Food price inflation

THE State Bank Governor, Dr Shamshad Akhtar, has reiterated what has earlier been stated in the last State Bank annual report that inflation would range between 6.8 to 7.5 per cent and rise above this years target of 6.5 per cent. This she attributed to the higher than anticipated food prices and the governments inability to pass on the benefits of falling international oil prices to the consumers. As prices are the end product of all economic activities, inflation can be both a symptom and a factor for ailments of the economy. It is therefore seen as a core issue for any central bank to tackle with an appropriate monetary policy, which, unfortunately, is formulated on the basis of core inflation that excludes both food and oil prices. Selective and temporary credit controls could check hoarding of essential commodities to ensure adequate supplies to match demand. Intriguingly , a recent move by the State Bank to get sugar mills retire their credit so as to reduce their piled-up stocks, increase the availability of sugar and bring down prices, was scuttled by the powerful sugar lobby.

The objective of economic reforms to end crony capitalism stands defeated. The manipulation of the commodity markets has acquired a legitimacy never witnessed before, with the government standing aside as a silent spectator most of the time. And if the authorities intervene, often their belated action allows enough time for speculators to make a fortune. One is left with the impression that either the government lacks the sophisticated skills to stabilise prices in an emerging market or is in collaboration with the rent seekers. If the purchasing power of the rupee continues to erode because of a high rate of inflation, pressures on the exchange rate would mount, which is already causing a creeping depreciation of the national currency. What is now seen as a domestic demand-driven inflation would be further fuelled by imported inflation. Finally, the paradigm shift towards the free market without strong regulators has given the consumers, especially the fixed income groups and the poor more pain than gains. The argument that economic growth is accompanied by high inflation does not hold good in countries with a high rate of domestic savings and investment. Pakistan suffers from dismally low savings and high consumption rates.

According to SBP Inflation Monitor, the Sensitive Price Index increased from 11.8 in October 2006 to 13.4 per cent in November 2006, with a double digit inflation in prices of 51 commodities, including milk, sugar, beef, fish, pulses, gram, onion and chilies, their weight in the food group being 48 per cent. The items with 43 per cent weight reflecting substantial or moderate inflation. House Rent Index and education sub-index recorded a rise of 6.6 per cent. The worst hit are a quarter of the population living below the poverty line and people joining the swelling ranks of the low paid, the under-employed and the unemployed while fortunes are being made by rent seekers. With growth coming from a narrowing production base, massive imports that provide jobs abroad, are resorted to bridge the demand-supply gap rather than from rapid industrialisation that could generate employment for the poor. It is time for the authorities to review their economic policies and change these beginning with measures to control inflation before a very serious damage is done to the economy and with a view to protecting the consumers from undergoing further agony.

Somalia in a bind

ALTHOUGH the swift rout of the Union of Islamic Courts in Mogadishu and other bastions of Islamist power by government forces and Ethiopian troops has provided temporary relief to Somalia’s interim set-up, the threat of further political chaos is far from over. Already, there have been angry demonstrations over the presence of Ethiopian troops in the capital where hundreds of Somali citizens have been chanting slogans against military intervention by a country long regarded as an enemy. Moreover, checkpoints have been reoccupied by the henchmen of warlords who, prior to the UIC’s brief rule, had been extorting money from common citizens. The situation has alarmed the international community that has proposed the deployment of an African Union peacekeeping force in the troubled country. This is an essential stop-gap measure if the security vacuum that would be created by the departure of the Ethiopians is to be filled. At the moment, US warships are plying the waters off the Somali coast to prevent Islamists from escaping while Kenya has sealed its border to prevent infiltration by armed fighters.

Also, before the situation become any worse and a humanitarian crisis develops, a political solution needs to be worked out. This should include negotiations with the more moderate Islamists. UIC leaders had managed to undermine clan politics and establish the rule of law in many areas. After years of lawlessness, many citizens had welcomed their stabilising presence. Indeed, the international community recognises that there can be no durable political solution in Somalia without the inclusion of the Islamists. This has become even more necessary as religious hardliners, including those belonging to Al Qaeda, call for a jihad in Somalia. When the Islamists wrested Mogadishu from the warlords last June, they were willing to negotiate with the representatives of the provisional government. But no progress could be made because of bad faith between the two sides. A willingness to include moderate Islamists in talks focusing on the country’s future political dispensation would send positive signals that the government is genuine in its desire to bring peace to the country.

Biting cold spell

MOST parts of northern and western Pakistan are in the grip of severe cold, making it hard for the people to cope with the many problems the extreme cold spell has brought with it. Gas, water and power supplies have been interrupted in the badly affected areas of Balochistan, including Quetta; water pipes have burst in the northern areas where temperature dipped as low as -16 degree Celsius; the earthquake-affected region, spanning from Mansehra in the Frontier to Azad Kashmir, is once again bearing the brunt of the harsh weather. Displaced people who are still having to live in tents and make-shift shelters for some 15 months since the tragedy struck are among the worst affected: many have been forced by raging snow storms and freezing temperatures to move down into the valleys from their mountain slopes, only to find that conditions there are no better. The AJK capital, Muzaffarabad, is reportedly in a state of distress because of the breakdown of civic services made worse by inclement weather conditions. The city’s only hospital is said to be overflowing with patients suffering from pneumonia and other cold-related ailments which can prove fatal if not treated in time. Punjab’s hilly areas and plains, too, are experiencing sub-zero temperatures and interruptions in gas and power supplies; at least two homeless people are reported to have succumbed to the cold in Lahore where the mercury dropped to the freezing point on Friday.

The cold spell gripping the earthquake-affected people in the north and those living in extreme poverty in Balochistan calls for the government to redouble efforts to provide shelter and offer relief to the less fortunate. Getting emergency supplies out to the affected people and setting up medical camps to swiftly treat those suffering from cold-related illnesses and frostbite is the least that should be done immediately.

What’s the Indo-US N-deal for?

AMERICA is the oldest, rather than the youngest, country of the modern world. My definition of modern hinges on a great modern concept, democracy. There were faults in American democracy, but for more than two centuries, America has found the creative link between national independence and individual freedom to create the world’s most successful economic and military power. You cannot enter the modern age simply by building highways as good as America’s. You also need a democracy as good as, or even better than, America’s.

The spine of democracy is the law. Governments come and go, and may the traffic be incessant, but the law is permanent. Governments can legislate, or amend legislation, but once that is done, governments become subservient to the law.

It is curious that one of the most vocal advocates of world democracy, a man ready to spend billions in war ostensibly to create it, should miss such a basic principle. President George Bush sought to allay Indian concerns over the civilian nuclear partnership that he signed into American law, by explaining that a president makes foreign policy, not Congress. For reasons that can only be excused by either ignorance or indifference, large sections of the Indian elite, including, sadly, the media, immediately congratulated themselves on yet another “victory”.

If the American president makes foreign policy, why did Bush need Congress approval of his deal with India? The president is head of the executive, and he certainly has much leeway in his management of government, but he is not above the Congress. If the Congress defines the parameters, then the president can only break them at the risk of impeachment.

The narrative of the Indo-US deal now has been bound with hard covers, and the covers are the Hyde Act. The July 18 agreement of 2005 is a limp document that may or may not be in the appendix. Bush has less than 25 months in office; the text of the Hyde Act, unless amended, will be in force long after Bush and this columnist are in their graves. Bush is an interlocutor; the Hyde Act is the lock that will seal the discourse for a generation if not more.

It is specious to suggest, as some in the Delhi government have done, that the Hyde Act is binding only on the United States. Isn’t that the point? We did not do this deal to supply nuclear fuel to ourselves, did we? We did it to get American fuel and technology, and if the United States cannot give it because we are in violation of some aspect of Hyde’s tough and unambiguous demands, then we are up a creek without a paddle.

What are the main objectives of the Hyde Act? They are written in clean English. One stated objective is non-proliferation. It avers that as long as India is outside the Non-Proliferation Treaty, which we have not signed, it will remain a challenge to the “goals of non-proliferation”. How does the Act propose to achieve this goal? By seeking to “halt the increase in nuclear weapons arsenals in South Asia and to promote their reduction and eventual elimination”.

Halt, reduce and eliminate. Remember these three words.

Those who insist that the deal is only about civilian nuclear energy are surely literate, and one presumes that they have imperatives that persuade them to gloss over such phrases. “The costs to the US appear minimal. The price India will have to pay may well be total loss of control over its future polices,” M.R. Srinivasan, member of the Indian Atomic Energy Commission, told the December 21 issue of Science magazine.

The Hyde legislation calls for Indo-American cooperation between scientists to develop a common non-proliferation programme — for the rest of the world, that is, not for America. America continues to exercise its right to test, and is working to build miniature nuclear weapons whose fallout can be contained, making them usable in conventional war.

It may be of mild interest that if we agree to this deal, we will also be committing ourselves to the elimination of Pakistan’s nuclear weapons along with ours. Perhaps optimists in Delhi believe that after he solves Kashmir, President Pervez Musharraf will discuss a nuclear-free South Asia, but somehow I doubt it.

If the first objective is corrosive, the second is colonial. It wants Indian foreign policy to be “congruent” to America’s, and expects “greater political and material” support in the realisation of American goals. I doubt, if during the talks, any Indian negotiator suggested that America might want to align itself with Indian foreign policy goals.

That would be the language of equals, and this is an unequal relationship.

Sometimes the fog of peace is more dense than the fog of war, but there is a route map to guide us through to US strategy. It is a country called “Iran”.

“Congruence” is an untidy word with very neat implications. Bilateral agreements rarely, if ever, are third-country specific. Here is what the deal expects India to do vis-a-vis Iran: “full and active cooperation to dissuade, isolate and if necessary sanction and contain Iran”. The text asks India to keep in step with US policy on Iran, and quotes, approvingly, the votes by India against Iran in the IAEA board of governors as evidence of such compliance.

Iran is not the only country with which America has a problem about nuclear intentions. Iran does not have a weapon yet, although it is clearly making a serious effort to get one. North Korea has weapons. There is no specific linkage to North Korea. Why? One possible answer: Washington does not contemplate war with North Korea, but retains the option for an assault on Iran in 2007.

Hyde is the stick to Bush’s carrot. But both are on the same side. Bush would certainly expect “political and material” support from India if he started military action against Iran. Don’t underestimate the “material” part.

Dedicated astrologers apart, everyone concedes that predictions are a speculative science. There is something about the start of a new year, however, that makes such a temptation irresistible. The current language of defeat, or “neither winning nor losing”, may have lulled us into the belief that Washington’s military options are off the table. The Iraq Study Group, headed by as patrician a Republican as James Baker, a virtual uncle to George, has suggested that Washington starts talks with Damascus and Tehran, not war.

But there is a minority — and, I stress, speculative view — that a last-ditch desire to salvage a miracle out of the mess, might tempt Bush, Tony Blair and Ehud Olmert into gambler’s corner. All three have tasted unexpected and even humiliating defeat in 2006, and have one chance before the triumvirate disintegrates with Blair’s departure in early summer. Their fortunes might suddenly transcend if they were able to announce, at the end of a series of lightning strikes, that they had eliminated Iran’s nuclear facilities.

There is also a technical reason, which all but a few experts have missed. The destruction of Iran’s nuclear facilities would become too dangerous, apparently, after November, because the fallout would then reach Chernobyl levels.

I spoke to Dr Steven Wright, who presented a paper on this subject at a security conference in Geneva in the first week of December: “Yes, there is indeed a technical issue at play which no one I have come across has picked up on. In essence, it is the loading of the Russian manufactured and supplied uranium fuel rods for the Bushehr reactor. Air strikes cannot be carried out after they have been loaded into the reactor due to the fallout being akin to Chernobyl.

“Therefore, they need to be carried out before that time, if at all. The Bushehr reactor, despite being a light water reactor, still has a proliferation risk as the uranium rods can be removed a mere four months after loading and a crude plutonium weapon can be fashioned from it. There is a common myth that light water reactors are proliferation proof. If the objective is to prevent Iran from developing such a weapon, action would need to be carried out before this stage is reached.”

There are many reasons why war should not happen. Bush, Blair and Olmert may want one, but their publics are disenchanted, and their legislatures more circumspect. The Pentagon is stretched taut, as are the British armed forces. The impact on oil prices, and the region, would be catastrophic. But dreams of glory have this awkward ability to overwhelm common sense. It has happened before, in Iraq. India was not tested three years ago because Bush declared a premature victory. If there is another American “shock and awe” invasion, we will find out whether India is still independent or has become congruent.

The writer is editor-in-chief of The Asian Age, New Delhi.