The great American robbery

WHAT a rare sight. The leader of the free market world addressing his nation five times in a week to plead that the free market system was in dire straits and the only hope to save it was an urgent $700bn in assistance from the state.

At the heart of the crisis is a severe liquidity crunch. Financial institutions are unable or unwilling to lend to each other and their preference is to recall rather than lend. This is because they are aware of the enormous amounts of toxic debts on each other’s books. The crisis originated earlier in the mortgage market which the US government believed it had fixed through some half measures. It transpires now that the system is a minefield of bad loans, extended not at the insistence of corrupt politicians or incompetent bureaucrats as would be the case in Pakistan but the result of decisions made by the best and the brightest in the private sector.

Aggressive marketing lured those who couldn’t afford it to borrow for homes, cars and through credit cards. Leveraging, a term often mentioned by Shaukat Aziz, short-buying, sub-prime borrowing and all manner of derivatives contributed further to the debt chain. The crisis is transmitted to the real economy when the liquidity-starved financial sector turns away even genuine borrowers for productive investment and working capital.

Treasury Secretary Paulson, himself from the best and the brightest of the financial sector who had reluctantly accepted this low-paying, low-profile job some time ago, knew exactly what was happening. To prove his free market credentials, he let Lehman Brothers go under and encouraged the Bank of America to buy up Merrill Lynch. But the troubles of American General Insurance, which could spread cancer in the system, were too scary to ignore.

In no time Paulson thought up a three-page, trillion-dollar bailout plan and sought Bush’s nod, whose only objection was that $333bn a page was too much and reduced it to $233bn a page.

Leaders from both sides of the aisle and the two presidential candidates — an all-party conference — were quickly assembled at the White House. Bush’s stock is so low that the stiffest opposition came from the Republicans, his own party. They were unwilling to place so much money at the disposal of an unelected official, the treasury secretary, for arbitrary distribution among his peers in the financial sector.

McCain, who saw an opportunity here to score better on the economy, nearly abandoned the first presidential debate to push the proposal, saw the mood and relented. Obama kept a careful distance. In the end, both Obama and McCain were seen to be evasive on the subject in full public view. All hell would break loose if a Democrat president were to signal the impending return of Big Government. Understandably, Democrats in Congress would encourage a Republican president signing the bill.

Shorn of political manoeuvring and posturing, four critical issues are involved here. The first is oversight, to ensure transparency and accountability in the use of public money. Second, will those who made bad decisions be rewarded by what the American public likes to call the fat cats’ bonuses? Third, what’s in it for those on Main Street — an expression for the businesses affected by the bad decisions — and the homeowners facing foreclosure? Or is it an exclusive ride offered to Wall Street at the expense of taxpayers?

If the latter is the case, the bailout would be robbing taxpayers of the alternative uses denied them by the American government. The major argument for government intervention here is the systemic risk. To ordinary Americans, the systemic risk to the heath system and college education has been ignored for long. The very mention of government support here invites the wrath of neocon ideologues. At an individual level, a bad debtor is expected to bear the consequences of his or her mistake rather than expect assistance. But the erring fat cats of Wall Street can be trusted with a share of taxpayer money which is enormously big even by American standards.

Let’s just put the size of the $700bn package in perspective. The costliest war in history, the war in Iraq, has thus far cost just about the same. America’s annual defence spending is also of the same magnitude. Fixing health and education for the American public will require far less. The crisis overshadowed a summit held on Sept 27 on the Millennium Development Goals (MDGs), where the tidings were pessimistic. The bailout amount is more than sufficient to achieve the MDGs targets for all developing countries by 2015.

Where will the money come from? The national saving rate of the United States is negative. It has therefore to win back the confidence of China, the Middle East and East Asia who hold huge dollar reserves and have lately been wary of the behaviour of the dollar. Will America succeed? While the immediate impact will be the unfreezing of credit which the reaction of stock markets around the world should indicate, the eventual test will lie in the revival of the housing market.

Could the crisis have been averted? The key lesson of the Great Depression, advocated by Lord Keynes, was that state intervention could prevent mass unemployment. Broadly the lesson continues to be valid: the excesses of capitalism can only be prevented by the state. Allan Greenspan, the Federal Reserve chairman who presided over the longest boom in the American economy, knew that the regulatory framework in critical areas was weak but did not act. As Nobel laureate Stiglitz put it recently, we need not wait for a crisis to bring back the state.

What are the lessons for Pakistan? The first lesson is that it was a mistake to take non-bank financial institutions out of the purview of the State Bank. Mercifully the mistake is being rectified. More importantly, credit-financed consumption-based growth is always a recipe for disaster.

The writer teaches at GC University, Lahore.

The terror of this war

SUB-OPTIMAL. That’s probably the most generous way to describe statecraft in Pakistan.

A week of debate on the debate in parliament and I’m ready to run to the hills. Or perhaps into the sea, given the threat lurking up in Pakistan’s hills.

Start with the army. Gen Kayani is fighting a bloody insurgency in three areas — Bajaur Agency, Swat and Darra Adamkhel — and has thousands of troops in other tribal agencies. It’s a tough fight, with civilian casualties and massive displacements. Kayani may be giving the militants a bloody nose, but few are optimistic of the long-term effects of a full-frontal assault.

Along the way, the general was coaxed and cajoled by Zardari into briefing parliament on what the army is up to. So Kayani roped in his DGMO and sent him forth into the cauldron of stupor to explain what his soldiers are doing. Lamentably, the DGMO shared nothing a Google search wouldn’t reveal.

This is bad news for everyone trying to understand Kayani’s strategic thinking. Since the army chief is intent on holding his cards very close to his chest, the country’s representatives will just have to piece together for themselves the Bajaur operation. Did I mention that statecraft isn’t an optimum art here? So on to Bajaur Agency.

(Aside: Bajaur was sacked by Babar — yes, the Mughal emperor — in 1519. From the Babarnama: “As the Bajauris were rebels and inimical to the people of Islam, the men were subjected to a general massacre and their wives and children were made captive. At a guess, more than 3,000 men met their death. We entered the fort and inspected it. On the walls, in houses, streets and alleys, the dead lay, in what numbers! Those walking around had to jump over the corpses.”

Lesson: history is written by the victors.)

Even though we haven’t been told why we are in Bajaur — as opposed to, say, pounding one of the other six tribal agencies — that doesn’t mean there are no good reasons for being up there.

Bajaur is geographically the smallest (500 sq miles) of the tribal agencies, but has one of the largest populations (595,227 at the last census; an estimated million until August). It abuts Kunar, a north-eastern Afghan province which is a stamping ground of Gulbadin Hekmatyar’s Hezb-i-Islami. Bajaur, especially the south-west where the Mamond tribe lives, is known to be home to foreign militants, especially Al Qaeda. Both Pakistan and the US have launched strikes inside Bajaur in the last three years, indicating the level of interest in militant activity there.

There’s more. In March 2007, four ISI agents were killed in Bajaur. Before the present operation started in August, more intelligence agents are believed to have been killed. Maulvi Faqir Mohammad, the militant leader in Bajaur, has close links to Maulana Fazlullah and his band of savages in Swat.

All of these are very good reasons for us to be in Bajaur. There is a further possibility: the army thought it would be like taking candy from a militant. But when several hundred troops trundled into Lowi Sam, a town near a key border crossing to Kunar province, in early August, they were subjected to a withering assault. Physically and psychologically hammered, the army had no option but to respond with even greater force.

But these are outsiders’ guesses — and worth as much. Denied a clear strategic explanation for why Bajaur now and why Bajaur first, the opposition certainly has grounds to complain. Predictably, the N-League has grabbed the hind legs of reason though. Rather than release a list of penetrating, relevant questions that were left unanswered, the N-League has chosen to bray about democracy and sovereignty.

Somebody should ask Nawaz Sharif, what about survival?

Despite their right-wing reputation, the Sharif brothers have old enemies in the anti-Shia jihadi outfits of Punjab. The Lashkar-i-Jhangvi, the most vitriolic and lethal of Sunni militant groups, tried to kill the Sharif brothers in January 1999 by blowing up a bridge leading to their Raiwind estate (the explosion killed three but missed both brothers’ convoys). The attack was presumably revenge for Shahbaz Sharif’s harsh repression of the Sipah-i-Sahaba Pakistan (SSP) and Lashkar-i-Jhangvi (LJ), which rocked Pakistan in the 1990s with their internecine sectarian war against Shias.

No one emerged from that period with their hands clean. The sectarian warriors killed with shocking viciousness, while on Shahbaz Sharif’s watch police encounters and extrajudicial killings of militants shot up — though without doing much harm to the chief minister’s standing amongst a terrorised populace.

However, the SSP and LJ were far from finished. Caught in a frightening covert war, the Sharifs were forced to the negotiating table to try and ease the crisis in Punjab. Then fate intervened: Musharraf’s coup ejected the Sharifs.

While the Sharifs may have been put into political cold storage, the LJ lived to fight another day. 9/11 breathed new life into the organisation, even as its first generation of leaders were hunted down and exterminated. Today, the relationship between the LJ and Al Qaeda and the Taliban is so strong that the LJ is effectively the domestic arm of Al Qaeda.

There is much scepticism — some legitimate — of the claim that virtually every militant group has fallen under the spell of the shadowy Al Qaeda. But in the LJ’s case, the ideological and operational links are irrefutable. The sectarian aspect of Al Qaeda’s ideology is undeniable for anyone who cares to explore the issue in its grim, hateful details. At the same time the operational links are self-evident and self-confessed. The Lashkar effectively introduced suicide bombings to Pakistan to avenge the US war in Afghanistan. Other sophisticated bombing techniques have been shared between the LJ and Al Qaeda.

The LJ’s links with Baitullah Mehsud are also well known, with senior members of the LJ hiding out in South Waziristan. It’s no coincidence that Mehsud’s alleged intent to eliminate the Sharifs has thrown up the name of the LJ. Meanwhile, the LJ has been busy on the sectarian front, with its war in D.I. Khan spilling over into Bhakkar.

With Shahbaz Sharif back in power and the LJ in the ascendant, he will have to deal with them somehow. Nawaz Sharif may publicly deny the threat, but he must surely be alert to the threat the toxic brew of militancy poses to his government in Punjab. So what exactly does he hope to achieve with banalities about peace and dialogue? Does he hope the carrot of opposition to military operations will keep the sectarian militants at bay in Punjab? Or is he simply playing politics while the polity’s very existence is under threat?

When Nawaz Sharif roars that CJ Iftikhar would have kept this country safe, you’re inclined to believe the latter.

Final thought: the ninth anniversary of Musharraf’s coup slipped by unnoticed. Before history can repeat itself, the people must prepare by forgetting.

cyril.a@gmail.com

Gone fishing

IN April 2008, at the Twelfth United Nations Conference on Trade and Development (UNCTAD) held in Accra, Ghana, it was declared that the challenges of rising food and energy prices compounded by global economic uncertainties and climate change have the potential to decelerate the development goals of most countries which are grappling with institutional crises as well as political instability in the new millennium.

Whatever gains may have been made towards reducing poverty have not only been reversed but also pose direct risks to the survival of the poor and to the social and political fabric of these countries.

Following the UNCTAD conference, in June, the Food and Agriculture Organisation held its High-level Conference on World Food Security in Rome, Italy. Here it was declared that there is an urgent need to highlight the fragility of the world’s food systems and their vulnerability to shocks. At the same time this conference recognised the need to address the consequences of soaring food prices through immediate support for agricultural production and trade.

A month later, in July, at the summit of the G-8 industrialised nations held in Hokkaido, Japan, it was recommended that subsidies and tariffs on biofuel production in developed countries need to be cut or removed. The NGO Forum preceding the G-8 summit noted that although there is enough food in the world, speculative financing and biofuel policies benefiting the developed countries have driven up the prices of food. At the same time, at a Commonwealth Civil Society consultation held in Castries, St Lucia, key issues regarding the implications of high food and fuel prices for economic management were identified and a background paper prepared.

Just two months later, in September, the Commonwealth Foundation held another civil society consultation in Islamabad with the objective of finalising recommendations for the Commonwealth finance ministers’ meeting to be held in October in St Lucia. This conference was attended by delegates from India, Sri Lanka, Singapore, Bangladesh and the Maldives as well as by local NGOs such as the Pattan Development Organisation, Sungi Foundation, Sustainable Agriculture Action Group, Leadership for Environment and Development, Pakistani Labour Qaumi Movement, Women Councillors’ Network, Gender Studies Centre, Pakistan Fisherfolk Forum, and the Farmer’s Organisation from Multan.

The recommendations made by the participants emphasised a need to allocate resources for poverty alleviation instead of spending vast amounts of the GDP on defence. Also called for was a serious effort to institutionalise land reforms in order to distribute land to the landless, thereby encouraging agricultural productivity on small plots which invariably yield richer harvests with reduced chemical inputs in comparison to the needs of corporate farming.

The experiment with the Green Revolution was analysed and rejected for its use of chemical fertiliser and pesticide which not only cost us precious foreign exchange but degrade the soil and the environment, adding also to the health costs of farmers who are in direct contact with these inputs. It was noted that the use of high-yield variety seeds required imported inputs as well as larger volumes of water, which eventually seeped into the subsoil, leading to soil salination and rendering large tracts of land non-arable. In today’s world, the use of terminator seeds and genetically modified organisms also needs to be assessed for their short-term and long-term impacts.

Corporate farming with its prerequisite of large tracts of land in order to make cost-effective the use of mechanised implements such as combined harvesters was rejected as a way to increase agricultural productivity; instead the need to place people at the centre of all discourse on development was emphasised.

It was felt that in countries where the greatest resource was the people themselves, it was criminal to displace people from the land in order to accommodate machines. It was observed that even with the mechanised farming of large tracts of land, harvests were not necessarily reaching optimum levels, and even when they were people were not benefiting from bumper crops.

There were obviously deficiencies or loopholes in the distribution mechanism, which also needed to be redressed. These deficiencies could be addressed and food security ensured if political and economic decisions were placed within the framework of distributive justice.

Islamabad’s civil society consultation enriched the Commonwealth Foundation’s recommendations by adding a more profound gender perspective which underscored the greater vulnerability of women to risks such as food insecurity and natural disasters. Women’s access to food as well as ownership of assets such as land was limited and even curtailed due to the patriarchal dynamics of women’s submission to men. Yet women play a vital role in the production of food for the household as well as on the farm, a role which is yet to be acknowledged. It was suggested that the state should provide technical, financial and extension services, especially to women farmers, in order to increase productivity.

The current food crisis has pushed 55 million more people below the poverty line. In Pakistan it is estimated that almost 75 per cent of the population is now living on or below the poverty line, if the line is defined by the expenditure of $2 per day per capita. Children are being removed from school, crimes against property have risen, meals are more meagre, and the pressures of providing for the family are pushing people over the brink. Only recently in Lahore, the bread basket of the nation, the imam of a well-known mosque was asked to declare the act of suicide acceptable as a result of such pressures.

Such desperation was obviously not conveyed to the prime minister whose son’s wedding recently was a vulgar display of ostentation in a time of deprivation and growing insecurity of human life itself. As for the president, well, to paraphrase his own words in New York, he doesn’t need any fish; he just wants to go fishing. What Mr Zardari wants to fish for is no mystery; what is mysterious is the inability of the government to come up with a single constructive policy or programme to alleviate hunger. The Benazir Income Support Programme runs the grave risk of becoming a political tool to build constituencies, and the definition of ‘poor’ is not necessarily adequate or all-encompassing. Many will be left out of the net; many shall be exploited by political interests which have always manipulated the powerless.

It is imperative that our political leadership wakes up to the reality of mounting hunger in the country, lest the celebrations they hold sound the death knell of a leadership which is out of touch, out of step and out of time.

The writer is the author of No Space for Further Burials.

The war on drugs

NATO and the US are ramping up the war on drugs in Afghanistan. American ground forces are set to help guard poppy eradication teams for the first time later this year, while Nato’s defence ministers agreed to let their 50,000-strong force target heroin laboratories and smuggling networks.

Until now, going after drug lords and their labs was down to a small and secretive band of Afghan commandos, known as Taskforce 333, and their mentors from Britain’s Special Boat Service. Eradicating poppy fields was the job of specially trained, but poorly resourced, police left to protect themselves from angry farmers. All that is set to change.

Afghanistan is by far and away the world’s leading producer of opium. Opium is made from poppies, and it is used to make heroin. Heroin from Afghanistan is smuggled through Pakistan, Russia, Iran and Turkey until it ends up on Europe’s streets.

In 2008, in Afghanistan, 157,000 hectares (610 square miles) were given over to growing poppies and they produced 7,700 tonnes of opium. Production has soared to such an extent in recent years that supply is outstripping demand. Global demand is only about 4,000 tonnes of opium per year, which has meant the price of opium has dropped. In Helmand alone, where most of Britain’s 8,000 troops are based, 103,000 hectares were devoted to poppy crops. If the province was a country, it would be the world’s biggest opium producer.

In 2007, the UN calculated that Afghan opium farmers made about $1bn from their poppy harvests. The total export value was $4bn n or 53 per cent of Afghanistan’s GDP.

There was a 19 per cent drop in cultivation from 2007 to 2008, but bumper yields meant opium production only fell by six per cent. Only 3.5 per cent of the country’s poppy fields were eradicated in 2008. High wheat prices and low opium prices are also a factor in persuading some farmers to switch to licit crops.

In Helmand, one of the most volatile parts of Afghanistan, production rose by one per cent as farmers invested opium profits in reclaiming tracts of desert with expensive irrigation schemes. Opium production was actually at its lowest in 2001. The Taliban launched a highly effective counter-narcotics campaign during their last year in power. They used a policy of summary execution to scare farmers into not planting opium. Many analysts attribute their loss of popular support in the south, which contributed to their defeat by US-led forces in late 2001, to this policy.

The Taliban control huge swaths of Afghanistan’s countryside, where most of the poppies are grown. They tax the farmers 10 per cent of the farm gate value of their crops. Antonio Maria Costa, head of the UN Office on Drugs and Crime, said the Taliban made about 50 million pounds from opium in 2007.

They also extort protection money from the drugs smugglers, for guarding convoys and laboratories where opium is processed into heroin. The UN and Nato believe the insurgents get roughly 60 per cent of their annual income from drugs. The Taliban and the drug smugglers also share a vested interest in undermining President Hamid Karzai’s government, and fighting the international forces, which have both vowed to try and wipe out the opium trade.

The vast sums of drugs money sloshing around Afghanistan’s economy mean it is all too easy for the opium barons to buy off corrupt officials.

When an Afghan counter-narcotics chief found nine tonnes of opium in a former Helmand governor’s compound, he was told not to burn it by Kabul — but he claims he ignored the order.

President Karzai’s brother, Ahmed Wali Karzai, is widely rumoured to be involved in the drugs trade — an allegation he denies. The New York Times claimed US investigators found evidence that he had ordered a local security official to release an “enormous cache of heroin” discovered in a tractor trailer in 2004. Privately, Western security officials admit they suspect that a number of government ministers are drug dealers.

— © The Independent