IN a major departure from its anti-Iran policy, the US announced recently that it would drop objections to Iran joining the World Trade Organization (WTO) and consider allowing it access to spare parts for its decrepit fleet of civilian aircraft. President Bush said the initiative was aimed at helping efforts by Britain, France and Germany to persuade Iran to abandon its nuclear programme in return for economic incentives and promises of better ties with the western world. Iran, however, played down the importance of the American offer, saying that it had a right to join the WTO and the sanctions affecting its old aircraft were unfair to begin with. Iran’s foreign ministry’s spokesman said his country was determined to press on with its nuclear programme and “no pressure, bribe or threat can make Iran give up its legitimate right”. Deputy head of Iran’s parliamentary foreign affairs and national security commission, Mahmoud Mohammadi, was, however, more conciliatory and observed: “One cannot ignore the role of the United States in the Iran-EU nuclear negotiations, but the United States needs to go further to ease tensions.” Significantly, Tehran’s negative response did not discourage Washington. The White House national security advisor, Stephen Hadley, said that despite Iran’s coolness to the US offer of incentives, negotiations over Iran’s nuclear programme would remain on track. “This is a negotiating process,” Hadley added, “between the Europeans and the Iranians and it is not surprising to hear those statements.” In support of his viewpoint, Hadley referred to the statement of Iranian President Mohammad Khatami who said they were open to discussion on the kind of guarantees and assurances they could give to the world that they were not seeking a nuclear weapon.

The US decision to offer incentives, which came in the wake of the latest round of Iran-EU talks in Geneva, was taken after the Europeans had pledged to take the matter before the UN Security Council if Iran would not renounce its enrichment and reprocessing activities. According to media reports, the timeframe given by the US to its European allies to cajole Tehran is until June before Washington seeks UN sanctions.

Interestingly, Iran does not appear to have been much perturbed by the threat of UN sanctions. Perhaps it is counting on Russia and China to veto any UN sanctions. Russia is Iran’s chief nuclear partner; China and Japan are interested in big investments in its oil and gas industries. The threat of sanctions can achieve the desired result only if Russia and China, permanent members of the Security Council, deliver the same strong and unwavering message to Tehran: give up enrichment and reprocessing or face UN sanctions. Iran’s calculation seems to be that either Russia or China will refuse to join the western camp and veto UN sanctions.

The decision to offer incentives to Iran indicates that Washington has realized that it is not possible for one country, no matter how strong and powerful, to become the sole custodian of the task of preventing the spread of nuclear weapons. It has to seek the help and cooperation of other countries. And it is here that diplomacy comes into play. Diplomacy should be given a fair chance before the two sides reach a point of no return. Diplomacy is, as Henry Kissinger has rightly pointed out, about demonstrating to the other side both the consequences of its actions and the benefits of the alternatives.

Many analysts believe that Iran is awaiting a diplomatic offer that it would find harder to refuse. It is, therefore, imperative that the US gets more actively involved in the diplomatic effort to resolve Iran’s nuclear issue. It is understandable that at this stage American involvement cannot take the form of a bilateral Washington-Tehran dialogue. But the US should not hesitate to join a framework similar to the Beijing six-party forum for dealing with the North Korean nuclear problem.

By any account, the regime in Tehran is no worse than the regime in Pyongyang. Therefore, if the Americans can negotiate with North Korea under the six-party diplomatic umbrella, there is no justification for them to refuse to negotiate with Tehran under a similar multilateral framework. America’s active involvement in the negotiating process will not only help test Iran’s real intentions but may succeed in getting from Tehran what it has so far refused: “objective guarantees” to show that its nuclear intentions are peaceful which in effect means an end to all enrichment and reprocessing.

It may be recalled that the head of International Atomic Energy Agency (IAEA), Mohammed ElBaradei, has on several occasions urged the United States to engage in dialogue with Iran over its nuclear programme. According to him, no permanent solution to Iranian nuclear ambitions is possible without full US engagement. Being UN’s nuclear guardian, ElBaradei has emphasized the need to address “Iran’s sense of isolation and insecurity” after more than 20 years of American hostility and economic sanctions imposed on its Islamic government.

One of the hurdles in the way of dialogue is that after a quarter century of hostile relations, beginning with the toppling of the Shah and the 1979 seizure of the American embassy in Tehran, too much of national pride is involved on either side to get off the beaten track and explore new ways of solving problems.

But there are other hurdles as well. Secretary of State Condoleezza Rice has pinpointed some aspects of Iranian policy which, in her view, impede America’s active involvement in the negotiating process. Most important of them being “the support of groups relying on terror like Hamas and Hezbollah and actions in Iraq designed to prevent the consolidation of a political structure.” It may be added that Iran has long drawn America’s ire by denying Israel’s right to exist and opposing the Middle East peace process. Washington thinks Tehran will have to show some readiness to modify these “dangerous ventures” before America can participate meaningfully in the negotiating process now being conducted by three European nations.

The US decision to offer incentives to Iran aims at supporting efforts by Britain, France and Germany to persuade Tehran to abandon its nuclear programme in return for economic incentives and better relations with the western world. If the Americans continue to encourage the European initiative, they will soon be driven to recognize that the negotiating process cannot go beyond a certain point without some kind of American participation.

The best option for both Washington and Tehran seems to be a framework for negotiations similar to the six nation forum for dealing with the North Korean nuclear problem. Yet for diplomacy to succeed in resolving the nuclear issue, Washington and Tehran will need to leave the beaten track, rethink their role and explore new possibilities of resolving their dispute.

The writer is a former ambassador.

a ONE of the big questions of our time is whether the global economy is stable. The gains from “globalization” — more cross-border trade, investment and technology transfers — are indisputable. Countless millions have escaped poverty in Asia and Europe. A recent study by the Institute for International Economics concluded that American living standards are roughly 10 per cent higher as a result of globalization’s benefits (cheap imports, greater competition, new technologies). Globalization’s winners vastly outnumber its losers. Unfortunately, that could change if the world economy turns out to be unstable — incapable of sustaining adequate growth or vulnerable to severe crises. For the moment the dangers are abstract. In 2004 the global economy grew 4.7 per cent, economists at Goldman Sachs report. Asia (excluding Japan) grew 8.2 per cent; Latin America, 5.6 per cent; the United States, 4.4 per cent. Global economic growth should average about 4 per cent in 2005 and 2006, the Goldman economists predict. Still, the spectre of instability lingers. Global economic integration — the merging of markets, the mutual dependencies of countries — has raced well ahead of either political integration or intellectual mastery. We simply don’t understand well how the global economy operates. Nor is it clear how countries with diverging interests and shared suspicions will cooperate in a crisis.

One obvious problem is oil. Even if the United States could end dependence on imports for 64 per cent of its oil demand (a practical impossibility anytime soon), Europe would still import 80 per cent of its needs and Japan 100 per cent. Any major shutdown of Persian Gulf exports — from war, terrorism or a political act — could devastate the world economy.

Global terrorism or a world pandemic would also pose threats beyond the initial tragedies. Countries might try to protect themselves from outsiders — imposing restrictions on trade, travel and immigration — in ways that would destroy global commerce.

At present the greatest peril may lie in huge global trade imbalances — and the financial pressures they create. The basic dilemma is that the world needs American trade deficits as an “engine” of growth, compensating for weak growth in Europe and Japan. But the same trade deficits may now be destabilizing because they send large amounts of dollars abroad. The danger: a dollar “crash” on foreign exchange markets that spills over into the US stock and bond markets, driving down those markets and triggering a global recession.

Look at the numbers. In 2004 the U.S. current account deficit reached an estimated $650 billion, or a record 5.6 per cent of gross domestic product. (The current account includes all trade, plus other international payments such as those generated by travel and tourism.) The mirror images of U.S. deficits are other countries’ surpluses.

In 2004 Japan’s current account surplus was 3.7 per cent of GDP, Germany’s was 2.9 per cent and China’s was 2.3 per cent, Economy.com estimates. But even with the stimulus of selling to the United States, economic growth in Europe and Japan has averaged only 2 per cent and 1.5 per cent annually since 1994.

What’s the problem? Foreign exporters receive dollars for what they ship to the United States. If those dollars aren’t reinvested in American assets — say, U.S. stocks, bonds or Treasury securities — they’ll be sold on foreign exchange markets for other currencies: the euro, the yen, the pound. As dollar sales drive down its value, foreigners note that their existing U.S. stocks and bonds are worth less in their own currencies. So they may sell U.S. securities to limit losses. At the end of 2003, foreigners owned $1.5 trillion in U.S. stocks; widespread sales could trigger steep market declines.

The risk is an economic implosion. A sinking stock market could damage American consumer confidence and spending. Higher currencies for Europe and Japan could weaken their export competitiveness. (A higher currency tends to make a country’s exports more expensive and its imports cheaper.) Together, the United States, Europe and Japan are half the global economy. If they went into recession, other countries might follow.

Economists are divided. Some fear the worst, because the world is flooded with dollars. Relax, say others. Asian central banks (their versions of the Federal Reserve) will buy surplus dollars, because they want to export to the United States and don’t want their currencies to rise against the dollar. Still other economists (including Alan Greenspan) believe that we’ll muddle through — that shifts in exchange rates and economic growth will slowly narrow today’s trade imbalances. So far the evidence supports everyone. Since mid-2001 the dollar has dropped against many currencies, especially the euro. Asian central banks have bought lots of dollars. And we have muddled through.—Dawn/Washington Post Service

THERE are many signs to indicate that Kashmir presents a better picture today than before. The border is quiet. The infiltration is low. An abandoned 50-year-old road between Srinagar and Muzaffarabad is about to thread the two sides of Kashmir. Incidence of militancy is down. Cross-border terrorism is lessening day by day. At one time the number of Kashmiri militants was anywhere near 50,000. Today our army puts them around 1,200. Even the foreign jihadis are reportedly fewer. Tourism in the valley has been lurching to better days. Municipal elections held after nearly three decades have involved more than 70 per cent of voters at many places. Even a hardliner like Syed Shah Gellani has said more than once that the Kashmiris want their pandit brethren back in their midst. Violations of human rights have come down to some extent and action against the guilty has been generally prompt. Srinagar is still full of rhetoric but New Delhi is thinking of going beyond the economic package Prime Minister Manmohan Singh has promised the state. According to Yasin Malik, the first militant who has turned Gandhian and vegetarian, thousands of Kashmiris are turning their back on violence which has been stalking the land for about two decades. He says that the 5,000 villages he has visited on foot in the last two years are awakening people to the efficacy of non-violence. The exhibition that he has held in New Delhi says all this through the photo of confident faces from far-flung places. Thousands of them have also signed a pledge to support peace. All this promises a movement towards a hopeful future.

Yet, we will delude ourselves if we believe that the Kashmir problem can be solved without recognizing the true kernel of the matter: political aspect. Trappings of normality should not be mistaken for actual normality. True, the atmosphere is better than before. But this should not make us infer that we have found a solution to the Kashmir problem.

I find strange smugness creeping in at the various government-blessed conclaves held in New Delhi and elsewhere. Experts who provide advice are also creating the impression that the separatists have been “cornered” and the critics “vanquished.” This is not true. If this were so, the alienation in the valley would have largely disappeared. The army would have withdrawn its forces in a larger proportion. The Hurriyat leaders would have responded to New Delhi’s invitation for a meeting. Instead, they are sitting pretty.

This, in fact, is the time when we should consider the solution of the Kashmir problem in right earnest. We can stop the Kashmiri youth from going the Yasin Malik and Shabir Shah way. They took to the gun at the age of 18 or 19. What does New Delhi do to retrieve the youth is a challenge before it. Thousands have lost their dear ones in the last two decades. Thousands have lost their home and hearth. Thousands have also lost their vocation. Their eyes reflect more sadness than estrangement. Their loss seems irreparable. How do we give them a hope of new Kashmir?

What will mollify them or, more aptly, what will justify their hopes and aspirations is the question to which we have to seek an answer. Solutions can be different. They may have something to do with the delineation of their political rights, their status or their identity. We have lost their trust over the years. How do we win it back? Not only that, we need to get them into the mainstream. This problem is not all that simple.

Then there is Pakistan. Without having any understanding with it, the problem will continue to fester. We have seen it before. Until the insurgency began in the valley in 1988, New Delhi’s problem was Islamabad, not the Kashmiris who continued to have faith in the sanctity of the ballot box despite bogus elections. Only after losing hope of its credibility did they cross over to the border to get training and weapons.

On the other hand, we have repeatedly told Pakistan that “a final settlement of Jammu and Kashmir” is yet to take place. These are the words used in the Shimla agreement signed nearly 33 years ago. Therefore, Islamabad will have to be kept in the picture.

After disagreement over the Baglihar dam in Kashmir, the problem has assumed more ramifications. It is not so much the territory as is water. Pakistan’s many rivers rise in Kashmir and its fears, however exaggerated, have to be allayed for any settlement. Prime Minister Jawaharlal Nehru, who signed the Indus Water treaty in 1961, was anxious to build a foundation on which the two countries could build a durable structure of amity. Unfortunately, that has not happened. Once again, the same opportunity seems to be coming our way. Manmohan Singh hit it off well with President Pervez Musharraf as Atal Behari Vajpayee did with the general.

Pakistan has recently made two statements that help the situation. One is to go away from the plebiscite which, in any case, is not possible without disturbing the pluralistic equanimity in India. The experience of the NWFP is there. Soon after independence, a plebiscite was held there to determine whether the state would like to join India or Pakistan. Instead, the plebiscite got reduced to the choice between Hindu and Muslim, the Gita and the Quran. The other announcement coming from the military leadership is more significant: Kashmir cannot become part of Pakistan. Former Prime Minister Nawaz Sharif has said more or less the same thing at Jeddah: Kashmir has gone away from Pakistan. In any case, in the light of Manmohan Singh’s statement that no territorial adjustment was possible, the question of redrawing borders does not arise.

In fact, people-to-people contact has instilled the spirit of give-and-take. Cricket matches have helped and so have the different groups of various professions. The two long-lost sides are beginning to strike some equation. The usual hawkish attitude even in the bureaucracy has lessened. New Delhi has developed enough of confidence in Islamabad so as to accept the once-unthinkable proposal to haul gas from Iran through the pipeline laid in Pakistan.

Indeed, this is the most opportune time to settle Kashmir. What I suggest is a two-pronged talks — on the one side with the Kashmiris and the on the other with Pakistan. At some stage, the two can converge but not at the very start in order to avoid confusion. And the best way is Track II. All the three parties want to be helped to evolve a solution. They do not want to take any position in public because it gets tagged. The sooner we start the process, the better it will be. Otherwise, we face the danger of going back to square one.

The writer is a leading columnist based in New Delhi.

IS the US headed for a terrible reckoning with its past-due bills? Is post-war American dominance poised to crumble just like the over-stretched and exhausted British empire before it? Some purse-lipped authorities, scanning statistical tables as if they were crystal balls, forecast that a steep decline, if not a collapse, of the mighty superpower is in the offing. This dire prophecy, which many onlookers around the world may greet with some relief is scarcely the opinion of the ardent ideologues directing foreign misadventures from Washington DC. Bush’s neocon cabal clearly imagine they are unstoppable, and that their resources are limitless, as rumours of an impending invasion of Iran would seem to show. So what is it to be? A chastened nation or an implacable juggernaut, or something in between? Let’s look at the plight of US policy mandarins after the fall of the Berlin wall. American elites, beholding total Soviet capitulation by 1991, were a bewildered lot of victors. Their reluctance to accept the Soviets’ surrender bordered on the comical.

Bush senior officials insisted on portraying the end of the red menace as a clever ploy staged to put the Americans off their guard. When at long last they could no longer deny the Kremlin was throwing in the towel, the Americans gracefully scrambled to claim all the credit. Yet, it is no exaggeration that powerful reactionary US groups were upset for they lost their ideological moorings.

Bereft of a mortal threat, which could serve a conservative domestic agenda, elites grew more, not less, nervous. The post-war racket of US leaders was imperilled. If the Cold War was gone what would happen to the cosy neo-imperial links with ‘anti-communist’ dictators around the globe and to billions of taxpayers’ money poured freely into overpriced arms and other corporate concerns at home?

Perhaps the American people might decide that they deserve a national health system or free education or better and cheaper public services instead. Abroad, citizens might well wonder whether propping up rabid Israeli expansionists is such a good idea or if foreign aid is better spent on genuine development and health projects. Surveys of public attitudes by the Council on Foreign Relations, consistently show the willingness of large majorities to back humane, cooperative and generous policies abroad — so long as they are not scared. “Why didn’t Americans buy off the Taliban instead of bomb them?’ an NGO worker, who was in Afghanistan in 2001, recently asked us. “The Taliban were so easy to bribe.” The answer is, to impress the folks at home.

Bush put on a wildly expensive and gory fireworks display solely to sate an angry and frightened US public who wrongly imagined the high tech weaponry onslaught would make them safe. In the post-9/11 era Bush opportunistically added more military spending than the total arms budget of the next largest nation. Throughout the cold war the US itself suffered from arms-oriented expenditure of well over 15 trillion dollars. Military spending is not remotely equivalent in either competitive terms or job creation to the same funds invested in commercial and social sectors.

Meanwhile, Japan and western Europe, under the US military umbrella, benefited economically, gaining crucial advantages. So one might think that now re-allocating revenue to improve domestic amenities and commercial production would be universally welcome. But, in powerful quarters, a ‘peace dividend’ simply had to be thwarted, largely by ‘threat generation’ so as to shore up the reigning military-industrial-petroleum complex. Corporate hard-liners duly widened their control of the media and even set up so-called ‘think tanks’ for obedient intellectuals to concoct paranoid scenarios to feed the apprehensive public.

Back to ‘pure’ economics. The US in the post-Second World War era benefited from surpassing the British pound as the key reserve currency, producing half the world’s goods in 1945, and confirming its military might, and its preeminent role in international economic institutions. The US economy abroad, via foreign investment, grew to the third or fourth largest in the world, if taken as a unit, a factor rarely taken into account by commentators scanning adverse balances of trade.

The fall of the dollar underlay the retreat from Vietnam in the early 1970s as overspending overseas harmed the economy. But the US hardly folded. In the 1980s critics grimly warned that not the Russians but the microchip-driven Japanese were coming, and would crush the US. Yet Japan suffered a financial meltdown and even today wrestles with its own economic difficulties. Hardly anyone remembers “Japan as number one”.

The real purpose of that ‘sky-is-falling’ episode, many suspected, was to render US employees more pliant and self-denying while so-called entrepreneurs and a merger-mad managerial class took advantage. This classic panic attack was a specimen of a doomsayer tradition of alleged Marxists who foretold the end of capitalism ever since the first trader thought of cheating a client. Yet sophisticated radicals are first to appreciate the resilience of capitalism and its potential for system-sustaining reforms. Imperialistic war is one route to overcome economic problems; the creation of welfare states with market-regulating instruments is another. In the West, especially, Social Democrats made their peace with a guided form of capitalism. Capitalists, however, won’t long tolerate anyone who hampers their freedom so the deal was discarded especially in the US and UK after the 1970s oil crises.

The US is a big deficit spender but it is one whose profligacy is often necessary — in the absence of coordinated global mechanisms of fiscal control — to keep the world economy running apace. China and Japan, who absorb much of the US debt, are not going to rush to pull the plug if it kills demand for their own products. The interdependence of nations protects the US. Recall the belief in the 1970s that Arabs would destroy the American economy that they, instead, heavily were investing in. Indeed, the Arab embargo hurt western Europe economies far more than the US which could curb prices via its own oil resources.

Oil is dollar-denominated, which is another US advantage. (Saddam Hussein probably sealed his own fate by trying to arrange a circle of oil producers whose wares were to be denominated in euros.) Present trends are not fate. Most economic woes are self-inflicted wounds. Had John Kerry been elected (as we believe he would had all votes been honestly counted), corrective measures already would be in place. Kerry then would be in Clinton’s plight, forced to restore finances after Republicans plundered the treasury.

Bush today is intent on repeating Reagan’s trick of ‘defunding the welfare state.’ Bill Clinton spent eight years getting finances in order and thereby was stymied regarding programmes to help ordinary people. Bush, following Reagan’s script, threw Clinton’s hard-won surplus away in tax cuts to the rich and overnight generated a 7.4 trillion debt. The Bush regime is pulling up the underpinnings of a market system that they say they revere. Unchecked, capitalism flies apart. Ironically, the best friends of capitalism are its reformers.

What is needed today are what historian Eric Hobsbawm delicately calls “incentives for reform.” The US spending spree is devaluing the dollar (a 30 per cent drop against the euro over Bush’s first term) in ways Americans at home do not yet feel but soon will. Bush’s supporters hope that the dollar’s fall will improve exports. Yet the financial strain is sure to stir reaction. A curbing of militarism is likely because Bush also does not dare conscript the middle class for his imperial expeditions.

Counting out the US economy, however, is foolish when any new administration can remedy it through restoring taxes on the wealthy, a shift of military funds to rejuvenating production, and a real multilateral sharing of burdens. All are possible — but not for three and a half years. Bush still repudiates what the 18th century founders of the American Republic called the need to answer with “decent respect to the opinions of mankind” when they explained why they broke from Britain. Even the ‘founding fathers’ recognized that no nation goes it entirely alone. Critics are surely right who say the US soon will have to learn that lesson anew.