have much love for the Taliban, practically none say they want a military operation to dislodge them; nor do the army and NWFP’s government. General Abbas says that if the army had continued with its last offensive in Swat, “the whole valley would have been flattened”. He also defends the ceasefire deal; he says it has isolated the radical Mullah Fazalullah by bolstering Mr Muhammad, who was until recently in prison and disgrace, having led an army of Swatis to be slaughtered by American bombers in Afghanistan in 2001.

But far from muzzling his son-in-law’s jihadist invective—which Mullah Fazalullah once broadcast regularly, earning himself the moniker “Mullah Radio”—Mr Muhammad has echoed it. Ahead of a rally on April 19th to celebrate Mr Zardari’s signing of the ceasefire accord, Mr Muhammad was allegedly primed by the provincial government to tell the Taliban to disarm. Instead, addressing a crowd of 40,000 in Mingora, he denounced Pakistan’s constitution and said democracy was for infidels. Similarly, Mullah Fazalullah’s commanders say the deal is a first step to imposing sharia throughout Pakistan.

They clearly have no intention of ceding Swat to the government. Instead, the ceasefire has enabled them to tighten their grip on it. Last week they occupied the office of Médecins Sans Frontières, an NGO, in Saidu Sharif. In early April, they occupied the northern Swati town of Bahrain, and on April 28th shot and injured one policeman there and kidnapped another. Speaking by phone, a local resident says: “Ours is a life of fear and death.” Yet the government could probably have lived with this, if the Taliban had not embarrassed it by taking Buner.

A step too far

On April 24th, four days before the army launched its offensive, the Taliban leader in Buner, Commander Khalil, welcomed your correspondent to his requisitioned house in the village of Sultanwas. He claimed to have been sent to the district by Mullah Fazalullah to check that sharia was being followed, in accordance, he said, with the terms of ceasefire agreement. Yet he and his men had proceeded to chase away the district police and a few local resisters, killing eight. They then looted every government and NGO office and well-to-do house or business they could find. Pointing to a large trove of stolen computers, American-donated food aid and jerry-cans of petrol, he said: “We’ll give them to the poor, who really need them. These houses also belonged to rich people, who ran away when we arrived because they were scared to face our justice.”

America is delighted by the army’s subsequent assault in Buner; a Pentagon spokesman called it “exactly the appropriate response”. Some American officials believe the army will even resume its offensive in Swat; and this time crush Mullah Fazalullah. Such optimism might seem justified by a modest improvement in Pakistan’s fortunes on other fronts. Courtesy of an IMF loan of $7.6 billion, the offerings of its friends, and some penny-pinching economic management, it is no longer at risk of insolvency, as it was late last year. And in March, skilful diplomacy by the army and America averted a political crisis sparked by Mr Zardari’s efforts to have his more-popular rival, Nawaz Sharif, rendered ineligible for election. If Pakistan now has a window of relative political and economic stability, could Malakand prove to be a turning-point in Pakistan’s flagging war with extremism?

Probably not. The government has made no effort to use the ceasefire to extend its writ in Swat. Nor has it announced any plan to abrogate the deal. And the army shows little sign of wanting to resume the fighting in Swat. If this suggests Pakistan’s top brass may, under pressure from America, be doing no more than the minimum (or slightly less than that) demanded of them, it would not be for the first time. One of the tricks used by the former president, Pervez Musharraf, was to arrest a few of the former jihadist assets of the army’s Inter-Services Intelligence (ISI) agency; then later release them.

America has endured many such false hopes in Pakistan. Another was in early 2007 when the ISI backed a Taliban commander in South Waziristan, called Muhammad Nazir, to expel some Uzbek militants who had found refuge there. The army suggested that foreign militants would no longer be welcome in the tribal area. But Mr Nazir did not evict his Arab terrorist guests, and in February he declared a new alliance with South Waziristan’s main Taliban commander, Mr Mehsud, the alleged mastermind of Ms Bhutto’s murder.

In a more recent setback, Abdul Aziz, head of Islamabad’s Red Mosque, was released from jail on April 16th. He had survived the army’s assault on the mosque (though over a hundred, and perhaps many more, of his followers did not) by fleeing dressed in a black burqa. Within hours of his release Mr Aziz was back in the pulpit, claiming credit for the introduction of sharia to Swat, and predicting the same for all Pakistan.

Another act of Pakistani slipperiness, the government’s failure to dismantle the latest incarnation of the Lashkar-e-Taiba (LET) terrorist group that is alleged to have carried out a murderous commando-style attack in Mumbai last November, may be most troubling. In response to strong American, British and, naturally, Indian pressure, it arrested half a dozen mostly mid-level LET members, and vowed to try them for this crime. But there is little prospect that the group’s senior leaders, currently under house arrest, will face justice. And the government has already failed in its obligation to take over LET’s assets, which include schools, dispensaries and hospitals. In Punjab, which is home to LET (a group formerly trained by the ISI to fight in Indian-held Kashmir), the government has taken over 20 LET schools and five hospitals. Yet the group is estimated to retain control over an estimated 50-70 other properties, which it holds in other names.

Pakistan’s failure to suppress LET invites the thought that the army has not entirely abandoned its old proxy. And it still considers India, against whom it has fought three full-scale wars, to be its main enemy. To some extent, this obsession with India illuminates the army’s troubles in the north-west. By maintaining its readiness for a conventional war on Punjab’s plains, it has been slow to acquire the necessary counter-insurgency skills; hence its brutish reliance on artillery fire in Swat.

Worse, the army stands accused of protecting some of its former militant allies in the tribal areas, to preserve them for future (or perhaps current) use in Afghanistan and Indian-held Kashmir. This allegation is often cited to explain the army’s failures. But there is rarely evidence for it. Increasingly, though, senior American officials decry Pakistan’s obsession with India. General David Petraeus, chief of America’s Central Command, argues that Pakistan faces greater danger from home-grown extremism. With a smile, General Abbas suggests he doesn’t think much of this: “When people come here and tell us about our neighbour, how good or bad he is, allow us to take it with a pinch of salt.”

Rigid, deceitful and, it seems, convinced that Islamist militancy poses a much lesser threat to Pakistan than America reckons, the army will always be an awkward ally along the north-west frontier. Then again America is a difficult friend for Pakistan. Its pressing objective is to stanch the flow of Taliban into Afghanistan and to crush al-Qaeda’s leadership; these are not priorities for many Pakistanis. And if the Pakistani army’s efforts against the Taliban have not been successful, it reasonably counters that the cross-border insurgency has been inflamed by America’s own blunders in Afghanistan and its missile strikes into Pakistan.

The army considers that it takes a longer-term view of what is required for its troubled north-west. In Swat, for example, it seems to think it would be fruitless to pulverise the Taliban, and in the process kill many civilians, while Pakistan’s civil institutions are too weak to fill the vacuum that would be created. This is not entirely unreasonable. Local dissatisfaction with Pakistan’s slothful and corrupt justice system—so much worse, Swatis say, than the traditional system of modified sharia that it replaced in 1969—has helped fuel Mullah Fazalullah’s insurgency.

Many also seem to believe that, once sharia is instituted, the brutal militants will fade away. Inam-ur-Rahman, head of the Swat peace committee, a group that speaks to both the army and Taliban, says: “For God’s sake, let’s implement the deal. It will bring peace.” Alas, that sounds naive. But even a government determined to crush the Taliban will struggle without the support of the local population. “Even if you take a Pushtun person to paradise by force, he will not go,” adds Mr Rahman. “He will go with you only by friendly means.”

Thursday, April 30, 2009

Battle of Ideas

Chinese companies are enforcing patents against foreign firms

FOR over a decade Schneider Electric of France has bombarded a Chinese firm, Chint Group, with lawsuits accusing it of copying its technology. But the tables turned on April 15th when the two companies settled an infringement case—with the French firm forking over $23m to Chint. The rich settlement against a foreign firm is a landmark. It serves as a reminder that Chinese companies are just as eager to defend patents as Western firms, and that China’s intellectual-property regime has been tightened in recent years.

Long the workshop of the world, China wants to be the brains as well. The country’s patent office leads the world in patent applications, more than 800,000 of which were filed in 2008. Most are for “petty” patents: middling technology that undergoes minimal review and receives only a 10-year term. Such patents are usually derided by research-intensive Western firms—but Schneider was stung by one that had been issued to Chint. And Chinese firms are increasingly filing “invention” patents that are rigorously scrutinised and receive 20 years of protection, as in the West (see chart). This year Chinese companies are poised to surpass foreign ones in receiving invention patents in China.

With the rush for patents has come an increase in disputes. Since 2006 more patent lawsuits have been filed in China than anywhere else, even litigious America. Most pit domestic firms against each other, but in recent years foreigners have found themselves on the receiving end too. In December Samsung, a South Korean conglomerate, was ordered to pay compensation to Holley, a Chinese telecoms firm. The recent victories and lucrative awards will open the floodgates to more suits, predicts Tony Chen of Jones Day, a law firm.

Intellectual property is relatively new to China. Patents date back to Venice in the 15th century, but Communist China did not allow them until 1985. Since 2006 it has pursued a deliberate policy of gathering as many patents as possible and developing home-grown technologies—not least because Chinese companies pay around $2 billion a year in licensing and royalties to American firms alone, according to America’s Bureau of Economic Analysis.

Chinese firms are also increasingly seeking patents abroad, a sign that they plan to protect their technology when exporting it to rich countries. They won 90 patents in America in 1999 but last year they received 1,225. That is still relatively few—IBM, an American technology giant, receives around 3,000 a year—but it is increasing quickly. Because it takes three to five years to issue a patent, the number issued to Chinese firms is expected to soar soon. The quality of patents issued in China is also improving. Revisions to the patent law that take effect in October strengthen the requirement for a patent’s novelty, bringing it up to global standards. Stronger patents are easier to enforce, opening the door to more lawsuits.

All these trends are important because countries that create intellectual property eventually enforce it as well, explains Dominique Guellec of the OECD. America, it is worth remembering, was the great copyright and patent infringer when it was a developing country in the 18th century

Wednesday, April 29, 2009

Is Israel heading for a clash with the US?

It is Israel's Independence Day - traditionally time for leading Israeli politicians to give big interviews about their country's past and future.

Israel's new Prime Minister, Benjamin Netanyahu, has remained conspicuously tight-lipped.

Israeli voters went to the polls in February.

Mr Netanyahu knows their number one priority is personal and national security.

This would have been an ideal moment for him to set the scene as regards foreign policy, but it looks like Israelis - and the impatiently expectant international community - will have to wait a little while longer.

In a region where sparks can fly and wars can start without too much warning, Mr Netanyahu's spokesmen have announced the world view of this new Israeli government will only be revealed around 18 May.

Israeli PM Benjamin Netanyahu
Mr Netanyahu is likely to reveal more about his policy in Washington

This is when Mr Netanyahu is scheduled to meet US President Barack Obama in Washington.

In the meantime, the Israeli leader's defence and foreign ministers have dropped some heavy hints (though, not unusually for tumultuous Israeli government politics, the declarations were not always harmonious).

They, as well as Washington's statements and comments made by Arab leaders, are being closely monitored.

Israelis and Middle East-watchers are keen to know if there will be an ugly clash at the White House next month.

In the end, it is unlikely, but the players' stated positions make it perfectly possible.

Mr Netanyahu has a track record of difficult relations with his country's closest ally, dating back to his previous term as Israel's premier back in the late 1990s.

Complex reality

Clearly, a key issue is Palestinian statehood.

Mr Netanyahu and his foreign minister have preferred to remain vague on the issue.

Foreign Minister Avigdor Lieberman claims boosting the Palestinian economy is more of a priority.

We can't talk forever... at some point steps have to be taken so that people can see progress on the ground
US President Barack Obama

He insists that the international community drop phrases like "land-for-peace" or "two-state solution".

He says they oversimplify a complex reality.

Defence Minister Ehud Barak said in an interview published on Tuesday that he believed peace could be achieved within three years.

Mr Lieberman has promised "new approaches, new ideas, new visions".

It is questionable whether that will be good enough for Barack Obama.

Since taking office, he and his Secretary of State, Hillary Clinton, have gone out of their way to insist a two state solution is the only solution to the decades old Israeli-Palestinian conflict.

They also appear keen to push for wider regional peace.

'New war?'

This month Jordan's King Abdullah became the first Middle East leader to be received in Washington by President Barack Obama.

He urged Israel's acceptance of what has become known as the Arab peace initiative, where Israel would achieve diplomatic recognition in the Arab world in exchange for pulling back to its pre-1967 borders, allowing for the formation of a viable Palestinian state.

Jordan's King Abdullah and US President Barack Obama at the White House
King Abdullah was the first Middle East leader to visit President Obama

King Abdullah said it was imperative the US take a forceful role in resolving Israeli-Palestinian relations.

If no progress was made, he warned, the region was facing a new war.

Palestinian Authority President Mahmoud Abbas said King Abdullah spoke on behalf of the wider Arab world.

President Obama seemed sympathetic to the message.

He said: "We can't talk forever... at some point steps have to be taken so that people can see progress on the ground. And that will be something that we will expect to take place in the coming months."

But how far is he willing to push Israel? US administrations are famously reluctant to come to diplomatic blows with the country some describe as America's 51st state.

'Biggest obstacle'

It could all come down to Iran.

While in opposition, Mr Netanyahu repeatedly said Iran was the biggest threat to Israel's existence.

He is very likely to deliver this message and ask for assurances during his visit to Washington.

President Obama may press for progress on the Palestinian issue in return.

It's impossible to combat any problem in our region without resolving the Iranian problem

Israeli Foreign Minister Avigdor Lieberman

Speaking in Washington on Friday, US Secretary of State Hillary Clinton said: "For Israel to get the strong support it is looking for vis-a-vis Iran, it can't stay on the sidelines with respect to the Palestinians and peace efforts. They go hand-in-hand."

International diplomats have speculated that Sunni Arab governments which fear Iran feel they need clear steps forward towards an Israeli-Palestinian peace deal in order for their nations to accept Arab backing of US-Israeli moves against a fellow Muslim nation.

Publicly the leaders of Egypt, Jordan, Saudi Arabia and other Arab nations insist the Israeli-Palestinian conflict is the core Middle East issue.

Until that is resolved there can be no regional peace.

But Israel's Foreign Minister, Avigdor Lieberman, insists what he describes as "the Iranian problem" must be resolved before anything else.

"The biggest obstacle to a comprehensive solution is not Israel. It's not the Palestinians. It's the Iranians."

"It's impossible to combat any problem in our region without resolving the Iranian problem.

"This relates to Lebanon, to influence in Syria, their deep involvement with Egypt, in the Gaza Strip, in Iraq.

"If the international community wants to resolve its Middle East problems, it's impossible because the biggest obstacle to this solution is the Iranians."

Tough position

Mr Lieberman recently told Barak Obama's Middle East envoy, George Mitchell, that 15 years of peace talks with Palestinians had "brought neither results nor solutions".

To obtain true regional stability, the US should focus instead on preventing Iran obtaining a nuclear weapon, he said.

US Middle East envoy George Mitchell meets Palestinian Authority President Mahmoud Abbas  (April 2009)
Mr Abbas is hoping the US will push Israel towards a two-state solution

Mr Netanyahu has often said he believes it better to take a tough position at the outset of negotiations in order to have bargaining possibilities.

The most likely scenario is that he and President Obama will do their best to find common ground during their talks in Washington.

Israel's foreign and defence ministers have clearly quashed domestic and international speculation that the Netanyahu government, dismayed at the Obama administration's efforts to engage Iran, favoured going it alone against Iran with their own military strike.

Both men say they are open to normalising relations with Syria (something Mr Obama favours strongly, though Mr Lieberman says is unlikely because at the moment, he says, there is nothing to talk about).

Both men say they favour advancing stalled talks with the Palestinian Authority.

There is room for discussion, but Palestinians in particular are hoping Mr Obama will not just talk but act tough on the issue of expanding Jewish settlements in the occupied West Bank.

Here, Mr Netanyahu has been clear: he sees no reason to stop the building.

Mr Abbas has been equally clear - he will not sit down with the Israelis until all settlement growth is frozen.

President Obama has also invited him to the White House next month.

Thursday, April 23, 2009

Economic slump continuing

Data 'to show slump continuing'

job centre
Unemployment has risen sharply in recent months

The UK economy shrank in the first three months of 2009 at about the same pace as it did in the final quarter of 2008, figures are expected to show.

Analysts forecast that gross domestic product (GDP) will have slipped by 1.5% from January to March, having dropped 1.6% between October and December 2008.

The government has already warned that the economy would shrink this year at its fastest pace since World War Two.

It follows Wednesday's announcement that 2.1m people are now out of work.

What began as problems in the financial sector has spread far more widely.

The housing market remains severely depressed and retail sales are weak.

We are still talking about contracting GDP and rising unemployment for the rest of the year
Simon Hayes
Economist, Barclays Capital

'On-going problems'

In January the UK economy met the widely accepted definition of a recession - two consecutive quarters of negative economic growth.

The chief UK economist at Barclays Capital, Simon Hayes, said that rising unemployment and concern over finances meant that consumers and businesses will have continued to cut back on spending at a similar rate early this year as at the end of last year.

"The sharpest falls in GDP may have already happened - but we are still talking about contracting GDP and rising unemployment for the rest of the year," he said.

Alistair Darling told the House of Commons on Wednesday the government would be forced to borrow £175bn this year as the recession battered the UK economy.

In his budget he said that the UK would return to growth by the end of 2009. However, many analysts say that this was wildly over-optimistic.

Tuesday, April 07, 2009

Are Islam and Aristotle compatible?

Are Islam and Aristotle compatible?
Eric Heinze
London - This semester I am teaching a course about Aristotle, democracy and law on a University of London campus which has large numbers of Muslim students. Over the past few weeks, two of them approached me – independently, and at different times. They both asked, a bit nervously, whether Aristotle's philosophy is compatible with Islam.

They couldn't have posed a more interesting or complicated question.

After the fall of the Roman Empire and into the Middle Ages, Greek learning gradually vanished from Western Europe. It was the Mediterranean centres of Muslim learning that kept Greek thought alive. Intellectuals such as Al-Farabi, Avicenna and Averroes authored lengthy commentaries on early Greek treatises on democracy, theology, psychology and many other subjects that are still studied today as classics.

In the later Middle Ages, it was from Arabic translations that Aristotle re-appeared in the West, re-introducing logical and dialectical rigour into medieval Christianity, and heralding the gradual revival of Greco-Roman classicism that culminated in the Italian Renaissance.

Over centuries, through empires and crusades, through the rise and fall of entire civilisations, the body of wisdom weaving steadily through Islam, Christianity and Judaism was Greek philosophy, the great example being Spain in its Golden Age.

Yet some insist that secular philosophy is anti-Islamic. And the students who approached me found themselves in the situation of many young Muslims in the West today. Even the choice to attend a class on law and ethics can provoke dilemmas of identity and allegiance.

Anyone familiar with Plato knows that nothing is taboo in Greek philosophy. Nor is any proposition admitted on faith alone. Logic and nature, ethics and politics, even art, music and literature must be justified through reason. No custom, tradition or religion stands above scrutiny. The very existence of God – or the gods – must be cast off if good reason cannot be mustered in support of it.

For those who believe that a meaningful human life requires faith coupled with reason, the ancient Greeks make unsettling reading. Religious people of all faiths have at times shunned secular philosophy. Religion, like science, closes minds when it leads people openly, or secretly, to declare, "We have all the truth we need. We don't need philosophy!"

My two students had no intention of shutting down their minds. Both decided that their Islamic faith in no way bars them from free and critical inquiry into ethics, history and society. They embrace Islam to bring a wider world in, not to shut it out. They have no fear of Aristotle. They are, like Aristotle, the arbiters of their own minds. They see in the Greek canon not crusty dogma, but living dialogue. Aristotle poses no more of a threat to them than would an interfaith educational or cultural forum.

According to a poll recently conducted for the BBC, nearly 80 percent of British Muslims, far from shunning Christianity, support a stronger role for it in British life. That figure exceeds by 10 percent even the number of Christians who express such support. How can that be? Wasn't Christianity the avowed foe of Islam for century after blood-soaked century?

What many Muslims in the West understand, and what my two students embrace, is the insight that cultural, religious or intellectual traditions are interactive and dynamic. Muslims are inviting non-Muslims to re-evaluate their own heritage, because they recognise that re-opening the mind to one tradition is a way of opening it to others.

Past intolerance need place no obstacle in the way of a tolerant future. Muslims are urging non-Muslims to celebrate an important past, which does not preclude that past, or any past, from remaining subject to ongoing, critical assessment.

In recent years, headlines and bookshops have swelled with stark, simplistic distinctions: science versus religion, reason versus faith, the West versus Islam. It is not in the triumph of any one of these, but in constant, constructive exchange among all of them that science and religion, reason and faith, the West and Islam fulfil their highest aspirations.

While many voices have ignorantly dismissed Islam – and indeed all religion – as an embodiment of ignorance, my two students are proving the contrary, as are Muslim intellectuals throughout the world. Like their great medieval forbears, they seek within Islam not closure, but openness. They are using Islam to deepen their understanding of other traditions, and using other traditions to deepen their understanding of Islam.


* Eric Heinze is professor of law and humanities at Queen Mary University of London. This article appeared in The Guardian's "Comment is free: belief" website and was written for the Common Ground News Service (CGNews).

Source: Common Ground News Service (CGNews), 17 March 2009,
Copyright permission is granted for publication.

Wednesday, March 18, 2009

Stepping Aside

Reformists will struggle in the presidential race in Iran


AS IRAN heads towards presidential polls in June, the contest is shaping into something of a referendum on the nature of the Islamic Republic. Thirty years after the fall of the shah, pride in the revolution is tempered by a widely shared sense that it has gone astray. Yet views differ radically over what ails Iran’s hybrid theo-democracy. More Islam is what some want, with a reimposition of puritanism at home, and boldness in foreign affairs. Others demand more republic, with a widening of civic freedoms and a government focused on bringing worldly rewards rather than achieving eternal glory.

Outside these two groups, known as principlists and reformists, stands a third camp. Sizeable and growing, it shuns politics altogether, judging that the non-elected theocratic elements of the state have simply grown too strong to dislodge by constitutional means. With the principlists, led by President Mahmoud Ahmadinejad, currently dominant, any electoral challenge to their rule would need to mobilise not just reformists committed to the system, but large numbers of those fence-sitters.

One reformist candidate seen as having the potential to inspire Iran’s disillusioned sceptics was Muhammad Khatami, a soft-spoken and liberal-minded cleric who won successive, sweeping victories to serve as president between 1997 and 2005. But Mr Khatami abruptly withdrew from the race on Monday March 16th, citing fears that, with two other prominent reformists determined to run, the reformist vote would again split, as it did in 2005, allowing Mr Ahmadinejad to romp into office. Yet while Mr Khatami’s departure dims reformist expectations of a big voter turnout, it has not altogether extinguished hopes for change.

Seen by much of the world as abrasive and inflammatory, Mr Ahmadinejad has built a strong constituency inside Iran. Religious hardliners praise his personal piety and humility. Some nationalists like his toughness on domestic security and in foreign affairs. And Mr Ahmadinejad has tirelessly toured the provinces, dispensing cash, infrastructure projects and folksy homilies to woo the poor. Yet millions of Iranians chafe under irksome limits to their freedom and blame their country’s international isolation on bellicose posturing by Mr Ahmadinejad. His spendthrift ways, they charge, have stoked raging inflation and burned windfall profits from several years of high oil prices, leaving state coffers empty now that prices for Iran’s main export have collapsed.

The president’s critics include not just reformists and outright dissidents but many within the principlist camp. Crucially, to date, Mr Ahmadinejad has enjoyed the not-so-subtle backing of the supreme leader, Ayatollah Ali Khamenei, who during his 20 years in power has extended effective control over many institutions of state, including security forces, the judiciary and broadcasting monopolies. Mr Khamenei sees the incumbent president as a loyalist and ideological ally, yet is also sensitive to the danger that political polarisation poses to his Islamic regime.

This leads to speculation that the supreme leader may yet quietly promote a rival, but less controversial, principlist figure, such as Mohamed Qalibaf, who has proved himself a skilled administrator as mayor of Tehran, rather than Mr Ahmadinejad. Some leading principlists have also proposed a coalition conservative government that would dilute Mr Ahmadinejad’s role. Such quiet manoeuvring inside the principlist camp suggests a fear that either they, too, could find themselves split, or that the reformists will, despite Mr Khatami’s absence, actually succeed in galvanising new voters.

One of the remaining reformist candidates, Mir Hosein Mousavi, is seen as capable of attracting conservatives as well as liberals. Having served as prime minister during the traumatic 1980-88 Iran-Iraq war, he has shied away from politics since then, and so remains something of an unknown. While his strong revolutionary credentials and socialist economic leanings attract hardliners, Mr Mousavi has charged Mr Ahmadinejad with promoting the Islam of bigotry by purging government of skilled technocrats in favour of ideologues. His reformist rival, Mehdi Karroubi, a liberal cleric and former speaker of parliament, has also boldly attacked the incumbent. Mr Karoubi has been ridiculed for proposing to spread oil revenues through cash handouts to the public, but he won only slightly fewer votes than Mr Ahmadinejad in 2005, and claims, credibly, that suspicious polling irregularities accounted for much of the difference.

There will probably be much rough and tumble before voting takes place on June 12th. Given the principlists’ strong core of voters, their control of key institutions, and their well-tested skill at using them, the reformists face a tough battle. But the implications of either a markedly low voter turnout, or an outright upset, could give pause to conservatives.

Tuesday, March 03, 2009

FAQ's on Stimulus Plan proposed by Barack Obama

Q&A: Obama stimulus plan

Barack Obama at the House Democrats Conference in Williamsburg, Virginia
Mr Obama has made the stimulus plan his priority
US President Barack Obama has signed into law a slimmed-down economic stimulus plan worth about $787bn (£548bn) aimed at boosting the US economy.

The signing came after weeks of political wrangling which saw the original bill altered by Congress.

Its passage into law followed warnings from the president that the US could face an economic disaster if radical action was not taken.

What is in the stimulus plan?

The stimulus plan includes a combination of measures designed to maximise its political support, including tax cuts, additional spending on infrastructure and aid to the US states, which are having their own budget difficulties.

Senate Majority Leader Harry Reid said the deal "bridged differences" between an $820bn House version of the bill and a different $838bn version approved by the Senate.

The earlier version approved by the House of Representatives, of which one-third was made up of tax cuts, included a $500 cut in income tax for individuals.

Another big portion was money to help states close their budget gaps and avoid laying off state employees, as well as helping them pay more benefits to the less well-off.

Finally, there were additional funds to invest in infrastructure projects, such as repairing roads and bridges, improving home insulation, and repairing classrooms.

The plan agreed by Senate negotiators has more tax cuts - about 36% of the package - and a smaller amount of aid to states, a Senate aide told Reuters news agency.

A "Buy American" clause which originally sought to ensure that only US iron, steel and manufactured goods were used in projects funded by the bill has been watered down, with a promise the US will respect its international trade obligations.

However, critics at home and overseas - including ministers in Europe, Brazil and China - continue to express strong concern that the provision may encourage protectionism and sour trade relations.

Why has such a big stimulus plan been proposed?

The US economy is entering its sharpest downturn since before World War II, according to many economists.

Supporters of the measures say that without the stimulus, the downturn that began at the end of 2007 could last well into 2010. The slump has already cost three million jobs.

President Obama has made passing the stimulus package his priority, saying that millions more jobs could be lost during the recession.

As US interest rates are already approaching zero, it is clear that other policies must be considered to revive the economy.

Why was the original plan delayed?

The plan was delayed by partisan wrangling between Democrats and Republicans in Congress, and differences between views in the House of Representatives and the Senate as to what should be in the bill.

The first version of the bill was passed in the House of Representatives without receiving a single vote from the Republican side. But it was then modified in the Senate, where the Democrats needed Republican support to get it through.

The Democrats have a majority, but they fell two votes short of the 60 required to ensure the Republicans could not block the bill with a filibuster.

To gain the support of moderate Republicans, Democrats had to accept a mixture with more tax cuts and less money to help states and local governments.

And the Senate added $35bn to stimulate house purchase and $11bn to reduce the cost of buying a car.

Who supported the revised stimulus plan?

It was backed by 246 Democrats in the House of Representatives. Seven Democrats and all 176 Republicans voted against.

The package received just three Republican votes in the Senate, but that was enough to under Congress rules to stop the Republican party using blocking tactics to delay the plan, and it passed 60-38.

Will it work?

According to the independent Congressional Budget Office (CBO), the stimulus package is likely to reduce the severity of the recession, although not eliminate its impact entirely.

The CBO also says that although only a portion of the stimulus will be spent in 2009, the bulk of the money will be spent by the end of 2010, when the effects of recession are still likely to be lingering.

But much will depend on the responses of individuals and government officials.

Tax cuts will be effective only if people spend rather than save the extra income they receive.

And infrastructure projects will need to be up and running quickly to make an impact on unemployment.

How will it be paid for?

The stimulus plan will be funded by borrowing money - pushing the US budget deficit, which is already projected to rise above $1 trillion this year.

A $569bn deficit was recorded for the first four months of the fiscal year that began last October, a record for that period, the Treasury Department said.

The government says that all the measures in the stimulus plan are temporary and it is committed in the long term to bringing the budget back into balance.

But if financial markets become sceptical of that commitment, they could push up the cost of government borrowing.

And future generations will have to pay the borrowing costs of the additional debt for many years to come.

Monday, February 09, 2009

open letter to US President Barack Obama from Conflict Analysis Professionals for Enduring Security:

Washington, DC - The following is an open letter to US President Barack Obama from Conflict Analysis Professionals for Enduring Security:

Dear President Obama,

Congratulations on your election. We look forward to working with you to heal our country in every way we can.

We are interdisciplinary conflict analysis professionals – psychologists and other social scientists – devoted to the study and practice of violence prevention, tension reduction, conflict transformation and reconciliation. Like you, we are deeply concerned for our friends, colleagues, relatives and all citizens of Israel and Gaza. We fear the consequences of this cyclical violence and failure to respond appropriately to the devastating damage. It will require expert intervention to heal wounds and reverse cycles of violence.

You recently said, “If my daughters were living in a house that was being threatened by rocket attacks, I would do whatever it takes to end that situation.”

In conflict, it can be difficult to remember that “whatever it takes” includes caring for basic human needs – food, water, warmth and protection, allaying fears, and providing safety, as recognised in the Universal Declaration of Human Rights.

What if “whatever it takes” requires supporting legitimate political goals, addressing just grievances, and allowing life with dignity, self-determination, prosperity and freedom? People prefer to get their needs met by decent means, and resort to violence when thwarted.

Our children would be safer if we could empathically bear equal witness to each historical narrative and rise above both sides to gain a true perspective of cause and effect, and the dynamics of asymmetrical power.

We have two traumatised peoples, gripped by fear and moral outrage, whose actions have spiralled into escalating reverberating reactions of mutually provoked traumatic re-enactment, endlessly ricocheting back and forth. In this malignant process, each side draws people into believing the need to destroy the other.

However, many on both sides work for peaceful coexistence.

Severe trauma on both sides, as well as fear, envy, humiliation and anger, make it critical to provide a massive infusion of effective healing interventions. Please lead us in healing wounds, compensating losses and using principles of restorative justice rather than punitive approaches, which, as history has repeatedly shown, only fuel instability. Time doesn’t heal wounds, people do.

Doing “whatever it takes” to create conditions for a viable and just coexistence, addressing the desires for self-determination of all people, will reduce desires for revenge and create hope for the future. Then you, the Israelis and the Palestinians will sleep safely.

However, if by “whatever it takes” you mean killing those who threaten you and destroying their community, then we must be prepared for long-term violence and suffering.

As conflict analysts, we recognised that Israel’s overwhelming military reaction, supported by the United States, understandably believed to be in “self defence” would have the opposite effect. We predicted that military action, intending to eliminate a threat, would inevitably terrify, enrage and embolden widening circles of witnesses and strengthen extremists.

We are aware of political pressures to take positions falsely framed as so-called “pro” or “anti” Israel or Palestinian. This zero-sum thinking has no endgame. The only way to be more secure is to make your enemy more secure. We must rethink what it actually means to support Israel and to be pro-coexistence, and establish a policy of “Mutually Assured Survival”, and mutually supported flourishing.

A rich body of knowledge, not well known outside academia, describes methods demonstrated to reverse cycles of violence. We are beginning to understand how terrorism ends and how extremist groups become non-violent and productive through participation in legitimate political processes – and also what causes radicalisation and drives people to extremes (for example, when Hamas won in a fair election, they were prepared to form a coalition with Fatah, until they were punished and threatened).

Since the dominant public mindset believes in the use of violence to defeat enemies, it is important to educate the public about effective, tension-reducing strategies, and a balanced rendering of historical narratives. People must be mature enough to realise that by focusing on blame, which is easy and automatic, we always get to be “right”(and so can “they”) but we will never get to be safe.

We offer any assistance in analysing conflict dynamics, working with you to design strategies for healing and de-traumatisation, and guiding the delicate work of reconciliation needed to rebuild viable social and political institutions and reach equitable solutions to this historic tragedy.

There are many creative conflict transformation strategies – beyond dialogue, diplomacy and negotiation, beyond carrots and sticks and even beyond “Smart Power”. “Wise Power” instead addresses a complex ecology of interacting forces and events within the depths of human experience.

Understanding principles of conflict studies, psychology and other social sciences will go a long way to help produce conditions for viability, enduring security and a lasting, just peace.

We appreciate your thoughtfulness and openness to new ideas, and hope we can help political leaders, the media and the American public to understand this new security paradigm that is capable of reversing cycles of violence.

To see the full list of signatories, please visit:


* Diane Perlman is a clinical and political psychologist and co-chair of the initiative on Global Violence and Security for Psychologists for Social Responsibility and the American Psychological Association Society for the Study of Peace, Conflict and Violence. This article is distributed by the Common Ground News Service (CGNews) and can be accessed at

Source: Huffington Post, 19 January 2009,
Copyright permission is granted for publication.

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