July 17, 2010

Landmark Financial Sector Overhaul Clears Final Hurdle in U.S.

http://www.ihsglobalinsight.com/SDA/SDADetail18964.htm

16 Jul 10

With three Republicans joining the Democrats, the Senate finally passed bold financial regulation reforms yesterday that promise to reshape the sector and hopefully prevent a re-run of the 2008/09 crisis.

IHS Global Insight Perspective

Significance

The Senate vote was the last hurdle before President Barack Obama signs the reforms into law, and came only after agonising brinkmanship.

Implications

The reforms give the government considerable new powers over the sector and will adjust the business models of many players. Consumers are also afforded greater protection against unscrupulous players with the establishment of a new agency.

Outlook

In general, the design of the reforms appears sensible, but their full impact will not be known until the detailed rules are written and the new system is tested in practice.

Congress Gives Green Light

After months of bargaining and brinkmanship, Democrats have managed to squeeze a major overhaul of financial-sector regulation through Congress. The final hurdle was Senate assent, with the House of Representatives already having given its approval. The final Senate vote carried 60-39 yesterday, Democrats requiring three Republican votes to get to the 60-seat super-majority required to overcome blocking tactics. The three broke ranks with their party despite the intensely partisan atmosphere in the build-up to the November mid-term elections. The bill now goes to President Barack Obama for his signature. As with healthcare reform—which successfully passed earlier this year—the financial overhaul came perilously close to unravelling on numerous occasions. It is a testament to the political skills of the Democratic leaders in Congress and of Obama himself that the legislation somehow survived to see the light of day. What is more, in both cases the reforms were not watered-down significantly in the process.

The regulations are very wide-ranging and will have profound structural implications for the sector, but at the same time there are concerns that they will still leave the door open to the kind of excessive risk-taking that contributed to the financial crisis of 2008/09. Banks have campaigned vociferously against elements of the overhaul, but broadly they seem confident that they can survive and prosper in the new environment. The full impact and shape of the reforms will not be known until detailed rules have been written by the various regulatory agencies. There is much to play for during this process, so there will be another huge onslaught of lobbying. Republicans opposed the reforms on the basis that they could choke the banking industry and reduce credit, and for expanding government dangerously.

A Closer Look at Reforms

The bill addresses key issues such as revamping and streamlining the structure of the financial and regulatory system, the role of the Federal Reserve, systemic risk mitigation, the "too big to fail" principle, and stabilising the massive financial derivatives market. The final version of the bill stripped out many of the more controversial proposals—including regular audits of the Federal Reserve, restricting the Fed's supervisory ambit, carving all proprietary and derivatives trading from the banking systems, and overly punitive fees. The "Volcker rule" was substantially watered down, with banks retaining the ability to conduct proprietary trading up to 3% of Tier 1 capital, and banks are still permitted to engage in a wide range of core derivatives trading, including interest rate, foreign exchange, and gold/silver. Only the most risky commodity derivatives would have to be spun off into affiliates. The bank fee to cover future large bank failures to be collected by the Federal Deposit Insurance Corporation (FDIC) was scaled back from US$50 billion to only US$19 billion.

The ten major elements can be summarised as follows:

  • A modified "Volcker rule", whereby banks can engage in propriety trading through investments in hedge and private equity funds up to 3% of Tier 1 capital.
  • "Standardised" derivatives transactions to take place on registered exchanges under Commodity Futures Trading Commission (CFTC) supervision with enhanced reporting requirements. Customised derivatives still need to be reported to regulators. Overall derivative prudential standards would be tightened up.
  • Banks still allowed to conduct derivatives and swaps for interest rates, foreign exchange, and gold and silver, but trading in other commodities would be pushed out to affiliates.
  • Revamped bank capital standards, including the removal of trust-preferred securities as Tier 1 capital with a five-year phase-in period.
  • Treasury to form a "Financial Stability Oversight Council" to oversee the broader financial markets and monitor systemic risks to the financial system and the economy.
  • An "Orderly Liquidation Authority" established that creates mechanisms for liquidating systemically important firms under the FDIC. Banks with assets over US$50 billion would have to pay fees to create a fund of US$19 billion over 10 years.
  • The role of the Securities and Exchange Commission (SEC) will be substantially expanded, with additional registration and systemic risk-reporting requirements for derivatives traders and large hedge funds. The SEC is also mandated to oversee credit rating agencies, and study conflicts of interest with a view to potentially greater supervision.
  • Originators of mortgage-backed securities and other collateralised debt obligations (CDOs) to hold at least 5% of the credit risk.
  • Establish an "Office of National Insurance" under the Treasury to monitor industry, identify national insurance issues, and establish standards and report on insurance industry systemic risk issues. A "Bureau of Consumer Financial Protection" would be created under the Federal Reserve.
  • Federal Reserve supervisory authority over banks remains intact, including thousands of community banks. Congress requires only a one-time audit of all of the Fed's emergency programmes from the financial crisis. Details of loans through the discount window and open-market operations to be released after two years, while bankers would not be allowed to select the presidents of the regional banks.

Outlook and Implications

The financial reform bill addresses a number of key weaknesses in the U.S. financial regulatory structure that led to the financial meltdown in 2008 and early 2009. The most important of these elements is to streamline the existing regulatory structure, expand regulated frameworks for standardised derivatives, subject the credit rating agencies to greater accountability, and create a mechanism for liquidating systemically important firms. In addition, the bill attempts to accomplish all of this without severely handcuffing the major banks or seriously undermining the pre-eminent competitive position of the U.S. money centre banks in global financial markets. Thus, there is at least a thread of common sense in this bill—a thread which was difficult to detect in the early stages of negotiation. The financial sector overhaul does not stop here; as mentioned above, the detailed rule writing will determine the reach of the reforms, and the administration has also indicated that it will move on to consider the future of the government-run mortgage finance giants Fannie Mae and Freddie Mac. They emerged as key weak links in the system during the crisis. This may be an easier legislative task as there are many Republicans who have called for change in this area.

Politically, the breakthrough is another important success for Obama's administration in the face of ferocious opposition. Recent months have also seen healthcare reform proceed and several important foreign policy achievements. The domestic victories have come at a price, however, and Obama's popularity has been weakening in recent polls. His opponents' charge that he is expanding government dangerously has struck a chord with many voters. The weakening economic recovery is adding to the sense of gloom and doubt over Obama's strategy. The Democrats are braced for heavy losses in the November mid-term elections, which would make legislative progress on bold initiatives much harder over the following two years. One key outstanding priority for Obama is comprehensive energy and environment legislation. The administration remains committed to bold changes in this area, but for now is proceeding with a scaled-back bill given the political realities. In future, Obama will have to pick out priorities that he knows will find some support among the Republicans. He is also likely to focus more on foreign affairs if he finds himself frustrated domestically.

MI Trends 2015 – The Future of Market Intelligence


The intelligence industry towards 2015 is heading to more sophistication, integration to business processes, impact to decision making, and visibility. This GIA White Paper looks into the trends and anticipated developments of the industry to help companies develop their MI programs accordingly. The findings are based on an MI trends survey conducted by GIA among 146 executives and intelligence professionals globally during May 2010.

Market Intelligence by the very definition is about looking into the future and providing actionable insights. However what does the future hold in store for Market Intelligence itself as a discipline and profession? The GIA survey provoked lots of commentary and insights around the anticipated future developments of corporate intelligence programs. The survey results and the related discussion in this White Paper have been built around the Key Success Factors of MI as presented in the GIA World Class MI Framework. Some of the highlights of the survey results have been summarized below.

Intelligence Scope
Customers, end users and competitors as the change drivers • towards 2015
Emerging markets presenting the biggest opportunities and hence • driving the intelligence efforts

Intelligence Process
Intelligence co-creation•
Decision point intelligence (MI integrated to major business
• processes)
Social media tools becoming part of the intelligence process•

Intelligence Deliverables
Increasingly sophisticated intelligence deliverables•
Increased degree of future orientation•
More emphasis on providing conclusions, provocative arguments • and executive briefings on strategic topics

Intelligence Organization
Centralization & decentralization trends in parallel; both
• representing progress
Intelligence networks and expert teams (fixed and virtual teams) •
Outsourcing of non-core activities•

Intelligence Tools
RSS feeds to desktop, free news aggregation and video webcasts•
Mobile devices will be used increasingly as tools for sharing intel• ligence
Graphical approaches and dashboards ensure a high degree of • visualization

Intelligence Culture
Executive commitment•
Demonstrating the value of MI on an everyday basis•
Internal branding of MI, training of users•
Social media paving the way for increased virtual collaboration

Capturing customer experience entirely from the customer perspective

Synovate launches True Customer View, the first research system that captures the customer experience entirely from the customer perspective


16 June 2010

LONDON — Global market research firm Synovate today announced that it has launched a new customer relationship system that offers companies the first comprehensive and customer-driven approach to understanding customer experiences, attitudes and behaviours.

The new research approach, called True Customer View, was developed to help companies better understand the multiple factors that impact their customers' behaviour, including what the competition is doing as well as any barriers customers may have in buying their products or services. It is the only customer experience research system in the marketplace that considers these multiple influences. It is also unique in that it puts the customer in control during the research process, allowing them to select the brands, attributes and experiences that matter to them, rather than the company determining this. True Customer View, which directly links to company market share, has already been validated across multiple industries as it was built upon the company's successful brand research tool Brand Value Creator, which accurately predicts brand performance.

Ged Parton, CEO for Synovate's global practices and capabilities said: "Many companies unfortunately don't have a reliable way to look at all the factors that influence what their customers buy. You need to consider all the variables, especially what the competition is doing; otherwise, you're only getting a small piece of the puzzle. Also, many companies have a tendency to look at customers from the company's point of view. Our approach instead looks from the customer's viewpoint at all the elements that influence their decision to buy a particular product or service. It is completely customer-driven rather than company determined."

For more information on Synovate True Customer View, visit www.synovate.com/tcv.

IKA condemns killing of senior Baloch leader, Habib Jalib

The assassination of Baloch leaders Habib Jalib, Secretary General of Baluchistan National party, former Senator, and Supreme Court lawyer, and Muala Bakhsh Dashi National Party central leader and former Nazim reflect the genocidal mindset of State authorities in Pakistan. This brutal act is clearly pushing Baloch moderates and progressives voices to the wall, and endorsed the claims of Baloch militant organizations that Islamabad doesn’t recognize the Baloch rights on their soil. If Pakistani Sate has not spared the Leader like Habib Jalib how they would be treating rest of the population. This act is highly cowardice and condemnable but it can’t stop Baloch people from seeking their rights and freedom. Violence always begets violence, and guns always force people to defend themselves. Islamabad State terrorism has forced Baloch people to defend their rights, identity and resources which are denied, threatened and exploited by Islamabad. Baluchistan grievances and sufferings were never recognized or addressed, and their enlightened voices are cowardly being killed but it exposes Pakistan’s real face in Balochsitan which always making hue and cries about Kashmir but brutalize its own people. The sacrifices of Baloh nationalists wouldn’t go in vain.

Mumtaz Khan
Vice Chairman
Intenrational Kashmir Alliance-IKA

ANALYSIS - Iran bombs send rebels' message of survival

By William Maclean, Security Correspondent

LONDON (Reuters) - An Iranian rebel group has sent Tehran a defiant message of survival after the execution of its leader, carrying out a deadly double bombing that is likely to deepen strains in a region already unsettled by the Afghan war.

Although small, the ethnic Baluch insurgent group Jundollah draws international attention as it is active on the borders between Iran, Afghanistan and Pakistan, a destabilised region of sectarian tensions, banditry and drug trafficking that poses security risks for all three neighbours.

The group is also periodically a factor in Iran's stormy ties to the United States, most recently strained by the mystery of an Iranian nuclear scientist who reappeared in Iran saying he had been kidnapped by the CIA, a charge Washington dismissed.

Iranian officials have often said Jundollah is a tool of U.S. intelligence -- another accusation denied by Washington -- in an apparent attempt to show to a domestic audience that Washington has sought to destabilise the government.

Jundollah claimed responsibility for two suicide attacks that killed at least 28 people including several Revolutionary Guards on Thursday, said they were retaliation for Iran's execution of its leader Abdolmalek Rigi.

In an email to Al Arabiya television, the group warned of more attacks to come.

Analysts said the strike at a Shi'ite Muslim mosque was evidence the group retained an ability to strike in its home southeast region despite the loss of Rigi, seen by some as a hands-on leader with a prominent role in planning past attacks.

The attack was also in line with an increasingly frequent use by the group of the suicide tactics associated with hardline Islamist groups in Afghanistan and Pakistan, the analysts said.

Opposition secular activist Mehrdad Khonsari said Rigi's death appeared to have "lifted any restraint on what's left of Jundollah from showing it can reassemble itself and re-engage."

"They are very bitter."

DRUG SMUGGLING

The strike was "almost inevitable" after Rigi's execution, said Henry Wilkinson of the Janusian Security advisory group.

"Most of the indications are that Jundollah remains a relatively small group, but one that has evolved as a threat."

Jundollah has said it is fighting for the rights of Iran's Sunni Muslim minority, and the Baluch ethnic minority, but has denied harbouring any separatist or radical sectarian agenda.

Iran rejects allegations by rights groups that it discriminates against ethnic and religious minorities.

Iran says the group has links to Sunni Islamist al Qaeda, and accuses Pakistan, Britain and the United States of backing Jundollah to create instability in southeast Iran, where many Sunni minority live. The three countries deny the claim.

However some analysts say there are signs that group has evolved through shifting links with various parties, including the Taliban, drug smuggling networks and Pakistani intelligence, each of whom saw the group as a tool for their own ends.

Wilkinson said that despite what he called Jundollah's ethno-nationalist orientation, over the past year there had been signs that it had assimilated "practices from jihadist and sectarian elements in the Iran-Afghanistan-Pakistan region."

This shift correlated with an increase in Jundollah's violent activity, he said, citing attacks in 2008 and 2009.

But Wilkinson said he suspected its adoption of suicide tactics and ideals was driven largely by pragmatism.

"Like many terrorist groups, Jundollah needs to innovate to remain viable, visible and relevant," he said.

Analysts say the group's future survival was likely to rest on several longstanding pillars of support.

POVERTY, DEPRIVATION

These were revenue from drug smuggling, support from some Baluchs in southeastern Sistan-Baluchistan province as well as from some Baluch businessmen elsewhere in Iran, and an apparent ability to continue to obtain safe haven in Pakistan.

Sajjan Gohel of the Asia Pacific Foundation think tank said the group's resources "were not confined to one place" as its members appeared able to operate across the Pakistan border.

Iranian authorities seemed to have assumed that the group was the creature of Rigi's family, Gohel said, but it evidently enjoyed wider support, and his execution had not affected the group's desire to attack the government in any way.

"I think they will survive," he said, adding longstanding poverty and socio-economic deprivation would continue to fuel resentment of Tehran among local people in Sistan-Baluchistan that Jundollah would be able to exploit for recruitment.

(Reporting by William Maclean, Editing by Jon Hemming)

(For more news on Reuters India, click in.reuters.com)

July 16, 2010

A de facto partition for Afghanistan

By: Robert D. Blackwill
July 7, 2010 04:53 AM EDT

The Obama administration’s counterinsurgency strategy in Afghanistan seems headed for failure. Given the alternatives, de facto partition of Afghanistan is the best policy option available to the United States and its allies.

After the administration’s December Afghanistan review, the U.S. polity should stop talking about timelines and exit strategies and accept that the Taliban will inevitably control most of its historic stronghold in the Pashtun south. But Washington could ensure that north and west Afghanistan do not succumb to jihadi extremism, using U.S. air power and special forces along with the Afghan army and like-minded nations.

Enthusiasts for the administration’s counterinsurgency strategy, or COIN, are likely to reject this way forward in Afghanistan. They will rightly point out the many complexities in implementing de facto partition.

De facto partition is clearly not the best outcome one can imagine for the United States in Afghanistan. But it is now the best outcome that Washington can achieve consistent with vital national interests and U.S. domestic politics.

There are many reasons for this.

Even if President Barack Obama adds a year or two to his timeline for major progress, the COIN strategy appears unlikely to succeed. Given the number of U.S. combat forces now fighting, the Taliban cannot be sufficiently weakened in Pashtun Afghanistan to drive it to the negotiating table on any reasonable timeline. True, the Afghan Pashtun are not a unified group. But they do agree on opposing foreign occupation and wanting Pashtun supremacy.

“We have seen no evidence that they are truly interested in reconciliation,” CIA Director Leon Panetta said on June 27, “where they would surrender their arms, where they would denounce Al Qaeda, where they would really try to become part of that society. ... Unless they're convinced the United States is going to win and that they are going to be defeated, I think it is very difficult to proceed with a reconciliation that is going to be meaningful.”

With an occupying army largely ignorant of local history, tribal structures, language, customs, politics and values, the United States cannot, through social engineering, win over, in the foreseeable future, sufficient numbers of the Afghan Pashtun on whom COIN depends.

Afghan President Hamid Karzai’s deeply corrupt government — as unpopular as the Taliban — shows no sign of improvement, and Afghanistan has no history of a robust central government. Allied efforts to substitute Western nation building for Afghan nation building will continue to fall short. The Afghanistan National Army is not expected to be ready to vanquish the Taliban for many years, if ever.

Moreover, Pakistan’s military and intelligence services, with their dominating optic of India as the enemy, have shown no willingness to end support for their longtime Afghan Taliban proxies — or accept a truly independent Afghanistan.

Decisively, the long-term COIN strategy and far shorter U.S. political timeline are incompatible.

The lack of progress in substantially pacifying Pashtun Afghanistan before Obama’s July 2011 decision date will become increasingly clear — though proponents are sure to focus more on the costs of failure than on the likelihood of enduring success.

What then? If the COIN strategy cannot produce the desired results in the next 12 months, the administration has six broad policy alternatives:

1) It can stay the course with the failing COIN strategy or even “double down” on the U.S. commitment — despite the lack of intrinsic U.S. vital national interests tied to Afghanistan.

2) It can seek other ways to entice the Afghan Taliban to end violence and enter into a coalition government. Karzai now seems to be pursuing this, but his efforts cannot alter the grim realities on the Pashtun battlefield or the enemy’s sustained intransigence. As Panetta says, why negotiate if you believe you are winning?

3) It can try to save parts of Pashtun Afghanistan, locale by locale — in an ink-blot strategy — fighting in some areas and acquiescing in others. But this would mean continuing major U.S. and NATO casualties in the south. It would also allow the Taliban — like the Viet Cong and North Vietnamese — to concentrate its forces, ink blot by ink blot, among a sympathetic or intimidated local Pashtun population. In any case, it only delays the inevitable when U.S. forces depart.

4) It can opt, as Vice President Joe Biden reportedly counseled before Obama’s surge decision, not to fight the Taliban in the countryside. It can, instead, defend Kabul and Kandahar (epicenter of the Pashtuns and the Taliban’s spiritual birthplace), intensify efforts to lure Taliban who can be bought with money or political power and work with local warlords rather than the central government.

5) It can initiate rapid withdrawal of all American forces, which would produce a strategic calamity for the United States. For it could lead, first, to all-out Afghan civil war; then, to the Taliban’s probable conquest of the entire country. Since Afghanistan’s neighbors would very likely be drawn in, it could ultimately destabilize the entire region.

It could also dramatically increase likelihood of the Islamic radicalization of Pakistan, which then calls into question the security of its nuclear arsenal. It might also weaken, if not rupture, the budding U.S.-India strategic partnership.

In addition, it would profoundly undermine NATO, perhaps persuading the alliance to never again go “out of area.” It could trigger global support for Islamic extremist ideology and increased terrorism against liberal societies everywhere.

And worldwide, friends and adversaries alike would see it as a failure of international leadership and strategic resolve by an ever weaker United States, with destructive aftershocks for years to come.

6) Or it can adopt new U.S. policy goals for Afghanistan that, realistically, have a better chance of succeeding. This means accepting a de facto partition, enforced by U.S. and NATO air power and special forces, the Afghan army and international partners.

After years of faulty U.S. policy toward Afghanistan, there are no quick, easy and cost-free ways to escape the current deadly quagmire. But with all its problems, de facto partition offers the best available U.S. alternative to strategic defeat.

Announcing that we will retain an active combat role in Afghanistan for years to come and that we do not accept permanent Taliban control of the south, the United States and its allies could withdraw combat forces from most of Pashtun Afghanistan (about half the country), including Kandahar, over several months.

We would stop fighting and dying in the mountains, valleys and urban areas of southern Afghanistan — where 102 coalition soldiers were killed in June, the most in any month of the war and almost three times as many as a year ago. But we could be ready to assist tribal leaders on the Pashtun periphery, who may decide to resist the Taliban.

We would then focus on defending the northern and western regions — containing roughly 60 percent of the population. These areas, including Kabul, are not Pashtun dominated, and locals are largely sympathetic to U.S. efforts.

We would offer the Afghan Taliban an agreement in which neither side seeks to enlarge its territory — if the Taliban stopped supporting terrorism, a proposal that they would almost certainly reject.

We would then make it clear that we would rely heavily on U.S. air power and special forces to target any Al Qaeda base in Afghanistan, as well as Afghan Taliban leaders who aided them. We would also target Afghan Taliban encroachments across the de facto partition lines and terrorist sanctuaries along the Pakistan border.

Though careful analysis is needed, this might mean a longtime residual U.S. military force in Afghanistan of about 40,000 to 50,000 troops. We would enlist Tajiks, Uzbeks, Hazaras and supportive Pashtun in this endeavor, as well as our NATO allies, Russia, India, Iran, perhaps China, Central Asian nations and, one hopes, the U.N. Security Council.

We would continue accelerating our Afghan army training. We would devote nation-building efforts to the northern and western regions, where, unlike the Pashtun areas, people are not conflicted about accepting U.S. help and not systematically coerced by the Taliban.

There might even come a time when a stronger Afghan National Army could take control of the Pashtun areas.

Such fundamentally changed U.S. objectives and strategies regarding Afghanistan would dramatically reduce U.S. military causalities and thus minimize domestic political pressure for hasty withdrawal. It would substantially lower our budget-breaking military expenditures on Afghanistan — now nearly $7 billion per month.

This would also allow the U.S. Army and Marines to recover from years of fighting two ground wars; increase the likelihood that our coalition allies, with fewer casualties, might remain over the long term; encourage most of Afghanistan’s neighbors to support an acceptable stabilization of the country and reduce Islamabad’s ability to parlay the U.S. ground role in southern Afghanistan into tolerance for terrorism emanating from Pakistan.

In addition, it would allow Washington to focus on four issues more vital to its national interests: the rise of Chinese power, the Iranian nuclear weapons program, nuclear terrorism and the future of Iraq.

There are certainly problems with this approach:

The Taliban could trumpet victory or not accept a sustained status quo and continually test our resolve. It is likely that lower-level violence would persist in Afghanistan for the foreseeable future, especially in the south. Pashtun Afghanistan could again become a hotbed of international terrorism, a dangerous outcome that probably could only be avoided by U.S. combat forces fighting there for years — and, in any case, the current Al Qaeda epicenter is in Pakistan.

In the context of de facto partition, the sky over Pashtun Afghanistan would be dark with manned and unmanned coalition aircraft — targeting not only terrorists but, as necessary, the new Taliban government in all its dimensions. Taliban civil officials — like governors, mayors, judges and tax collectors — would wake up every morning not knowing if they would survive the day in their offices, while involved in daily activities or at home at night.

But there would be no mountain caves in which they could hide and, at the same time, do their jobs. Over time, that could produce some degree of deterrence against Taliban support for terrorism.

Pakistan would likely oppose de facto partition. Managing Islamabad’s reaction would be no easy task — not least because the Pakistan military expects a strategic gain once the U.S. military withdraws from Afghanistan.

Indeed, Islamabad might need to be persuaded to concentrate, with the United States, on defeating the Pakistan Taliban and containing the Afghan Taliban to avoid momentum toward a fracturing of the Pakistan state.

There might be potential pockets of fifth column Pashtun in the north and west. Karzai and his associates would almost certainly resist partition — and might not remain in power. Fearing a return of Pakistan dominance in Afghanistan, India would likely encourage Washington to continue ground combat in the south for many years to come — and would have to be told that was not in the cards.

Human rights in the Taliban-controlled areas would also probably be abysmal, including for minorities.

Putting together a coalition of like-minded nations to implement this strategy would be a daunting diplomatic challenge — not least with Tehran.

But even with all the challenges, it is better to accept defacto partition sooner rather than persist until our current COIN strategy has failed, triggering a domestic political eruption and, perhaps, a disastrous total U.S. military withdrawal.

Washington should not wait to change its objective and strategy in Afghanistan until even more U.S. blood and treasure have been lost in a fruitless quest among the Afghan Pashtun and the enemy proclaims that it has mighty America, like the Soviets, on the run out of Afghanistan.

Robert D. Blackwill served as U.S. ambassador to India, deputy national security adviser for strategic planning and presidential envoy to Iraq in the George W. Bush administration.

A CHINA-PAK NUCLEAR AXIS AGAINST INDIA

The issues involved in China’s sale of two more nuclear reactors need to be better understood. Arguments that India, as a non-NPT state, has itself secured a nuclear deal with the US and therefore has little ground to oppose a China-Pakistan nuclear deal, or that two additional reactors for Pakistan is not going to enhance the nuclear threat to India, miss the point. That Pakistan has acute energy shortage and needs to tap nuclear energy as a source, more so as it is environmentally cleaner, is not sufficient reason to justify the Sino-Pakistan deal in the way it is being considered at present. The argument that China and Pakistan will in any case go ahead and therefore it makes little sense for India to oppose the deal is a defeatist position. A further one that, given this reality, it might be better to engage China and Pakistan diplomatically on this question in a conciliatory mode does not take into account the deeper strategic and political intentions behind China’s nuclear cooperation with Pakistan and this specific deal.

China has engaged in strategic nuclear proliferation in the subcontinent by transferring nuclear materials and weapons design to Pakistan, and even testing Pakistan’s weapon in 1990 at its testing site in Lop Nor. China’s objective has been to strategically neutralize India through Pakistan, give it the muscle to continue its confrontation with India and the capacity to deter serious Indian military reprisals for its adversarial policies. China has manoeuvred to blur the reality of any direct China-India nuclear rivalry, transferring such rivalry to the subcontinent, making India appear as the initiator of a nuclear arms race in the region, and creating in the mind of the international community a dangerous India-Pakistan nuclear equation with the potential of a nuclear conflict erupting between two “historical enemies”.

The US has overlooked errant Chinese nuclear conduct vis a vis Pakistan for several reasons. Pakistan became central to US effort to counter the Soviets in Afghanistan, and, therefore, despite evidence that Pakistan was pursing a nuclear weapon programme with Chinese assistance, the Pressler Amendment was devised to allow military and economic assistance to Pakistan debarred under US law for a proliferating country. For Cold War considerations, the US was unwilling to apply any serious sanctions on China which had by then become a strategic partner against the Soviet Union. The US, opposed to India’s nuclear ambitions and wary of the perceived India-Soviet axis that had successfully broken up Pakistan in 1971, has long backed a “strategic balance” in South Asia, which explains its remarkable tolerance of Sino-Pak nuclear collaboration. US unwillingness to expose the A.Q.Khan affair in full, in which the the Pakistani political and military establishment has been involved to the hilt, is consistent with US equivocation on China-Pakistan proliferation infractions.

The Indo-US nuclear deal marked a strategic “de-hyphenation” of India and Pakistan in US policy, evoking anguish in Pakistan and distrust in China. The US was seriously disturbing the hitherto tacit entente between it and China to contain a nuclear India. Pakistan, obsessed with parity with India, has vociferously opposed the deal and also asked for one for itself. For China, making an exception for India to the current nuclear rules could only mean building up India as a potential counterweight to it. By signing up for two aditional nuclear power reactors for Pakistan, China wants to send several messages to the US, India and the wider world. Its warning that if the US made an exception for India, other countries may do likewise for their friends is being translated into action. What the US has done for its protege, India, China is doing for its protege, Pakistan. If the US is disturbing the nuclear balance in South Asia- as China has alleged- China is restoring it. If the US will not accord parity of treatment to Pakistan, China will do so. China is signalling that the US cannot set the nonproliferation rules for all others, or use its clout to break the global consensus on the nonproliferation regime to suit its strategic needs, and that China will take autonomous decisions to suit its own interests. China is occupying space being ceded by declining US hegemony and setting itself up as a rival power to the US. China no doubt calculates that a militarily and financially embattled US will avoid a frontal conflict with it on this issue, keeping in mind also that the US needs its political support in dealing with the nuclear defiance of Iran and North Korea, problems of higher strategic priority for the US. Finally, China is declaring to India that it will continue to build up nuclear Pakistan against it, deny India any advantage, counter any potential India-US axis with a countervailing China-Pakistan axis. That China is willing to extend its patronage to Pakistan in disregard of its non-proliferation obligations and the NSG guidelines implies high stakes on both sides: need for the facade of civilian nuclear cooperation to continue Chinese technological and material support for Pakistan’s military programme with its suspected extra-regional linkages.

India must therefore oppose the envisaged China-Pakistan nuclear cooperation. If this passes through an open, widely debated process, with legislative underpinning and imposition of stringent nonproliferation conditions on Pakistan, India would have no reason to object. If, as the Chinese argue, both sides are respecting their international obligations and the new power plants will be under IAEA safeguards, why was India, with a clean nonproliferation record, no A.Q. Khan type baggage, no religious extremism, terrorist groups and clandestine proliferation networks blotting its landscape, required to separate its civilian and military facilities, shut some reprocessing units, accept the “right to return” if it tests, legally commit itself to a testing moratorium, agree to cooperate with the US on FMCT negotiations, establish a special reprocessing facility according to US dictated specifications for reprocessing US spent fuel, put its future fast breeder reactors under IAEA safeguards etc. We too could have obtained nuclear cooperation by simply agreeing to put internationally assisted reactors under IAEA safeguards. Why was cooperation with India by others opposed by the US until it cleared the way? If China does not have domestic legislation on nuclear cooperation like the US, the NSG can stipulate the conditions under which Pakistan would become eligible for civilian nuclear cooperation as a non-NPT state. We struggled hard to get a “clean waiver” from the NSG, and didn’t quite get it. There cannot be different standards for China/Pakistan and India. The US, so far subdued, must insist on the projected China-Pakistan deal being presented to the NSG for approval. If China ignores the NSG, the intended cooperation should be blocked in the IAEA where the issue of safeguards will have to be addressed and decided. Our strategic partnership with the US will lose meaning if the US once again overlooks nuclear cooperation between our two adversaries avowedly intended to counter the strategic advantage India has ostensibly obtained through the India-US deal. If the US sacrifices India’s interests to protect its China and Pakistan equities, the India-US nuclear deal would look most invidious.

The writer is a former Foreign Secretary(sibalkanwal@gmail.com

For US and western role in overlooking China-Pak and north Korea nuke and missile proliferation see 
 http://www.iiss.org/whats-new/iiss-in-the-press/press-coverage-2005/september-2005/emerging-strategic-nuclear-environment/

Quantum Surveillance and ‘Shared Secrets’

It is no longer sensible to regard biometrics as having neutral socio-economic, legal and political impacts. Newer generation biometrics are fluid and include behavioural and emotional data that can be combined with other data. Therefore, a range of issues needs to be reviewed in light of the increasing privatisation of ‘security’ that escapes effective, democratic parliamentary and regulatory control and oversight at national, international and EU levels, argues Juliet Lodge, Professor and co-Director of the Jean Monnet European Centre of Excellence at the University of Leeds, UK.

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Al-Shabaab’s Regionalization Strategy

http://www.isn.ethz.ch/isn/Current-Affairs/Security-Watch/Detail/?lng=en&id=118877


While Uganda has paid a bitter price at home for its military engagement in Somalia, al-Shabaab’s recent attacks will likely foster a more interventionist agenda in East Africa and play into the hands of insurgents, Georg-Sebastian Holzer writes for ISN Security Watch.

By Georg-Sebastian Holzer for ISN Security Watch

It was the biggest militant attack in sub-Saharan Africa since the infamous 1998 al-Qaida bombings of the US embassies in Nairobi and Dar es Salaam. The two coordinated bombings in Uganda’s capital Kampala killed 74 people and wounded dozens of others watching the World Cup final on 11 July.

For al-Shabaab it was a successful attack against the country that forms the backbone of the 6,000-strong African Union force in Mogadishu. The movement previously threatened both Uganda and Burundi, the second major troop-supplier to the AMISOM mission, which secures the survival of the Transitional Federal Government (TFG) whose movement is virtually confined to a few blocks in the capital.

Provoking an intervention

On the surface, attacking Uganda on its own soil seems to be as much retaliation for Uganda’s refusal to withdraw its troops from Somalia as a political message with the aim to deter outsiders from future meddling in Somalia.

However, at least two other, albeit less obvious goals can be attributed to these attacks.

One the one hand, the attacks will strengthen al-Shabaab internally by converging the agendas of the nationalist and the international wing of their movement. As a recentInternational Crisis Group Policy Briefing pointed out, already existing internal divisions of the group drastically increased in recent months. Since the official withdrawal of Ethiopian troops in January 2009 and the introduction of Islamic law by the TFG, the insurgents have had an increasingly difficult time justifying their continued armed opposition to the government of President Sheikh Sharif.

Evidently, crossing the border satisfies the international wing, wedded to al-Qaida-inspired notions of a permanent global jihad. At the same time, attacking Uganda pleases the agenda of the nationalist wing, which views the TFG as an illegitimate foreign puppy that is able to survive only because it is propped up by AMISOM troops, US weapons and EU money.

On the other hand, the Kampala bombings are part of a rather cynical but rational strategy that is well known from other terrorist groups. The regionalization of the conflict builds on the notion that such an attack will trigger a harsh response in the name of pre-emption and lead to renewed foreign intervention.

In turn, indiscriminate retaliations and more foreign boots on the ground would help al-Shabaab to portray itself again as fighting a nationalist struggle and thereby overcome the steady erosion of its popularity and credibility among the Somali people. It was exactly this playbook that brought the movement broad popular support and legitimacy in the aftermath of the Ethiopian intervention in late 2006.

Finding the right response

The nature of the external response will determine if al-Shabaab will succeed with these strategies.

Here the stakes look rather dire: Already a week before the Kampala attacks the Intergovernmental Authority on Development (IGAD), the regional body of six East African States, agreed in a communiqué to a request by the TFG delegation to reinforce the AU mission with an additional 2,000 troops.

The fact that IGAD did not rule out bordering states - in particular the archenemy and dominant regional military power Ethiopia - taking part in the AMISOM mission resulted in stiff criticism, not only from al-Shabaab but also from within the TFG.

Criticizing his own president, Somalia's special envoy to the US, Abukar Arman, wrote in an opinion piece on Aljazeera that “the IGAD resolution will embolden the very extremist elements it is intended to subdue.”

Ethiopian Prime Minister Meles Zenawi already wisely ruled out sending troops again to Somalia, but he stated previously that he would not hesitate to do exactly that if Islamist insurgents seized power there.

The Obama administration, which is currently reviewing the failed Somalia policy of its predecessor, is known to invest political capital to restrain Ethiopia from officially re-entering Somalia. Washington is urging its regional ally to keep a low profile in its (not so) secret operations in the border regions and in its technical and logistical support of the TFG and allied Ahlu Sunnah Wal Jama’a.

Ugandan President Yoweri Museveni, in turn, is currently in the run-up to national elections scheduled for early 2011. In power since 1986, he is seeking a fourth term in office and is campaigning on his legacy of bringing stability to his war-torn country after a decades-long struggle with the Northern Ugandan Lord’s Resistance Army (LRA). He is responding to the Kampala attacks by a show of force for the domestic and international audiences, announcing that Ugandan troops will now go on the offensive and with troop expansion “the African Union will be able to clean up this place.”

Already hours after the Kampala attacks, Ugandan AU soldiers shelled a densely populated residential quarter in Mogadishu, which looked very much like a first retaliation. Such indiscriminate shelling of civilian areas antagonized the Somali population and galvanized resistance to the TFG and its allies (apart from violating the law of war as stated in a UN report this May).

Part of the problem in finding an adequate strategy to tackle the intractable Somali conflict is evidently the absence of a local partner that resembles some sort of government. While the EU, with US logistical help, started to train Somali soldiers for the fledgling TFG army this June, its counterpart still looks like a Potemkin façade with no change in sight. The TFG was not even able to deliver any services in their manageable quarter in Mogadishu, hence yielding no performance legitimacy whatsoever, which could convince and attract the Somali people to put their faith behind President Sheikh Sharif.

The irony is that at a time when the US is finally searching for a more sober approach, having reflected on its failed security-dominated policy and acknowledged that foreign intervention has exacerbated the long-running conflict in Somalia, Somalia’s regional neighbors may prompt a re-learning of the lesson.


Georg-Sebastian Holzer is an analyst and free-lance journalist. He focuses in particular on conflict dynamics in the wider Horn of Africa.


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