ISAS Insights 2011

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ISAS Insights 2011


ISAS Insight No. 117 – 26 January 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Themes from India’s Big Power Diplomacy C. Raja Mohan1

Abstract India’s intensive engagement with the major powers of the international system, in the second half of 2010, has underlined Delhi’s improved international standing. Thanks to the growing worldwide perception of its rise, India is now in a position to leverage its economic growth for the pursuit of ambitious political objectives and national security goals. At the same time, India is also under pressure to adapt to the dynamic evolution of relations among the great powers and take new responsibilities in the multilateral domain.

Introduction Indian diplomacy ended the year 2010 with an extraordinary run of high level bilateral engagements. With top global leaders making their passage to Delhi in the second half of the year, India has every reason to be pleased with its rising profile in the international system, its attractiveness as an economic partner, and its new ability to mobilise the great powers in favour of its own national interests. Indian diplomacy, however, has much work to do before it can realise the ambitious political objectives that it unveiled in the engagement with the major powers in 2010. While India has discovered new leverages, it will also need to address the new challenges that are beginning to emerge in its great power relations. Until now India had the luxury of not taking sides in the dynamic between other powers. That freedom might 1

C. Raja Mohan is Strategic Affairs Editor of The Indian Express, New Delhi and Adjunct Professor of South Asian Studies at the S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore. The views reflected in the paper are those of the author and not of the institute.


begin to shrink as tensions and realignments occur between other great powers. Equally important, India is also coming under greater compulsion to demonstrate responsibility on the international stage in its search for a seat at the high table. Starting with the visit in July 2010 of the British Premier David Cameron, who chose Delhi as one of his first foreign destinations, all leaders from the five permanent members of the United Nations Security Council (UNSC) were in India in the second half of 2010. The United States (US) President Barack Obama was in Delhi in early November. French President Nicolas Sarkozy, Chinese Premier Wen Jiabao and Russian President Dmitry Medvedev arrived in December. The Indian Prime Minister Dr Manmohan Singh travelled to Japan in October. In December, he headed to Brussels for the annual summit with the European Union (EU) and also had a bilateral meeting with the German Chancellor Ms Angela Merkel. This comprehensive engagement with all the major powers of the international system underlines India‟s new strengths and reveals the broad set of concerns that animate Indian foreign policy at the present juncture. India‟s interaction with the world leaders also underlines some potentially difficult issues that are beginning to dominate Delhi‟s diplomatic agenda. This essay identifies the main themes that have dominated India‟s high level interaction with great powers in 2010 and assesses the implications for Indian diplomacy.

India as an Economic Partner The talk of a „shining India‟ and the image of India emerging as a „new superpower‟ have been around for a while. These ideas have been contested most vigorously in Delhi itself, where a large section of the political class and the intelligentsia has been deeply sceptical of the concept of India‟s rise.2 On the other hand, during his visit to India, President Obama, gave a new twist by declaring that India is „not an emerging power‟ and that it had already „emerged‟. In his remarks at a town hall meeting with students in Mumbai, Obama said „the United States does not just believe, as some people say, that India is a rising power; we believe that India has already risen. India is taking its rightful place in Asia and on the global stage. And we see India‟s emergence as good for the United States and good for the world‟.3 Coming from the US President, the notion of India as a „risen power‟ acquired a new international currency and set off a renewed debate in Delhi on the meaning and consequences of a change in India‟s relative position in international hierarchy. With a real GDP (gross domestic product) of more than US$1 trillion in 2010, India has become one of 2

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Amrita Narlikar, „All that Glitters is not Gold: India‟s rise to Power‟, Third World Quarterly, Vol.28, no.5 (July 2007), pp.983-996; see also, Ramachandra Guha, „Will India Become a Superpower?‟, Outlook (30 June 2008), www.outlookindia.com/article.aspx?237762. Accessed on 5 January 2011. White House, „Remarks by the President and the First Lady in Town Hall with Students‟ (Mumbai: 7 November 2010), www.whitehouse.gov/the-press-office/2010/11/07/remarks-president-and-first-lady-townhall-with-students-mumbai-india. Accessed on 4 January 2011.

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the top tier economies in the world. According to a Goldman Sachs study, India could become the third largest in the world in real US dollar terms by 2030; behind only China and the United States.4 India‟s economic growth rates had exceeded the earlier predictions made by Goldman Sachs in 2003; thus its relative rise in the world could be faster if the current recession enveloping the West persists.5 India‟s successful weathering of the global recession and its quick return to a growth rate of eight per cent during 2009-10 has made Delhi an attractive economic partner for all major powers in the international system. Experiencing the worst recession in decades and recording high domestic unemployment, Western leaders have intensely focused on striking business deals with India.6 President Obama made the creation of more jobs at home, the principal theme of his visit to India. Preceding his visit to Delhi, the White House also made market access to a number of US products a central element of the mutual deliverables. British Premier Cameron who preceded Obama, French President Sarkozy and Russian President Medvedev focused on securing major business contracts with India. Obama‟s decision to highlight the creation of nearly 50,000 jobs in America from the US$10 billion worth of deals7 certainly surprised the Indian public, which is not used to the spectacle of international leaders pushing for commercial contracts. The Indian foreign policy establishment, however, was fully aware of the new political imperatives driving the Western leaders and the opportunities that it provided India both on the economic front as well as on the political arena. Business was also at the top of the agenda during the visits of Chinese Premier Wen and the Russian President Medvedev. In the case of Russia, there was a renewed effort towards connecting the business leaders of the two countries and expand the non-defence trade between the two countries. Addressing the principal weakness in bilateral relations, India and Russia set the target of US$15 billion for bilateral trade in 2015.8 Chinese Premier Wen Jiabao signed off on nearly US$16 billion worth of deals and set a new target of US$100

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Goldman Sachs, „India Revisited‟, White Paper (June 2010), www.goldmansachs.com/gsam/docs/funds_international/education/articles_and_whitepapers/wp_india_revisi ted_jun10.pdf. Accessed on 26 December 2010. Sanjaya Baru, „India: Rising Through the Slowdown‟; Ashley Tellis, Andrew Marble, Travis Tanner (eds.), Strategic Asia 2009-10: Economic Meltdown and Geopolitical Stability (Seattle: National Bureau of Asian Research, 2009). James Lamont, „Russia is last in series of major powers to seal valuable deals with India‟, Washington Post (21 December 2010), www.washingtonpost.com/wpdyn/content/article/2010/12/21/AR2010122104819.html. Accessed on 4 January 2011. Ben Feller, „Obama India Trip: President Announces $10 Billion in Trade Deals Supporting 50,000 U.S. Jobs‟, Associated Press (6 November 2010), available at www.huffingtonpost.com/2010/11/06/obama-indiatrip-presiden_n_779872.html. Accessed on 4 January 2011; see also, White House, „Fact Sheet: The National Export Initiative: U.S.-India Transactions‟ (6 November 2010), www.whitehouse.gov/the-pressoffice/2010/11/06/fact-sheet-national-export-initiative-us-india-transactions. Accessed on 4 January 2011. „Celebrating a Decade of the India-Russian Federation Strategic Partnership and Looking Ahead‟ (20 December 2000), www.mea.gov.in. Accessed on 4 January 2011.

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billion for bilateral trade with India by 2015.9 In the past, the targets for Sino-Indian trade tended to be conservative. If the trade between the two countries continues to rise at the current rate of 40 per cent, the target could be achieved by 2012. Expanding trade with China has become a major factor in stabilising bilateral relations that have long been hobbled by enduring political differences. Alternatively, the growing commerce with China has also brought its share of new problems. India has an expanding trade deficit with China, currently at nearly US$19 billion in 2010 out of a total bilateral trade of US$60 billion. Besides the huge imbalance, raw material comprise substantive parts of India‟s exports to China. India‟s political pressure on the trade front included a refusal to move forward on the Chinese proposal for a free trade agreement between the two countries.10 Delhi instead insisted that a demonstration of Chinese good faith on market access must precede further trade liberalisation on India‟s part. Wen apparently did promise to take measures to address India‟s concerns and the joint communiqué issued at the end of his visit, explicitly referring to the Chinese intent to act on market access to India‟s information technology (IT) services and pharmaceuticals. The two sides also agreed to set up a „strategic economic dialogue‟ to build a more sustainable economic partnership. While trade liberalisation with China has stalled for the moment, India is pushing ahead with deeper economic integration with the rest of the world. During Dr Singh‟s visit to Tokyo, India announced an agreement in principle for a free trade agreement with Japan.11 The agreement is expected to be signed formally in the first quarter of 2011. In his visit to Brussels, Dr Singh and his European interlocutors welcomed the progress of the negotiations with the EU on a Broad-based Trade and Investment Agreement (BTIA) and the hopes to sign an „ambitious‟ pact by the spring of 2011.12 India‟s rapid economic growth has made Delhi‟s voice an important one in the G-20 grouping that has been set up to address the challenges of the global economic crisis and rebalancing the international financial order. The most important political consequence of India‟s newfound economic clout has been an unprecedented opportunity for New Delhi to mobilise other powers in promoting India‟s vital national interests. Four major objectives stood out in India‟s big power diplomacy – integration with the global non-proliferation order, reforming the Security Council, putting pressure on Pakistan to end its support for cross border terrorism and expanding cooperation with other major powers in constructing a new Asian security order. We explore below the progress achieved on these four objectives. 9

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„Joint Communiqué of the Republic of India and the People‟s Republic of China‟ (16 December 2010), www.mea.gov.in. Accessed on 4 January 2011. See the press briefing by the Foreign Secretary Nirupama Rao after the talks between Dr Singh and Mr.Wen, (16 December 2010), www.mea.gov.in/mystart.php?id=530316895. Accessed on 4 January 2011. „Vision for India-Japan Strategic and Global Partnership in the Next Decade‟ (25 October 2010), www.mea.gov.in/mystart.php?id=550316597. Accessed on 4 January 2011. „EU-India Joint Statement‟ (10 December 2010), www.mea.gov.in/mystart.php?id=550316833. Accessed on 4 January 2011.

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Integration with the Non-Proliferation Order Since 2005, India‟s main diplomatic preoccupation has been with the implementation of the historic civil nuclear initiative that Dr Singh had signed with George W. Bush. The promise of ending the nation‟s decades long atomic isolation drove Dr Singh to stake everything on the implementation of the initiative during 2005-08. The approval of the initiative by the Nuclear Suppliers Group (NSG) in September 2008 was one of the most important victories in independent India‟s diplomatic history. During 2010, India surprised most international observers by embarking on a bold initiative to complete its integration into the global nonproliferation order. In the run up to the Obama visit, India sought to push through five important objectives.13 One was to complete the residual issues in the implementation of the civil nuclear initiative. Obama, who was somewhat of a sceptic of the Bush years, took a political decision early on in his tenure that he would implement the civil nuclear initiative, despite widespread lack of enthusiasm in his administration. By the time he arrived in Delhi, Obama had taken all the necessary actions to complete this implementation of the civil nuclear initiative. A second Indian objective was to eliminate the so-called „entities list‟ in Washington that targeted many leading institutions in the security sector, including the Defence Research and Development Organisation (DRDO) for the denial of technologies. A third goal was to get the US Administration to alter India‟s negative position in the US export control laws. The fourth objective was to win membership in the four major export control groupings – the NSG that regulates international atomic commerce; the Missile Technology Control Regime (MTCR); the Australia Group that controls the transfers of materials and technologies that could be used in the manufacture of chemical and biological weapons; and lastly the Wassenaar Arrangement that oversees the trade in conventional weapons and dual use technologies. A final objective of India was to remove some of the persistent ambiguity about its status as a nuclear weapons state in the international system even after the implementation of the civil nuclear initiative. During his visit, US President Obama announced the removal of some Indian organisations from the entities list and promised to alter India‟s position in the export control laws to reflect Delhi‟s status as a strategic partner of Washington. He also extended support for India‟s membership of the non-proliferation groupings.14 With Obama‟s acceptance of the principle that India should be fully integrated into the global non-proliferation order as an equal 13

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For an analysis of the Indian position on the eve of Obama visit, see; C. Raja Mohan, „India and the Nonproliferation Institutions: Addressing the Expectations Gap‟, A Report of the CSIS South Asia Program and the Nuclear Threat Initiative (Washington DC: CSIS, December 2010). See; „Joint Statement of Dr Manmohan Singh and President Barack Obama‟ (8 November 2010), www.mea.gov.in/mystart.php?id=550316632. Accessed on 4 January 2011.

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member involves further negotiations between Delhi and Washington and mobilising support from the other powers. As the joint statement makes it clear, „The United States intends to support India‟s full membership in the four multilateral export control regimes (NSG, MTCR, Australia Group, and Wassenaar Arrangement) in a phased manner, and to consult with regime members to encourage the evolution of regime membership criteria, consistent with maintaining the core principles of these regimes, as the Government of India takes steps towards the full adoption of the regimes‟ export control requirements to reflect its prospective membership, with both processes moving forward together. In the view of the US, India should qualify for membership in the Australia Group and the Wassenaar Arrangement, according to existing requirements once it imposes export controls over all items on these regimes‟ control lists.‟15 Having won over Obama, India made lifting high technology sanctions and integration with the non-proliferation order major priorities in its talks with other leaders. France, Russia and Germany also endorsed India‟s membership of the NSG. Medvedev went one step further to describe India as a „supplier state‟ and the two sides agreed to promote the use of civilian nuclear energy in third countries.16 Not surprisingly, China‟s Premier Wen turned out to be the exception. According to news reports, Chinese negotiators resisted India‟s efforts to win great power acknowledgement of its new status as a de facto nuclear weapon power outside the Non-Proliferation Treaty (NPT) system. While the Russian and Western leaders were ready to accept the formulation that India is a „state in possession of nuclear weapons‟ and support its membership of the NSG, China‟s Premier Wen was reluctant.17 China, it might be recalled, had problems with the India-US civil nuclear initiative and has been trying to promote a similar deal for Pakistan.18 India is acutely conscious of the potential for significant resistance from Beijing to its nuclear aspirations.

Security Council Reform Although the campaign for a reform of the UNSC has dominated Indian diplomacy in recent years, it has acquired a new urgency amidst the renewed negotiations in New York during 2010. The high level exchanges with the major powers during 2010 provided an opportunity for India to take up the theme again. India‟s election by a large margin at the end of 2010 to a non-permanent seat has further boosted Delhi's campaign for the UNSC reform and a permanent seat. Indian diplomacy hopes to make a big push for reforms at the UN during 15 16

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Ibid. „Celebrating a Decade of the India-Russian Federation Strategic Partnership and Looking Ahead‟ (20 December 2000), www.mea.gov.in. Accessed on 4 January 2011. For a comparison of the nuclear parts in the various joint statements, see; Siddharth Varadarajan, „In statements, gradual recognition of India‟s nuclear status‟, The Hindu (23 December 2010), p.12. Ashley Tellis, „The China-Pakistan Nuclear Deal: Separating Fact from Fiction‟, Policy Outlook (Washington DC: Carnegie Endowment, July 2010).

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2011-12. The last time India was on the Security Council was during 1990-91 and it failed miserably to secure another term in 1996. Having won the support from France, Russia and Britain for India‟s case for permanent membership, the focus was on whether India could get the US and China to do the same. Before the Obama visit, there was indeed a sense that the White House will make its support a major deliverable.19 In his address to the Indian Parliament, Obama ended the suspense and offered the support that Delhi was long looking for. Obama declared, „The just and sustainable international order that America seeks includes a United Nations that is efficient, effective, credible and legitimate. That is why I can say today, in the years ahead, I look forward to a reformed United Nations Security Council that includes India as a permanent member.‟20 In July, Cameron had strongly affirmed a similar sentiment. Sarkozy who followed Obama to Delhi insisted that India should become a permanent member of the UNSC „without further delay.‟21 There was speculation that Russia was not as enthusiastic as it was before in supporting India‟s candidature and might water down its public formulation on the issue. But Medevedev came through strongly to endorse India‟s case for a permanent seat. The only exception to the renewed support for India‟s quest in the UNSC was China. During his visit, Wen was unwilling to go beyond the traditional Chinese formulation that Beijing „understands India‟s aspirations to play a larger role‟ in the UN. China, it might be recalled, was at the forefront of defeating the joint campaign for UNSC expansion by India, Japan, Germany and Brazil during 2005. China‟s reluctance to modify its position in favour of India was put in context by the strident Pakistani reaction to the international support for Delhi at the end of 2010.22 While India is aware that the UNSC reform and winning a permanent seat are not going to be easy, there is a new determination in Delhi to push for its objective and a measure of satisfaction that the level of international support has begun to grow. Meanwhile, as a newly elected non-permanent member of the UNSC, India has agreed to step up consultations with all the big powers on the global security agenda. Whether India becomes a permanent member of the UNSC or not, the next two years are likely to see an intensification of Delhi‟s role in issues relating to international security and strengthening of its multilateral diplomacy.

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Karl Inderfurth, „Obama‟s opportunity‟, The Indian Express (18 October 2010), p.12; Ashley Tellis, „Obama in India: Building a Global Partnership: Challenges, Risks, Opportunities‟, Policy Outlook (Washington DC: Carnegie Endowment, October 2010), p.29. See Obama‟s address to the joint sitting of the Indian Parliament on 8 November 2010, http://timesofindia.indiatimes.com/india/Text-of-President-Barack-Obamas-address-to-Indias-parliament/articleshow/6889675.cms. Accessed on 4 January 2011. See, „India-France: Partnership for the Future‟, Joint Statement issued by Dr Singh and Sarkozy, New Delhi (6 December 2010), www.mea.gov.in/mystart.php?id=530516770. Accessed on 4 January 2011. „Pak, China have “unanimous stand” on India‟s UNSC bid: Qureshi‟, Economic Times (13 November 2010), p.2.

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War on Terror Since the outrageous terror attack on Mumbai on 26 November 2008, India has sought to mobilise international support to press Pakistan to bring the plotters of the attack to justice. In the wake of the attack, there was great empathy for India and there was considerable technical support in investigating the incident that had links to actors in many countries, including Pakistan. But the international community, especially the US, was reluctant to condemn Pakistan‟s support for cross-border terrorism against India. Two years later, India has gained stronger support from the international leaders. Obama began his tour in Mumbai and stayed at the Taj Mahal Palace Hotel that was the principal site of the terror attack. Sarkozy and Medvedev also paid their respects to the victims of the 26/11. While Cameron did not visit Mumbai, he offered a critique of Pakistan‟s policy that stunned Islamabad and surprised Delhi. During his first stop at Bangalore, Cameron became the first Western leader to speak candidly about Pakistan‟s role in promoting terror in the subcontinent. „We cannot tolerate in any sense the idea that this country is allowed to look both ways and is able, in any way, to promote the export of terror, whether to India or whether to Afghanistan or anywhere else in the world,‟ Cameron declared.23 India had few expectations that the high bar set by Cameron would be met by the others. Delhi‟s focus was on acquiring explicit support for early action from Pakistan to bring the perpetrators of the attack to justice, shut down the safe havens of terrorism on its soil, and act against the Lashkar-e-Taiba, Pakistan army‟s principal instrument of terror against India. Obama offered a cautious formulation that went beyond the old Washington ambiguities, but nevertheless balancing US interests in India and Pakistan, „We‟ll continue to insist to Pakistan's leaders that terrorist safe havens within their borders are unacceptable, and that terrorists behind the Mumbai attacks must be brought to justice. We must also recognise that all of us have an interest in both an Afghanistan and a Pakistan that are stable, prosperous and democratic and India has an interest in that, as well.‟24 Sarkozy and Medvedev were a little stronger in their formulations than Obama, but Wen was unwilling to offer anything specific and India had to be satisfied with a general formulation on terrorism that made no reference to Pakistan. India was aware that words alone are not going to improve its security condition vis-à-vis the challenge of terrorism. It is also aware that the international community‟s dependence on Pakistan to stabilise Afghanistan means there are limits to Western leverage over Islamabad. What matters more is the increased prospect of institutionalised cooperation with major powers in dealing with terrorism and extremism on the ground. The joint 23

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Rosa Prince, „David Cameron: Pakistan is promoting the “export of terror”‟, Daily Telegraph, London (28 July 2010), www.telegraph.co.uk/news/worldnews/asia/pakistan/7913905/David-Cameron-Pakistan-ispromoting-the-export-of-terror.html. Accessed on 27 December 2010. Obama‟s address to the joint sitting of the Indian Parliament on 8 November 2010, http://timesofindia.indiatimes.com/india/Text-of-President-Barack-Obamas-address-to-Indias-parliament/articleshow/6889675.cms. Accessed on 4 January 2011.

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statements from the Obama, Sarkozy, Cameron and Medvedev administrations underlined the commitment to strengthen India‟s counter terror cooperation. Delhi also focused on getting broad support for India‟s positive role in Afghanistan from the West, underlined stronger engagement with Russia on regional security and got China to agree to begin consultations on Afghanistan.

Asian Security Order Amidst the growing international awareness of the shift in the world‟s centre of gravity from the Atlantic to the Pacific, Asian security issues figured prominently in India‟s engagement with Obama, Wen and Medvedev. At the heart of the declarations was India finding a way to enhance its position in constructing a new Asian security order and emerging as an indispensable element of regional balance of power. Through the last decade, India had stepped up its involvement in the Western Pacific by expanding security cooperation with the US, Japan, Korea, Indonesia and Australia. Obama surprised his hosts by strongly endorsing India‟s „Look East‟ Policy (LEP) and urged Delhi that India should do more in Asia. „Like your neighbours in Southeast Asia, we want India not only to “look East”, we want India to “engage East” – because it will increase the security and prosperity of all our nations,‟ Obama declared.25 Amidst a new emphasis on „returning to Asia‟ and reclaiming its position in the region amidst the rise of China, the Obama administration has set some value with engaging India on Asian security issues, during a dialogue on East Asia with India during 2010.26 The ASEAN decision in October to invite the US and Russia to join the East Asia Summit (EAS) underlined the new urgency in the region to develop a credible regional framework to deal with the rapid changes in the distribution of power. On its part, India welcomed the entry of the US and Russia into the EAS and in the joint declarations with Obama and Medvedev, India emphasised the importance of an „open and inclusive‟ architecture for the region. The formulation with China was similar but the reality of differences with China on the future of Asian security were not far below the surface. While both sides talked about the importance of strengthening cooperation in all Asian multilateral organisations and called for greater consultations on regional issues, Beijing was apparently reluctant to include any specific references to security issues in East Asia. An example would be Beijing‟s reluctance to comment on the tensions on the Korean peninsula that had acquired a new salience towards the end of 2010.27

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Obama‟s address to the joint sitting of the Indian Parliament on 8 November 2010, http://timesofindia.indiatimes.com/india/Text-of-President-Barack-Obamas-address-to-Indias-parliament/articleshow/6889675.cms. Accessed on 4 January 2011. Josh Rogin, „U.S. and India take their relationship beyond South Asia‟ (15 November 2010), www.thecable.foreignpolicy.com/posts/2010/11/15/the_us_and_india_take_their_relationship_beyond_south _asia. Accessed on 6 January 2011. Author‟s conversations with senior MEA officials (18 December 2010).

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Future Challenges India‟s impressive economic growth rate amidst a global recession provided a strong basis for intensified cooperation with all the major powers. Yet three important challenges have begun to emerge in India‟s engagement with the great powers. Until now, thanks to the absence of great power tensions, India could pursue cooperation with each of them without a reference to another. That unconstrained bilateralism, however, may come to an end as tensions between the US and China acquire a new edge and the „reset‟ of relations between Washington and Moscow remains unfinished. Indian diplomacy, however, must now adapt to new circumstances where its relations with one great power might affect those with others. Balancing China had been an important subtext of the improvement of Indo-US relations during the Bush years. It might have acquired a more explicit dimension under Obama as both the US and India cope with the rise of China. The Chinese media has certainly taken note of the implications of the deepening partnership between the US and India.28 The deterioration of Sino-Indian relations during 2008-09 might have been paused during Wen‟s visit, but the two nations remain far apart on the questions of global governance and regional security order. Meanwhile their disputes over territorial sovereignty of Kashmir and Tibet have acquired a new edge. On the eve of Medvedev‟s visit, there was speculation that Moscow was unhappy with the warming of Indo-US relations. Moscow was also apparently concerned with the potential loss of its primacy in arms supply to India.29 Although the unalloyed success of Medevdev‟s visit might have masked these concerns, they might remain relevant as long as US-Russia relations remain uncertain. Second, the AfPak situation, in general, and the question of Pakistan, in particular, are likely to cast a shadow over India‟s future relations with the great powers. It is not easy for the US, the West and Russia to translate their demands on Islamabad on ending cross border terrorism into concrete pressures against the Pakistan Army. That might involve a fundamental change in their current strategies towards the stabilisation of Afghanistan. If India cannot bet on the great powers to change Pakistan‟s strategic calculus vis-à-vis India, Delhi will have to find ways to revive a measure of engagement with Pakistan that was stalled after the Mumbai attacks. Expanded activism in Afghanistan could be one way of India influencing Pakistan as well as those of the great powers. While the international leaders welcomed India‟s economic role in Afghanistan, the level of support for a more strategic Indian role in Afghanistan is not clear. Meanwhile as India‟s relations with the West and the US continue to improve, China‟s stakes in its all weather friendship with Pakistan are growing rapidly. That in turn brings

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Li Hongmei, „Obama greets India with more than a lip service?‟, People’s Daily Online (9 November 2010), http://english.peopledaily.com.cn/90002/96417/7193497.html. Accessed on 4 January 2011. Vladimir Radyuhin, „Is the glass half full or half empty‟, The Hindu (16 December 2010), p.12.

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India to one of the perennial security problems that has confronted it – the strategic partnership between China and Pakistan. Finally, while India takes credit for winning the support of all major powers barring China for a seat at the high table, Delhi will be under a big test to demonstrate its readiness to take larger responsibilities on the global stage, especially as a non-permanent member in the UNSC during the next two years. In endorsing India‟s rise, Obama reminded the political classes in Delhi of the new international expectations: „With increased power comes increased responsibility. The United Nations exists to fulfill its founding ideals of preserving peace and security, promoting global cooperation, and advancing human rights. These are the responsibilities of all nations, but especially those that seek to lead in the 21st century. And so we look forward to working with India – and other nations that aspire to Security Council membership – to ensure that the Security Council is effective; that resolutions are implemented, that sanctions are enforced; that we strengthen the international norms which recognise the rights and responsibilities of all nations and all individuals.‟30 India, however, is not unaware of the challenge and is likely to interpret it in its own ways. As Former Foreign Secretary Shyam Saran said, „There is no scope for fence-sitting. There is no room for prevarication. Our positions will need to be the outcome of comprehensive analysis and will require careful, well-modulated articulation. Our aim should be not merely to avoid negative fallout on our relations with various countries but to see how we could leverage our Council membership in order to shape its debate and promote outcomes that are aligned to our interests.‟31 The year 2011 is likely to demonstrate how effectively India will measure up to the new opportunities and challenges that await it on the global stage. .....

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Obama‟s address to the joint sitting of the Indian Parliament on 8 November 2010, http://timesofindia.indiatimes.com/india/Text-of-President-Barack-Obamas-address-to-Indias-parliament/articleshow/6889675.cms. Accessed on 4 January 2011. Shyam Saran, „India in the UN Security Council‟, Business Standard (New Delhi), www.editorialjunction.com/opinions/shyam-saran-india-in-the-un-security-council/. Accessed on 27 December 2010.

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ISAS Insight No. 118 – 16 February 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Is Bangladesh Economy on the Wrong Foot? M. Shahidul Islam1

Abstract The Bangladesh economy that expanded during the great recession of 2008-09, seems to be losing its momentum, which is reflected in the turmoil in its stock markets, rising inflation and mounting supply side constraints with regard to energy and infrastructure, among other factors. While the ‘search for yield’ phenomenon owing to real negative interest rate led the irrational exuberance, notably in the stock market, there is a regulatory failure in the economy. Moreover, the actions of the Awami League government’s economic policymakers have been less than adequate in recognising the economy’s existing and implied demand owing to changes in demographic settings, inter alia. The paper discusses these issues at some length and suggests that the government should prioritise the economic agendas rather than the political ones in order to minimise the gap between potential and actual economic output.

The stock markets in Bangladesh are in turmoil, commodity prices are skyrocketing, remittance flows have decelerated, supply-side constraints such as energy and power show no signs of abating, and the deficit in infrastructure continues to mount. The growing pressure on the country’s balance of payment propelled the government to sign a billion dollar loan deal with the International Monetary Fund lately. More importantly, while most emerging markets are booming following the great recession of 2008-09, the Bangladesh economy that was resilient during the global crisis seems to be losing its momentum.

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M. Shahidul Islam is Research Associate at the Institute of South Asian Studies, an autonomous research institute at the National University of Singapore. He can be reached at isasmsi@nus.edu.sg. The views reflected in this paper are those of the author and not of the institute.


What has gone wrong? Let us begin with the ongoing crisis in the country’s stock market. The volatilities in the equity markets are a common phenomenon all over the world. However, what separate the Bangladesh stock markets from the rest is the unusual trends of equity indices that cannot be explained merely by market fundamentals. 2 A heightened state of speculative fervour that former Federal Reserve Chairman Alan Greenspan termed ‘irrational exuberance’ 3 has been present in the market but the role of the regulators poses a huge question mark. In the laissez-faire system, the stock market is perhaps one of the few areas where market principles do not work as prudently as described in textbooks. As the renowned stock investor Warren Buffet famously observed, ‘Had the market been efficient, I would have been a bum in the street with a bowl in my hand!’ How the unchecked financial greed led to the collapse of the global financial system that was eventually transmitted to the real economy in 2008-09 is not a distant memory. While the Government has some legitimate excuses to overcome the fundamental problems in the equity markets, such as the limited supply of new shares, it cannot avert the regulatory failure. The next critical issue is the inflationary pressure in the economy. It is true that the concerned ministries and the central bank of Bangladesh (in pursuit of its financial inclusion goal) have placed high priority on agricultural growth. In pursuing the goal, they are fairly successful. But the prices of staple and some other agricultural commodities are rising in the midst of a bumper crop. But what explains this puzzle? Not much research has been conducted on this issue, but one can search for answers in some anecdotes. In the absence of an updated demographic survey, there could be an underestimation of the country’s estimated population that perhaps misled the food production target. But what is less discussed is the degree of monetisation of the economy, which has been on the rise due to the phenomenal rise in remittances, and the steady growth of the industrial sector, led by apparel, in the past decade. This is a sign of progress. But there is a mismatch in income distribution that is making a large number of consumers (notably, urban low-wage earners and the fixed income group) worse off in terms of their purchasing power. At the same time, the size of the middle class has increased in line with the country’s 2

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The stock price index at the Dhaka Stock Exchange (DSE), referred to as the DSE General Index (DGEN), increased 75 per cent in the span of eight months (the index rose from 4,923 on 3 January 2010 to 8,599 on 29 November 2010) before it witnessed a sharp decline in January-February 2011 (the index values were 6,323 on 20 January 2011 and 6,719 on 6 February 2010). In recent weeks, prices showed extreme volatilities with the index fluctuating more than 500 points in the span of 24 hours. In some instances, investors have protested on the streets in response to the sharp fall in stock prices; this led to the increase of the stock index, Bloomberg, www.bloomberg.com/apps/quote?ticker=DHAKA:IND. Accessed on 27 January 2011 and 7 February 2011. ‘The Challenge of Central Banking in a Democratic Society’, remarks by Chairman Alan Greenspan at the Annual Dinner and Francis Boyer Lecture of The American Enterprise Institute for Public Policy Research, Washington D.C. (5 December 1996).

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steady economic growth. Moreover, the extreme poor’s entitlement to food has increased, which is reflected in the rapid decline in abject poverty. Farmers get subsidised inputs and have access to easy credit but their produce needs to be marked up 8 to 10 per cent of annual inflation to keep their real income growth unhurt. Nevertheless, despite marked success in agriculture, Bangladesh remains an importdependent economy for many essential commodities, notably wheat, edible oil and crude oil, and the ongoing price hikes of these commodities in the international markets have worsened the food inflation in the domestic market. The depreciation of the US (United States) dollar is also pushing up commodity prices owing to the inverse relations between the two variables. Moreover, the higher than projected monetary expansion has apparently also exacerbated the inflationary pressure. These are the facts already captured by numbers. However, the actual inflation in the economy might be higher than the official figures. 4 Further, the issue of food inflation has huge political ramifications. The Awami League promised voters during the 2009 general elections that rice prices be kept affordable as much as a quarter of the current market prices. While the food prices are following the northbound trend, the government’s popularity is more southbound. Having said this, there are fundamental issues, such as poor infrastructure and distortions in the economy (licensing, consortium, tariff rates, etc.) that made goods and services expensive. The incumbent’s delivery of these provisions has been less than adequate. Economists measure the distance between two places based on economic and not Euclidean distance (which is the ordinary distance between two points). The distance between Dhaka and Gazipur, for instance, is merely 26km. It should take less than an hour to commute between these two places but the travel time is on average two hours. Higher economic distance costs growth and fuel inflation. Apart from reducing the power of middlemen in the commodity businesses, it is the government’s responsibility to cut down transport costs by providing adequate infrastructure. The state of infrastructure in Bangladesh is one of the worst in Asia. 5 4

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Bangladesh’s GDP is growing at 6.0 to 6.5 per cent and inflation in the economy is hovering around 8 to 9 per cent. The broad money (M2) growth has been 22 per cent. If one plugs the data in the equation of exchange [money growth (m) + velocity growth (v) = price growth (p) + output growth (g)] on which the Quantity Theory of Money is built, it seems that the real inflation in the economy is over 12 per cent. For details see, ‘Inflation and BB’s Policy Independence’, Daily Sun (6 January 2011), www.dailysun.com/?view=details&archiev=yes&arch_date=06-022011&type=daily_sun_news&pub_no=120&cat_id=2&menu_id=5&news_type_id=1&index=0. Accessed on 6 January 2011. According to the World Economic Forum, Bangladesh ranks 107th out of 139 countries in the 2010-11 global competitiveness ranking. However, in terms of quality of infrastructure, which is one of the key determinants of competitiveness, the country is placed 133th on the list. For details, see ‘Infrastructure for a Seamless

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Then there is a severe crisis of power and gas. While the government should be credited for adding a few hundred megawatts of electricity to the national grid, it is also to be graded poorly for failing to recognise the difference between the perceived and implied demands for energy. The power sector is projecting (and producing) electricity based on the prevailing demand, but one must foresee the implied demand in the economy where many industries and buildings are not built and household appliances are not bought due to the chronic shortage of power. So, the disguised demand is much higher than the perceived demand for energy. As a result, unless the government revises the power production target upward recognising the implied demand, the power crisis is likely to persist. There is also a failure in the production and exploration of natural gas where, like electricity, the implied demand is much higher than the existing demand. A large number of Bangladeshi households do not have access to electricity and gas. All in all, the delivery of energy and infrastructure are far lower than even the current demand in the economy. That said, the current government, particularly officials who are involved in economic policymaking, have failed to foresee some key changes both at home and abroad. While a steady flow of remittances, better performance in agriculture and the rise of the apparel industry increased the monetisation of the economy, a favourable demographic change has been one of the key driving forces in this regard. The working age group has become increasingly dominant in the age structure of Bangladesh’s population. The country’s dependency ratio (non-working age to working age group) has declined from 92 in 1975 to 53 in 2010. 6 A nation’s demographic window generally opens when the dependency ratio (non-working to working age population) goes below 50. More people in the working age group and a lower dependency ratio mean higher savings and investable surplus. It is no accident that Bangladesh’s gross domestic savings is now 38 per cent of its GDP. The higher working age population and soaring savings partly, if not largely, explain why so much money is chasing too few shares in the stock market and why thousands of youth are considering (though mistakenly) equity trading as a profession, not to mention that land prices in Dhaka in some cases are higher than those in New York. 7 The job creation rate in the economy is falling behind the growth of the working age population. The lower absorption rate of Bangladeshi workers in the overseas labour markets in recent years has exacerbated the problem.

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Asia’, Asian Development Bank and Asian Development Bank Institute, www.adbi.org/book/2009/09/15/3322.infrastructure.seamless.asia/. Accessed on 25 January 2011. ‘The World Population Prospects 2008’, Department of Economic and Social Affairs, United Nations. ‘Shelter for the Poor’, Dhaka: Improving Living Conditions for Urban Poor, Chapter 3, p.37-38, The World Bank, www.worldbank.org.bd/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/BANGLADESHEXTN/0, ,contentMDK:21384826~pagePK:141137~piPK:141127~theSitePK:295760,00.html.

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There is another important change as far as the economy’s demand side is concerned. Bangladesh’s stride in the social sector is ahead of its economic development. So, the mismatch between the demand and supply sides keep distorting the equilibrium in the economy. The disequilibrium in different sectors of the economy can also be explained by the ‘search for yield’ phenomenon. The irrational exuberance in the stock market, for instance, is heightened by the negative real interest rate in the economy owing to falling interest rates on savings and high inflation. Money is becoming more and more debased. Bangladesh Bank’s monetary policy, including its exchange rate management, should have addressed the issue more prudently. Of course, the central bank alone cannot address many structural problems in the economy, including the growing mismatch between savings and investment. 8 Policymakers have also paid less attention to global and regional changes that would have enormously benefited the Bangladesh economy if seized properly. China, which has been known to be a low-cost and low-end manufacturer for decades, has shifted its stance in recent years by transforming the economic structure vertical-focusing on high-end manufacturing and services. 9 This is largely because of the growing labour shortages (thus, higher labour cost) in its coastal areas. Such a shift has led to hollowing out much low-end manufacturing from China and investors have been seriously considering Bangladesh, among other countries, as an alternate location for some of their plants. Bangladesh should have seized the opportunity entirely, thereby generating thousands of jobs. While some impact of China’s shift is visible in the apparel sector, though marginally, this could easily have tapped a number of low-end manufacturing units. The flow of foreign direct investment in Bangladesh remains one of the lowest in South Asia. If politics is a strong function of economics, then the election results in the recent municipal polls are perhaps the outcome of the less-than-expected economic performance of the incumbent Awami League government. The Bangladesh Nationalist Party that conceded a huge defeat in the 2008 general elections has come back strongly in the local elections. Moreover, the opinion polls show that the popularity of the Awami League government is on the decline. A relevant lesson for the incumbent government in this regard is that many analysts believe that politics in India, Bangladesh’s next-door neighbour, has already recognised that the delivery of economic output is the key to defeating the anti-incumbency factor in the elections. In the 2009 elections, the Congress Party of India, and more recently,

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While the gross savings in Bangladesh is nearly 36-38 per cent of its GDP (gross domestic product), the economy invests only 24-25 per cent. For details see, Islam, M. Shahidul, ‘Window of Opportunity for South Asia’, Roubini Global Economics (12 July 2010).

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the Chief Minister of Bihar, Nitish Kumar, beat the anti-incumbency factor by taking economic development as a core agenda. To sum up, the economic management of the Awami League government in the past two years has been rather poor. Its failure to deliver basic infrastructure and its less than adequate effort in addressing other supply-side constraints, reflected in investment drought, are costing the country’s growth and fuelling inflation. The ‘search for yield’ phenomenon owing to negative real interest rates is increasing instability in the economy. It seems that the government prioritised its political agendas than the economic ones. It is time for the government to reverse the course by bringing the economic plans to the fore. Further, policies should be formulated foreseeing the emerging local and global trends so that the gap between the potential and actual economic output is minimised as much as possible. Economic policymakers should act prudently in line with perhaps the suggestions made earlier. .....

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ISAS Insight No. 119 – 1 March 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

India’s Pakistan Talks: Engagement without Expectation? C. Raja Mohan 1

Abstract Delhi’s recent decision to renew the dialogue with Islamabad, despite the lack of progress on the question of cross border terrorism, underlines the unenviable situation that India finds itself in. Few in India, expect that the resumption of the engagement, will produce substantive results in the near term. India’s ‘on-again, off-again’ peace process with Pakistan, for more than the last decade, has shown that Delhi is not in a position to either coerce Pakistan into giving up its support to ‘anti-India’ militant groups or entice Islamabad into normalising relations, by offering an early resolution of the conflict over Jammu and Kashmir. With limited leverage and problems in dealing with multiple power centres across the border, Delhi has no option but to demonstrate strategic patience in managing its complex relationship with Islamabad, while India awaits structural changes in Pakistan.

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C. Raja Mohan is Strategic Affairs Editor of The Indian Express, New Delhi and Adjunct Professor of South Asian Studies at the S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore. The views reflected in the paper are those of the author and not of the institute.


Introduction After suspending talks with Pakistan following the outrageous terror attacks on Mumbai in November 2008, India has agreed to resume the formal dialogue with its western neighbour. After a meeting between the Indian and Pakistani Foreign Secretaries in Thimphu, Bhutan on the margins of a ministerial meeting of the South Asian Association for Regional Cooperation (SAARC) in early February 2011, the two sides announced a timeline and subjects of the meetings between senior officials of the two governments in the coming weeks and months. These will be followed by a political review of the outcomes when the foreign minister of Pakistan visits India most probably in July 2011. 2 The resumption of the talks marks yet another phase in the ‘on-again, off-again’ peace process in the subcontinent. While the international community has welcomed the announcement, there has been little popular enthusiasm in either Delhi or Islamabad for the renewed engagement between the two nations. In India, within the foreign policy community, there was a distinct sense of disappointment, if not resentment, that the UPA (United Progressive Alliance) government has dropped the preconditions for the resumption of the dialogue. 3 After the Mumbai attacks, India had insisted that bringing the perpetrators of the crime in Pakistan to book must precede the resumption of a comprehensive bilateral dialogue. Delhi, however, seems to have taken a conscious and deliberate decision to return to the negotiating table without a tight linkage to either visible progress on the Mumbai trial underway in Pakistan or more broadly the question of dismantling the anti-India terror machine on its soil. The Indian decision underlines the undiluted commitment of Prime Minister Manmohan Singh to find ways to transform the bilateral relationship with Pakistan despite repeated setbacks and frequent terror attacks and considerable unease within the Indian political class. The following is an analysis of India’s dilemmas and challenges in sustaining the negotiations with Pakistan. This essay does not purport to be an account of the causes for the repeated failures of the Indo-Pak peace process. It is an attempt to explain the Indian decision to persist in the engagement with Pakistan despite the lack of satisfaction on the question of terror and assess the likely outcomes from the present round of the dialogue.

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See ‘Agreed Outcome of India Pakistan Foreign Secretary Level Talks in Thimphu’ (10 February 2011), www.mea.gov.in/mystart.php?id=530217162. Accessed on 20 February 2011. See the reaction of Satish Chandra, former High Commissioner to Pakistan and former Deputy National Security Adviser; ‘Knowing When Not to Talk’, The Indian Express (19 February 2011), p.13.

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India’s Limited Options Prime Minister Singh’s attempts to engage Pakistan against all odds and provocations from across the border are not very different from those of his two immediate predecessors – former Prime Ministers Atal Bihari Vajpayee and Inder Kumar Gujral. All the three leaders recognised the importance of transforming the relationship with Pakistan and the need to go beyond conventional political wisdom and entrenched bureaucratic positions on how to deal with their western neighbour. Gujral laid the foundations in 1997 for what has come to be known as the Composite Dialogue. Both Vajpayee and Manmohan Singh promoted and persisted in the dialogue with Pakistan despite major reverses during their tenures – the Kargil Crisis during the summer of 1999, the terror attack on the Indian Parliament in December 2001, and the attacks on Mumbai in July 2006 and November 2008 respectively. These events and the Indian responses to them demonstrated that Delhi had neither a credible option of punitive military action nor mounting sustained international pressure. In all the cases, India had to eventually revert to negotiations with Pakistan after a ‘decent interval’. In 1999, Delhi chose to limit its military response to the Indian soil and to the Kargil sector, while threatening to escalate further – horizontally to other sectors in Kashmir and the International Border and to the maritime domain – if it proved difficult to push the occupying Pakistani troops back to the Line of Control (LOC). Adopting a costly strategy that involved high casualties, the Indian Army did succeed in vacating the Pakistan Army’s occupation. India also found unexpected diplomatic support from the Clinton Administration in Washington. Analyses of the Kargil Crisis suggest a possible calculation in Islamabad that even a limited conflict in Kashmir and the threat of escalation to the nuclear level would bring the United States (US) to intervene diplomatically, press for an early ceasefire, and compel India to the negotiating table on Kashmir. 4 The US indeed did intervene diplomatically, but its emphasis was not on either ceasefire or immediate negotiations. Washington instead mounted pressure on Pakistan to immediately vacate the aggression and respect the sanctity of the LOC in Jammu and Kashmir while offering to lend its good offices to promote a dialogue with India after the restoration of the status quo ante. As the dust settled down in Kargil, Vajpayee sought to revive the dialogue with Pakistan, this time with General Pervez Musharraf, who had taken charge in a military coup in October 1999. Vajpayee invited Musharraf to visit India for talks in Delhi and a retreat in Agra in July 2001. While the Agra Summit failed, it underlined the Indian leadership’s persistent search for a normalisation of relations with Pakistan. For critics, Vajpayee’s policy of reengaging Pakistan, barely two years after Kargil, signalled Indian weakness.

4

Ashley J. Tellis, Christine C. Fair and Jamison Jo Medby, Limited Conflicts Under the Nuclear Umbrella: Indian and Pakistani Lessons from the Kargil Crisis (Santa Monica, CA: Rand Corporation, 2001).

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After the attack on the Indian Parliament in December 2011, the Vajpayee government did consider the option of immediate retaliatory air strikes against terror camps in Pakistan. While some senior decision makers were confident that nuclear escalation could be contained, others were less certain about managing Pakistan’s military responses. As the moment for military retribution quickly passed, the Vajpayee government embarked on ‘Operation Parakram’ – involving one of the largest military mobilisations in the history of independent India. As India massed its armies on the border with Pakistan, moved all its naval units to the Arabian Sea, and threatened escalation, including the nuclear level, Washington and London moved in quickly to defuse the situation. Pressure from the AngloAmerican powers saw Musharraf promise in a television broadcast in January 2002 stating that Pakistan will not allow its soil to be used for terror attacks against India. After some easing in the wake of Musharraf’s promise, renewed military tensions broke out in May-June 2002. The Anglo American powers intervened once again. This time, the US Deputy Secretary of State, Richard Armitage, brought a message from Musharraf that Pakistan will permanently and verifiably end cross-border terrorism and infiltration. The crisis steadily eased thereafter and India demobilised its forces after the assembly elections in Jammu and Kashmir later that year. Months after the crisis abated, Vajpayee once again extended his hand of friendship to Pakistan in April 2003, which, in turn led to renewed contact and confidence building between the two sides and the definition of a new framework for bilateral dialogue in January 2004. The talks with Pakistan followed a broad consensus in India that Operation Parakram was a failure in the sense it did not achieve any of India’s long term objectives on eliminating the sources of terrorism in Pakistan. Some have interpreted Operation Parakram as an attempt at ‘coercive diplomacy’. Its objective was not to wage a war with Pakistan on the question of terrorism, but mobilise international opinion, especially the Anglo-American powers into compelling Pakistan to change its policy of instrumentalising terror groups like the Lashkare-Taiba (LeT) against India. 5 Even from this perspective, India’s gains from Operation Parakram were seen as limited. While India heard the right words from Musharraf, there was no denying that Pakistan retained the option of unleashing the anti-India terror groups at will. As the baton passed from Vajpayee to Manmohan Singh in 2004, Delhi’s commitment to the peace process with Pakistan redoubled. Building on the framework negotiated by Vajpayee and Musharraf, Singh invested much energy in accelerating the pace of the peace process. The Congress government took a different view of counter-terrorism at home as well as with Pakistan. It repealed a draconian anti-terror law passed by its predecessor and also began to insist that terrorism cannot be allowed to come in the way of the peace process with Pakistan. But the first test for Singh came when the suburban rail system in Mumbai was attacked in 5

See Polly Nayak and Michael Krepon, U.S. Crisis Management in South Asia’s Twin Peaks Crisis (Washington DC: Stimson Centre, 2006); For an Indian perspective, see V.K. Sood and Pravin Sawhney, Operation Parakram: A War Unfinished (New Delhi: Sage, 2003).

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July 2006 killing more than 200 people. There was little talk of military options or even coercive diplomacy of the kind Vajpayee practiced during 2001-02. The Government did suspend talks with Pakistan in the wake of the July 2006 Mumbai attacks, but was eager to find a way out. On the margins of the Non-Aligned Summit (NAM) in Havana in September 2006, India negotiated the setting up of a new bilateral panel – at senior official level – for addressing Indian concerns about Pakistan-based terrorism. Critics, however, argued that the new body was but a face-saving device for India to resume talks with Pakistan – the subsequent ineffectiveness of the panel seemed to bear out the critics. A far bigger challenge confronted Singh in November 2008, when the terror attacks on Mumbai took place. This time, the Government under Manmohan Singh apparently considered retaliatory air strikes and possible commando raids into Pakistan. As in 2002, so in 2008, the discussion was apparently cursory with no real clarity on the possible consequences of Indian punitive actions and how to cope with them. 6 The only immediate option was to put the peace process on hold and mobilise some international pressure on Pakistan. There was much empathy for India from the international community. The fact that many foreign nationals were killed in the Mumbai attacks also provided a stronger basis for international cooperation with India in investigating an attack. Washington was quite cooperative in providing technical and other inputs in constructing a solid case to demonstrate that the attack originated from Pakistan and compelling Islamabad to accept the fact and put some of the plotters on trial. International cooperation, especially the assistance from the US, was useful in constructing the Mumbai dossier. At the political level, all major powers, barring China, went public with their calls on Pakistan to bring the Mumbai trial to a quick close, act against the LeT, and shut down the terror machine on its soil. But it did not take long for India to realise that there were limits to international pressure on Pakistan. As 26/11 slowly receded from memory, the empathy from the international community was bound to wane. Most countries, while pressing Pakistan to act were also suggesting that India must resume dialogue with Pakistan. India itself could not avoid contact with the Pakistani leadership on the margins of the various international forums during 2009-10. As he met the Pakistani leaders, Dr Singh offered to resume the peace process if Pakistan demonstrated good faith on the Mumbai trials. India, however, could not sustain this precondition for too long and agreed to resume the full-fledged dialogue in February 2011. That India does not have the capacity to coerce Pakistan into accepting its terms on terrorism have once again come into bold relief. This, in turn, is rooted in the reality that ever since it acquired nuclear weapons in the late 1980s, Pakistan has eliminated India’s ability to use its superior conventional military power to compel Islamabad to stop supporting cross border 6

For a reconstruction of the Indian debate in the aftermath of 26/11, see Pranab Dhal Samanta, ‘How India Debated a War with Pakistan that November’, The Indian Express (26 November 2011), p.1.

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terrorism. India’s difficult situation was summed up recently by Shyam Saran, India’s former Foreign Secretary (2004-06) and Special Envoy to the Indian Prime Minister during 2006-10. Reflecting on the Indo-Pak dynamic since they declared themselves nuclear powers in 1998, Saran argues that Pakistan has concluded that ‘nuclear deterrence had worked to its advantage in preventing India from escalating armed conflict with Pakistan beyond the threshold set by Pakistan’. Saran adds that ‘Pakistan also believes, with good reason, that the US and China would act to reinforce Indian restraint’, and concludes ‘we have allowed a situation to develop where the choice to our political leadership is either to risk a war escalating to the nuclear threshold or to continue with the “dialogue-disruption-dialogue” approach with virtually nothing in-between’. 7

Kashmir: Addressing Pakistan’s Core Concern The Indian political leadership is deeply conscious of the unenviable situation it finds itself with Pakistan. Yet the last three Prime Ministers have conducted policy on the presumption they could affect a fundamental transformation in bilateral relations with Pakistan. All three assumed that by engaging Pakistan on its ‘core concern’ – the question of Jammu and Kashmir – India could find a way to get Islamabad to end cross border terrorism and normalise the bilateral relationship. This translated into a readiness to modify Delhi’s position on Kashmir. Until the late 1990s, Delhi held onto the position that the framework for the resolution of the Kashmir question had been settled under the Simla Agreement of 1972 and no new negotiations were needed. As Pakistan stepped up pressure in the 1990s for a negotiation of the Kashmir question, India eventually conceded the point. It was Gujral who put the question of Jammu and Kashmir on the list of eight items for the discussion between the two sides in 1997. At the end of a roller coaster ride with Pakistan during 1998-2004, Vajpayee defined a framework for negotiating with Pakistan on Kashmir. The joint statement he signed with Musharraf in January 2004 in Islamabad included three elements. These were: Pakistan would prevent its territory from being used for terror against India; India would negotiate purposefully on Jammu and Kashmir; and the two sides would implement a comprehensive set of confidence building measures (CBMs). 8 While Vajpayee did not survive in office to carry forward the negotiations, his successor Dr Singh carried forward the process with greater vigour. The period, 2004-07, turned out to be one of the more productive phases in the history of India’s relations with Pakistan. Despite many minor terror attacks and a few major ones like the July 2006 attack on the Mumbai train system, the level of violence was below the threshold of Indian tolerance and provided a basis for 7 8

Shyam Saran, ‘A Different Dialogue this Time Around?’, Business Standard (16 February 2011), p.13. ‘India-Pakistan Joint Press Statement, Islamabad’ (6 January 2004), www.satp.org/satporgtp/countries/india/document/papers/indo_pak-6jan04.htm. Accessed on 24 February 2011.

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sustained engagement. A series of cooperative measures saw rapid expansion of trade, improved people to people contact and some progress in resolving such issues as the maritime territorial dispute over the Sir Creek. The most significant progress was in relation to Jammu and Kashmir. During 2004-07, India and Pakistan agreed for the first time to open their intensely militarised LOC by launching a bus service between Srinagar and Muzaffarabad and trading in a limited range of goods. India also began to let the separatist leaders on the Indian side of Kashmir, including from the Hurriyat, to travel to Pakistan. There were also reports that India and Pakistan were close to an agreement on the demilitarisation of the Siachen Glacier in the northern parts of the state of Jammu and Kashmir. Above all, the two sides appeared to have made much progress in drafting a framework for the resolution of the Kashmir dispute itself. The negotiations were conducted through the back channel – Ambassador Satinder Lambah on the Indian side and Tariq Aziz, a top aide to General Musharraf, on the other. 9 These were indeed the first substantive bilateral negotiations on Jammu and Kashmir since the talks between Foreign Ministers Sardar Swaran Singh and Zulfiqar Ali Bhutto during 1962-63. The agreement was said to be centred on five broad lines. One was that a final settlement would ‘not’ involve exchange of territories. Two, the agreement could change the nature of the LOC by making it porous and irrelevant to the people of the state. Three, both Delhi and Islamabad would agree to give maximum possible autonomy to the territories of Jammu and Kashmir controlled by them. Four, the most innovative part of the agreement, India and Pakistan would set up a joint consultative mechanism involving representatives of the state of Jammu and Kashmir, from both sides, with a mandate to facilitate cross-LOC cooperation on a range of issues – from water management to tourism. Finally, both sides would also reduce the presence of security forces in Jammu and Kashmir as the levels of violence came down.10 The Foreign Minister of Pakistan during 2004-07 had repeatedly affirmed the extraordinary progress made in resolving the Kashmir question and how close the two sides were to a settlement of the problem. 11 India’s current National Security Adviser, Shivshankar Menon, when out of office during 2009, offered a more cautious assessment. ‘Intensive back channel diplomacy’, Menon wrote, ‘made considerable progress in charting a way forward that would enable the issue to be dealt with in humanitarian and practical terms without affecting the substance of the territorial stance of each country and the legal validity of Jammu and

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10 11

Steve Coll, ‘Back Channel: India and Pakistan’s secret talks on Kashmir’, New Yorker (2 March 2009), www.newyorker.com/reporting/2009/03/02/090302fa_fact_coll. Accessed on 23 February 2011. Author’s conversations on background with senior Indian government officials. See for example, Khurshid Mahmud Qureshi, ‘Peace Within our Grasp’, Times of India (16 February 2011), http://timesofindia.indiatimes.com/home/opinion/edit-page/Peace-within-ourgrasp/articleshow/7510586.cms. Accessed on 23 February 2011.

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Kashmir’s accession to India. The progress achieved in these discussions was considerable but not conclusive or formalised.’ 12 As Musharraf’s power began to fade amidst the crisis over judiciary that began in March 2007, the back channel went cold. The election of a new civilian government and the succession of Musharraf by a new army chief, General Ashfaq Parvez Kayani raised questions about the continuity of commitment to the emerging Kashmir framework in Islamabad. President Asif Ali Zardari’s commitment to the peace process with India was not in doubt. But it soon became clear that he would not control the policy towards India. For Delhi, the attitude of the new Army Chief became a big question mark. For the record, General Kayani, as the head of the ISI (Inter-Services Intelligence) during the final years of Musharraf rule, was surely aware of the negotiating framework on Kashmir. Yet, India found that since General Kayani took charge of the Pakistan Army, there was a steady deterioration of bilateral relations. The attack on the Indian Embassy in Kabul in July 2008 and the 26/11 attacks on Mumbai left Delhi aware of the prospect that progress made during the Musharraf years might not survive the departed General. More broadly it raised the question of the durability of agreements negotiated with Pakistan. From Delhi’s viewpoint, the Simla Agreement (1972) did not outlast the Pakistani interlocutor at that time, Zulfiqar Ali Bhutto. The Pakistan Army, which felt the Simla Agreement was negotiated under duress in the wake of the breakup of Pakistan, also found it difficult to accept the Lahore Declaration that was drafted with Prime Minister Nawaz Sharif in 1999. If Musharraf chose to define his own framework with Vajpayee in January 2004, it is not clear if it continues to enjoy legitimacy and support within the permanent establishment within Pakistan. As he reflected on the negotiations with Pakistan, Menon argued that the ‘primary cause of the present standstill in formal India-Pakistan processes was domestic developments in Pakistan….The practical problem for India and the world is how to deal with Pakistan’s multiple centres of power and whom to talk to.’ 13 The problem has not gone away as Delhi resumes formal dialogue with Islamabad.

Prospects for the New Negotiations The first question on many Indian minds is whether the renewed talks can take the shock of another major terror originating from Pakistan. While India has resumed the talks by dropping its condition on ending cross border terrorism, new attacks will inflame domestic opinion and in all likelihood again compel Delhi to suspend them. Put another way, Delhi is not in a position to insist on preconditions for a dialogue with Pakistan. It is also not in a 12

13

Shivshankar Menon, ‘Hostile Relations: India’s Pakistan Dilemma’, Harvard International Review, Vol.31, No.3 (October 2009). Ibid.

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position, however, to effectively sustain a dialogue if there is no conducive atmosphere in terms of reduced levels of violence. This difficulty was underlined by the Indian President, Pratibha Patil, in her address to the Parliament days after the resumption of talks with Pakistan was announced, ‘With Pakistan we seek a peaceful resolution of issues through a meaningful dialogue so long as Pakistan does not allow its soil to be used for terrorist activities against India.’ 14 Responding to the debate on the President’s speech in the Lok Sabha, Prime Minister Singh reaffirmed the message, ‘I sincerely hope and believe that the new ruling classes of Pakistan would grasp the hands of our friendship and recognise that, whatever are our differences, terror, as an instrument of State Policy, is something that no civilised society ought to use….We are willing to discuss all outstanding issues with Pakistan provided Pakistan gives up its practice of allowing the use of its territory for terrorist activities against India.’ 15 It is very much possible, then, to visualise the paradigm described by Saran, ‘dialogue-disruption-dialogue’, will continue for the foreseeable future. Another way of thinking about the future of the Indo-Pak dialogue is the prospect that India will find a way to re-engage the Pakistan Army, now under the leadership of General Kayani. Delhi has had a general difficulty of negotiating purposefully with the civilian governments of Pakistan, that have to constantly look over their shoulders in engaging India. For Delhi it is quite obvious that the current rulers in Islamabad have no control over the nation’s security policy – especially on issues relating to nuclear weapons, Afghanistan, India and the relationship with the jihadi groups on its soil. Negotiations with such a government, prima facie, cannot be productive. One way of resolving this problem might be for India to find a way to engage General Kayani as the US and other major partners of Pakistan do. This would involve Delhi setting up a discreet but direct channel with General Kayani that can ‘pre-cook’ the possible outcomes in the formal dialogue between the two governments. Pakistani army chiefs, however, have tended to avoid engagement with India when they do not directly control the affairs of the nation. But many in Delhi are deeply sceptical of the prospects of India finding a way to alter General Kayani’s approach towards India. For example, a former High Commissioner to Pakistan, G. Parthasarathy asks: ‘Under directions from General Kayani, the Pakistan Government has returned to the old rhetoric about Jammu and Kashmir and disowned the framework for a solution devised earlier with General Musharraf, which was based on territorial status quo. Does our Government seriously believe that talks between Foreign Secretaries will lead to General Kayani having a change of heart?’16 If the Pakistan army is not on board with the peace process, the resumed negotiations would merely limp along rather than produce any substantive results. 14

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‘President Pratibha Patil’s address to Parliament on the first day of budget session’, The Hindu (21 February 2011), www.thehindu.com/news/resources/article1476938.ece. Accessed on 23 February 2011. Excerpts from Prime Minister Singh’s speech in the Lok Sabha (24 February 2011), www.pmindia.nic.in/speech_24.02.11.pdf. Accessed on 27 February 2011. G. Parthasarathy, ‘Pak Let Off the Hook on 26/11’, The Hindu Business Line (17 February 2011), www.thehindubusinessline.com/opinion/columns/g-parthasarathy/article1462283.ece. Accessed on 23 February 2011.

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A third and more hopeful outcome could emerge if the Pakistan army’s strategic calculus towards India evolves in a positive direction. If that does happen, much of the ground covered during 2004-07 talks could be quickly regained. In briefing Pakistani reporters on the decision to resume talks with India, Foreign Secretary Salman Bashir is reported to have talked of a change in Pakistan’s regional situation and the need to set new directions with both Afghanistan and India. 17 If this line of thinking were to hold, Delhi and Islamabad could not only expand trade and people to people contacts, but also finalise agreements on Siachen and Sir Creek that were ready for closure. It is also possible to imagine that the two sides would build on the framework agreement that has been negotiated on Kashmir. A sense of rapid forward movement can lend new stability to the peace process by reducing scepticism in both capitals. On the relevance of the progress made in the past, Bashir’s response was ambivalent, ‘I don’t think we should jettison all the good work that was done by predecessors over the past 60 years. We should also not be lost totally in the archives.’ 18 The other question is whether India has the political will to sign off major agreements, for example, on Siachen, Sir Creek and Kashmir. There is already considerable opposition to such agreements in Delhi.

Conclusion India currently is not in a position to either coerce Pakistan into giving up its support for cross-border terrorism or entice into a normalisation of bilateral relations by resolving the Kashmir question. This security condition is currently frozen by the reality of Pakistan’s nuclear deterrent that has neutralised India’s conventional military options. While Delhi can certainly tempt Islamabad with a deal on Kashmir, it is not clear if what India can offer can satisfy the permanent establishment in Pakistan. The situation could alter only in the event of a structural change inside Pakistan, the regional balance or its great power relations. In the interim, India will have to focus on a more effective management of the bilateral relationship. As Menon argued, ‘the paradox is that while there is no alternative to dialogue, it is not and cannot be the entire answer to India’s dilemma.’ 19 The focus of the Indian discourse on Pakistan in recent years has been too narrowly on whether and when to conduct official negotiations with Pakistan. While embarking on the formal dialogue, Delhi needs to supplement it by reaching out to interlocutors across the entire spectrum of the Pakistani society. Effective management must also include improving its capabilities to deal with extremism and terrorism, and steadily raising the costs of Pakistan’s support for anti-India 17

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‘Pakistan seeks role of “game-changer”: Bashir’, Dawn (13 February 2011), www.dawn.com/2011/02/13/pakistan-seeks-role-of-game-changer-bashir.html. Accessed on 23 February 2011. Ibid. Shivshankar Menon, ‘Hostile Relations: India’s Pakistan Dilemma’, Harvard International Review, Vol.31, No.3 (October 2009).

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militant groups. Those capabilities, however, can only be built over the longer term. Strategic patience, engagement without high expectation, and the political will to seize fleeting moments of opportunity when they present themselves must be the elements of India’s renewed engagement with Pakistan.

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ISA S Insights No. 120 – 23 March 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Foundations of Bangladesh’s Foreign Policy Interactions Iftekhar Ahmed Chowdhury1

Abstract The two major foreign policy aspirations of Bangladesh are security and preservation of sovereignty, and the quest for resources for development. Both these objectives combined with the fact that Bangladesh being nearly geographically ‘India-locked’ suggests its method of external behaviour. That is, in Bangladesh’s interest to enmesh herself among a web of extra-regional linkages, that would heighten global stakes within, and also reduce the powergap with pre-eminent regional protagonists. This high level of international interactions is based on twelve pillars that this essay identifies. It analyses the contribution to behaviour, which has ‘West-leaning’ predilections, by the values espoused by her vibrant civil society and her burgeoning and powerful middle class. The penchant for ‘multilateralism’ is met with caution and circumspection in global politics, implying avoidance of ‘flashy’ policies, together with the adoption, generally, of a ‘low-profile’ on ‘high-risk’ issues, and ‘highprofile’ on ‘low-risk’ issues.

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Dr Iftekhar Ahmed Chowdhury is Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore (NUS). He was the (Foreign Advisor) Foreign Minister of Bangladesh from 2007-2009. He can be contacted at isasiac@nus.edu.sg. The views reflected in this paper are those of the author and not of the institute.


Introduction The ancient Greeks used to insist, with a modicum of logic, prior to undertaking any intellectual discourse, one must define one‟s terms with as much precision as possible. In this essay, the key term is „foreign policy interactions‟. By this, it is meant the motivations behind the external behaviour-pattern, as well as the sum-total of relationships resulting there from, flowing from a conscious decision to advance the country‟s (in this case Bangladesh) perceived national self-interest. At the same time, one must be conscious of the actions of unofficial actors as well. This is particularly true in the case of Bangladesh, a country with a vibrant civil society that is active from both home and abroad.

Methodology Contemporary literature on foreign policy analyses tends to be „process-oriented‟ (mostly with respect to modernised and industrial states) or „function-oriented‟ (as with states further down in the pecking-order of development). The former concentrates on detailed examination, in developed countries, of foreign policy processes with emphasis on such institutions as bureaucracies, political parties and pressure-groups, and the influence they exert on policy outcomes.2 With the latter, the argument has been that in developing countries the institutions, still working on rudimentary levels, deserve less focus than the actual functions of foreign policy or the purposes they are applied to. In other words, their foreign policies are seen as a „function of functions‟.3 But this dichotomy cannot be carried too far. Today many countries fall within a grey area between the two categories and, therefore, would merit an eclectic approach, combining both the „process‟ and „function‟.4 Bangladesh would fall within this less defined group. Therefore, this study will follow an eclectic approach, one of „mixed-models‟. The methodology will be analytical. It will rely on the proposition that policy rests on multiple determinants including geographical location, historical tradition, natural resources, and economic and social needs. To these could be added ideological beliefs, religious and/or nationalistic values, and elite-behaviour and perceptions. These factors cannot be placed in an 2

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For instance, G. Allison, Essence of Decision (Boston, Little Brown, 1971); M. Halperin, Bureaucratic Politics and Foreign Policy (Washington D.C.: Brookings Institution, 1974); William Wallace, Foreign Policy and the Political Process (London, Macmillan, 1971). Some notable proponents of this view are – F.B. Weinstein, „The Uses of Foreign Policy in Indonesia: An Approach to the Analysis of Foreign Policy in Less Developed Countries‟, World Politics, Vol.XXIV, No.3 (April 1972), pp.356-381; B. Korany, „Foreign Policy Models and their Empirical Relevance to Third World Actors: A Critique and an Alternative‟, International Social Science Journal, Vol.26, No.1 (1974), pp. 70-94. For instance, a study of Pakistan‟s policies, including in the sphere of foreign affairs, would be incomplete without a focus on the army, or India without the influence of pluralist forces. See S.P. Cohen, The Idea of Pakistan (Wasington D.C.: Brookings Institution, 2004), and S.D. Muni, India’s Foreign Policy: The Democratic Dimension (New Delhi, Cambridge University Press India Pvt. Ltd., 2009)

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exact taxonomic order. The preponderance of one over the other depends on who the policymakers are at that point in time. Bangladeshi politics is often a balance between „Muslimness‟ and „Bengaliness‟.5 Of the two major political parties that have dominated Bangladeshi governance, the Bangladesh Nationalist Party (BNP) represented mainly the former stream and the Awami League (AL), the latter. Almost as a corollary, relations are normally better with India under the latter than under the former. However, the recent watch of the long-term caretaker government saw a nuanced warming to Indo-Bangladesh relations.6 Perhaps a caveat is warranted at this stage. The preceding paragraphs do not imply that there exists a well thought-out and carefully formulated pro-active „policy‟, for that would convey more than what is actually there. Also, to speak of „policy goals‟ would appear to suggest a precision that is probably absent. A more appropriate term would be what Arnold Wolfers had once called the „“aspirations” of foreign policy‟.7

Foreign Policy Aspirations In the realm of foreign policy, then, Bangladesh could be said to be having two broad aspirations – first, the search for its security and preservation of sovereignty, and second, the quest for resources for its development and economic welfare. The first required the space for the maintenance of sufficient manoeuvrability in policy-making, particularly as it was a weaker neighbour bordering a far more powerful state, India.8 As Professor Hedley Bull had asserted, rightly or wrongly, „the deepest fears of the smaller units in the global system are their larger neighbours.‟9 Bangladesh always appeared to have the felt-need to live in „concord with‟ but „distinct from‟ their powerful neighbour. The „concord‟ was necessary largely due to Bangladesh‟s geography – largely „India-locked‟ – and the „distinction‟ was essential because Bangladesh‟s own identity, as separate from the Indian communities surrounding it, could only be defined by those terms. This implied the need to build a web of extra-regional linkages. The second aspiration, the quest for resources, entailed aid, trade, remittances from her expatriates and foreign investments. It also meant having to involve herself with a wide range of countries. Both aspirations, therefore, required Bangladesh to seek a high level of international interactions.

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See, Iftekhar Ahmed Chowdhury, „Prehistory of Bangladeshi Nationalism and a “Theory” of Tripartite Balance‟, Asian Affairs, Vol.IV, No. IV (December 1982), pp.407-433. This is detailed in Sreeradha Datta, Caretaking Democracy: Political Process in Bangladesh 2006-2008 (New Delhi: Institute of Defence Studies and Analyses, 2009), pp.85-110. A. Wolfers, Discord and Collaboration: Essays on International Politics (Baltimore: Johns Hopkins Press, 1962), p.71. „Power‟ in such context has been defined by the French political philosopher Raymond Aron, as „the capacity of a political unit to impose its will on other units.‟ A. Aron, Peace and War: A Theory of International Relations (trans.) Richard Howard and Annette Baker Fox (London: Wiedenfeld and Nicolson, 1966), p.71. H. Bull, The Anarchical Society: A Study of Order in Global Politics (London: Macmillan, 1977), p.310.

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Weaker Neighbour Syndrome Of the options that a weaker neighbour might adopt on a regional matrix, one is what the Swedish analyst, Erling Bjol has described as „pilot-fish behaviour‟, whereby a fish tends to tack closer to the shark (or a larger fish) in order to avoid being eaten. 10 This thesis followed from his study of Finland‟s relations with the then Soviet Union. A second option is for the smaller state to make herself as difficult as possible for any potential adversary to overcome her, a policy that Prime Minister Tage Erlander espoused for Sweden.11A third option would be what Myanmar (Burma) in Southeast Asia has often chosen, from time to time, that is, „opting-out‟ of the international system altogether.12 Bangladesh‟s preferred policy has been more in consonance with the second option, with greater emphasis on political deterrence by creating an array of international linkages that would heighten global stakes and interests, and reduce the power-gap with her neighbours.

International and Multilateral Linkages Bangladesh‟s interactions with other actors in the international arena have led her to relations with principally four categories of states. These have been major „development partners‟ (aid donors) such as the United States (US), the European Union (EU) and Japan; regional countries like India and Pakistan; Middle Eastern Muslim states like Saudi Arabia and the United Arab Emirates (UAE); and China – all important as an „all-weather friend‟. Additional actors being four multilateral political organisations – the United Nations (UN) System, the Commonwealth of Nations, the Organization of Islamic Conference, and the South Asian Association for Regional Cooperation (SAARC). The last four consist of trade and financial institutions, that is, the World Trade Organization (WTO), the Bretton Woods Institutions, the Asian Development Bank and the Islamic Development Bank. These may be said to be the twelve pillars that sustain the totality of the country‟s foreign policy system. A special mention must be made of the fact that Bangladesh has always stressed multilateralism. The UN is a significant element in her external relations. Bangladesh sees the UN as an insurer of security and sovereignty, as a forum to relate to 191 other countries it cannot bilaterally for want of resources, and as a source of moral and material support. Indeed that the author, as the Bangladesh Ambassador and Permanent Representative to that body sought to play a key role in UN reforms as a „facilitator‟ in 2005. Amry Vandenbosch 10

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Erling Bjol, „The Small States in International Politics‟, in August Schou and Arne Olav (eds.), Small States in International Relations (Stockholm: Almqvist and Wiksell, 1971), p.33. Erlander was Sweden‟s long-term Prime Minister during most of the Cold War period, from 1946 to 1969, when Sweden followed a „neutral‟ foreign policy between the West and the Soviet Union, while retaining a strong military capability. Even Burma, though it would have wished to opt out, felt the need at those times to „adjust‟ and „adapt‟ to a powerful neighbour like China. See, Ralph Pettman, Small Power Politics and International Relations in South East Asia (Sydney: Holt, Rinehart & Winston,1976), p.58.

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has called the UN a „boon‟ for states like Bangladesh since it enables them to play a part in world politics out of all proportion to their economic and military strengths. 13 Bangladesh‟s high level of engagement with the UN is also reflected in her role as being consistently one of the highest contributors to peace-keeping operations. Apart from keeping her armed forces, an important element her policy-making engaged, contented, and well-resourced, it also makes for an orderly world, in line with the interests of weaker states.14 The powerful and burgeoning middle class in Bangladesh also contributes to the high-level of external interactions. It is represented in growing numbers in the civil society, the trade and business sector, the professionals and the intelligentsia. It sees itself as part of a horizontal international elite with a wider role to play in the affairs of the world than is dictated by the objective „power‟ of their country. It comprises what may be said to be the new bhadralok of Bangladesh, akin to the earlier generation of Calcuttans of the same ilk.15 This crucial segment of the community deals mainly with Europe and the US, and to a certain extent with the Middle East (a major destination of its expatriate workforce, both as labours and professionals), parts of the world with which it has economic, political and intellectual linkages, leading the government in those directions. The media tends to focus itself in line with public interests. In recent times there has been some attention accorded, unlike some other South Asian countries, to a „Look East‟ policy (in addition to China, which has always been a major partner) designed to secure investments from Korea and Japan and secure markets for labour in Malaysia and Singapore. But this has not significantly reduced the preponderant west-ward orientation of Bangladesh.

Caution and Circumspection A natural corollary of these characteristics is caution and circumspection. This is derived from the realisation that Bangladesh and Bangladeshis stand to gain from according maximal satisfaction to the international community, most certainly to its key players. This makes for the avoidance of flashy external behaviour. The policymakers generally see Bangladesh‟s interests as better served by usually acting as a member of a wider international grouping, such as the Non-Aligned Movement (NAM), the Organization of Islamic Conference (OIC)

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A. Vandenbosch, „The Small States in International Politics and Organization‟, The Journal of Politics, Vol.26 (1964), p.312. As many as six and a half decades ago, the fact that weaker states seek greater international order was made by the well-known British political writer, Martin Wight. See, M. Wight, Power Politics (London: Royal Institute of International Affairs, 1946, Reprinted 1949). The Bengali term bhadralok, meaning „gentlefolk‟, denoted a „Weberian status group‟ in late nineteenth century and early twentieth century in Calcutta. They were often criticized for being collaborators of the British Raj. According to J.H. Broomfield, „they were distinguishable by many aspects of their behaviour, their deportment, their speech and their dress, their style of housing, their eating habits, occupations, their associations, and quite as frequently by their cultural values and their sense of propriety‟. See, J.H. Broomfield, Elite Conflict in a Plural Society: Twentieth Century Bengal (Berkeley: University of California Press, 1968), pp.5-6.

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or the Least Developed Countries (LDCs are states with structural impediments to development, which Bangladesh has served as chair for many years), rather than individually. It helps avoid affronting any major state actor most of whom generally accept such behaviour-pattern as some kind of international „trade union activity‟. At the same time, it satisfied the country‟s craving from acting from a „high moral ground‟, as is evidenced in frequent public statement of leaders in support of global „principled position‟. There is a penchant for playing by the international „club rules‟, reflected in the commitment to disarmament and non-proliferation, and to counter-terrorism. As a consequence there has generally been a lower profile on „high-risk‟ issues and higher profile on „low-risk‟ issues.

Conclusion This examination has attempted to identify and discern the foundations on which Bangladesh‟s foreign policy system is based. It is a case study dealing with a single state actor, Bangladesh. Nevertheless, this exercise may also help provide the key to understanding of the general problems and the endeavours to surmount them, of a burgeoning country, which in contrast is a weaker state, locked into a perennial relationship with a far more larger and powerful neighbour by the „situation of geography‟. It has sought to draw some extrapolations on how such a weaker neighbour seeks to manage not just relations with the preeminent regional state-actor, but also those with the rest of the world, in a way, so to derive there-from the best possible benefits and advantages. .....

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ISA S Insights No. 121 – 6 April 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Political Economy of CSR: The Companies Bill Debate in India Suvi Dogra1

Abstract The concept of ‘Corporate Social Responsibility’ (CSR) is not new to the Indian corporate world. The recent proposal by the India’s Ministry of Corporate Affairs (MCA) to make philanthropy compulsory by law under the Companies Bill 2009, however, gave rise to a raging debate in the country. Many questions were raised including whether a rule-based approach to philanthropy is needed and whether making CSR spend mandatory by law would yield the desired outcomes? However, before one answers these questions, it is important to reflect on one fundamental aspect under the CSR debate. If socially responsible behaviour has become key to corporate agendas, then why have only some firms behaved in a socially responsible manner while others have not? This paper examines the factors that govern such behaviour on the part of firms and traces its relevance to the current CSR debate in India.

Introduction CSR has assumed an integral role as a corporate philosophy the world over. In India, it has given rise to a raging public debate in recent times. In a bid to bridge the gap between CSR initiatives on the part of India Inc., the MCA decided to mandate corporations to set aside a part of their earnings towards CSR under the Companies Bill 2009. However, fierce 1

Suvi Dogra is Research Associate at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore (NUS). She can be reached at isassuvi@nus.edu.sg. The views reflected in the paper are those of the author and not of the institute.


opposition by firms against mandatory CSR has led the MCA to reconsider the provision and it seems to be unlikely that it is made compulsory, even though the guidelines will remain in the Bill.2 Marred by such debates, the Bill is now expected to be introduced in the Monsoon Session (July 2011) of the Parliament since it had missed the deadline for the recently concluded Budget Session (February to March 2011) as had been announced by the Finance Minister Pranab Mukherjee at the start of the Budget Session.3 The existing Companies Act of 1956 has no specific provisions towards CSR and the MCA hopes to amend the situation by way of the Companies Bill 2009 that aims to replace the halfa-century-old Act. With this in mind, the Parliamentary Standing Committee on Finance (PSCF), headed by former Finance Minister Yashwant Sinha, had suggested a provision of a mandatory CSR spend on companies meeting specified financial criteria. Building upon the suggestion, the MCA had announced that ‘every company having [net worth of US$1 billion or more or alternately a turnover of US$2 billion or more] or [a net profit of US$1 million or more during a year] shall be required to formulate a CSR policy as may be approved and specified by the company by MCA standards.’4 Under the initial draft provisions of the Bill, private sector units are expected to contribute between two to five per cent of their profits depending on their earnings. For public sector units, this expenditure has been capped between 0.5 and 2.0 per cent of their net profit. The Government, however, has accepted that industries should be allowed to monitor the implementation of CSR without intervention. Also, the MCA is currently weighing if there is room for a statutory requirement. India Inc. has expressed concerns that a compulsory spend would give rise to malpractice.5 Further, while most developed economies have provisions on CSR, there are hardly any jurisdictions mandating this form of responsibility levy, an argument cited by India Inc.

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Ronojoy Banerjee, The Financial Express (22 February 2011), www.financialexpress.com/news/india-incslams-making-csr-spend-mandatory/753034/0. Accessed on 28 March 2011; Mahua Venkatesh, ‘CSR spending to be voluntary, not mandatory, under new law’, Hindustan Times (13 March 2011), www.hindustantimes.com/CSR-spending-to-be-voluntary-not-mandatory-under-new-law/Article1673041.aspx. Accessed on 14 March 2011. ‘Companies Bill to be presented this Budget session: FM’ The Indian Express (28 February 2011), www.indianexpress.com/news/companies-bill-to-be-presented-this-budget-session-fm/755850/. Accessed on 28 March 2011; ‘Government to consult corporates on 2% profit for CSR activities: Singh’, ASSOCHAM (11 March 2011), www.assocham.org/prels/shownews.php?id=2795. Accessed on 28 March 2011; Souvik Sanyal & Rajeev Jayaswal, ‘Draft cos bill grants govt power to block multiple-layer setups,’ The Economic Times (14 March 2011), http://articles.economictimes.indiatimes.com/2011-03-14/news/28688238_1_subsidiariescorporate-affairs-law-ministry. Accessed on 16 March 2011. Ronojoy Banerjee, ‘India Inc. Slams Making CSR Spend Mandatory’, The Financial Express (22 February 2011), www.financialexpress.com/news/india-inc-slams-making-csr-spend-mandatory/753034/0. Accessed on 12 March 2011. Mahua Venkatesh, ‘CSR spending to be voluntary, not mandatory, under new law’, Hindustan Times (13 March 2011), www.hindustantimes.com/CSR-spending-to-be-voluntary-not-mandatory-under-newlaw/Article1-673041.aspx. Accessed on 16 March 2011.

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According to Capitaline data, over `4,300 crore (approximately US$960.6 million) would have to be set aside by corporate entities for CSR during the fiscal year, if the provisions regarding a CSR levy are put to effect.6 Further, considerations under the CSR clause include mandatory disclosure to shareholders about the policy adopted in the process. The MCA is also considering introducing different provisions for listed as well as unlisted companies as it feels that the two types of organisational structuring have different requirements. With the CSR issue looming large over India, what is puzzling (in the more generic debate around the idea of CSR) is that if socially responsible behaviour is such a norm of the day, then why do only some firms behave in a socially responsible manner while others do not? Only a handful of names emerge when studies regarding CSR initiatives are published while others have either ‘simply failed to pay much attention’ or ‘think they can afford to ignore CSR’.7 This paper explores the concept of CSR, highlighting the causes for lack of voluntary CSR initiatives in corporate philosophy globally and ties it to the current debate around the CSR provision according to the Companies Bill in India.

CSR and Philanthropy The concept of CSR has bloomed over the past decade, and following the 2002 Johannesburg World Summit on Sustainable Development organised by the United Nations, phrases such as socially responsible investment and sustainable development have gained currency, and now warrant much attention from the globalised world.8 While there is still much contention over a standard definition, The Economist’s view that CSR is ‘the tribute that capitalism everywhere pays for virtue’, and it now exists as ‘an industry in its own right’,9 may provide the context for examining the field. The concept of CSR is now moving towards the premise that firms can be successful in serving the interests of its shareholders even as they serve the larger purpose of being socially responsible and as The Economist notes, ‘doing well by doing good’ is quickly being engrained in corporate philosophy. That said, only some companies have chosen to embrace CSR while others have restricted to peripheral initiatives under the CSR umbrella. This contrast of socially responsible behaviour by firms, to a large extent, is governed or influenced by certain factors that can be categorised under economic and institutional factors. The variations in primary economic considerations such as economic environment, financial performance and a level of competition, among others, govern the motivation of firms to devise ways that reflect social responsibility. Such decisions are also affected by the diversity 6

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‘India Inc faces 2% CSR levy’, Business Standard (8 September 2010), www.business-standard.com/india/news/india-inc-faces-2-csr-levy/407350/. Accessed on 16 March 2011. ‘The Good Company’, The Economist (22 January 2005), p.22. For details on the summit see, www.un.org/jsummit/html/basic_info/basicinfo.html. Accessed on 28 March 2011. ‘The Good Company’, The Economist (22 January 2005), p.3.

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in institutional factors, which include the role of government regulations and monitoring, non-government organisations (NGO), media organisations and other civil society groups, and some contemporary factors such as emergence of managers who have been trained to operate in socially responsible ways via their socially relevant curricula at business schools and similar institutions.

Economic Conditions and Factors The relative health of an economy, along with the economic health of the firm itself, creates conditions for the firm to behave in a socially sensitive manner. Firms with weak financial performance are less likely to engage in socially responsible behaviour than those with stronger financial grounding. The primary reason for this notion is that, a less financially stable firm would find it difficult to spare any resources for CSR activities while a financially well-off company can easily devote a noticeable share of its resources to CSR. Thus, it is not surprising that most of the firms that are diligent CSR practitioners are the ones with biggest market capitalisation such as Shell and General Electric (GE). Further, one can also argue that if the economic environment is not conducive for reaping profits (eg. the global financial crisis and subsequent recession), the chances of firms investing behind CSR is also diminished since they cannot afford to further risk any losses in shareholder investment and would be less inclined in some cases to even meet the minimum standards of socially responsible behaviour. The level of competition that a firm faces vis-à-vis other firms, is another factor that can influence a company’s need to carve a CSR agenda. If this belief holds true, then a company’s inclination to be socially responsible may also be governed by its competitors and the level of competition it faces. In cases where firms face intense competition, there is an added pressure to sustain bottom lines and profit margins and thus, there is a need to cut down on all additional expenses. Hence, philanthropy is likely to take a back seat and may even push firms into socially irresponsible acts, such as reducing jobs and incentives or increasing working hours, in a bid to survive. Furthermore, firms from developing countries may not have adopted CSR practices since they need to devote their resources to setting up business and subsequently compete with established brands, before they can inculcate the social responsibility habit. This problem, however, may be restricted to developing countries and their homegrown firms. In India, however, there has been an increasing shift in favour of CSR both by domestic as well as foreign players and is especially visible in the fast moving consumer goods (FMCG) sector, where firms seem to be competing not only in the traditional market place but also on the CSR turf. For some firms, the obligation to maximise profits and interests of its shareholders may prevent it from acting in a socially responsible manner as ‘their job is to make money for shareholders’ and ‘it is irresponsible for them to sacrifice profits in the (sometimes vain) 4


pursuit of goodness’.10 Therefore, it is not surprising that executives of firms such as British retailer Marks and Spencer, while formulating socially relevant actions such as its environment-oriented ‘Plan A’, bear in mind that their firm is a business and not a green charity.11 Further, claims such as ‘corporate philanthropy is charity with other people’s money, which is not philanthropy at all,’ make some firms wary of the concept of CSR itself.12 The motivation for CSR may especially be strong for firms involved in what may be described as socially objectionable businesses such as tobacco and alcohol. Often, such firms try to gain the trust of consumers and civil society by trying to cover the negative business aspects under the CSR umbrella. For example, companies like British American Tobacco (BAT) and even McDonald’s have indulged in distracting the public eye from their core business. For other firms that have not been criticised yet for their field of work, CSR assumes the role of a risk management exercise.13 Oil and mining firms, involved in high risk businesses are likely to have stronger CSR programmes to mitigate the risk of reputation in crisis. The bad press that followed Nike for years after its infamous sweat shop and human rights controversy compelled it to champion the cause of CSR. A more recent example is that of Deepwater Horizon Oil Spill of 2010 in the Gulf of Mexico, which brought much public ire to British Petroleum (BP) besides the plethora of lawsuits that tainted the company’s name. However, the desire to be socially responsible has been increasingly finding favour with big and small firms alike. This is because of a growing need for firms to preserve their reputation, maintain an edge over competitors and ensure business flow, even in times of crisis. Going by the experiences of Enron, BP and Nike among others, it has become pertinent for firms to cultivate loyal consumers who are increasingly in favour of socially responsible brands. This can be understood by the ‘towel experiment’ wherein Michael Hiscox and Nicholas Smyth noted that the towels with a label of ‘Fair and Square’ conveying fair labour conditions during manufacturing sold more than the ones without any labels, indicating a shift in consumer mindset.14 Another situation wherein firms may not want any socially responsible involvement can be in the cases of monopoly or lack of competition. Such a situation, though largely diminishing, may be observed in some state-owned firms or in a protectionist trade environment and thus may not warrant any socially responsible behaviour. 10 11

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‘Just Good Business’, The Economist (19 January 2008), p.9. Ibid. Marks and Spencer’s ‘Plan A’ is about working with customers and suppliers to combat climate change, reduce waste, use sustainable raw materials, trade ethically, and help customers to lead healthier lifestyles. More details can be found at http://plana.marksandspencer.com/about. Accessed on 28 March 2011. ‘The Union of Concerned Executives: A Survey on Corporate Social Responsibility’, The Economist (22 January 2005), p.8. For details see, ‘A Stitch in Time: in Just Good Business’, The Economist (19 January 2008), p.10. Ibid., p.14.

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Institutional Factors A common institutional factor that has pushed firms to act responsibly is the role of governments themselves. Governments can ensure an atmosphere of sustainable development by implementing regulations that induce responsible behaviour in corporate organisations. The Economist has pointed out that firms as diverse as the pharmaceutical company GlaxoSmithKline, retailer Walmart and sporting goods brand Nike have amended their ways to prevent any regulatory backlashes.15 India’s own MCA, too, seems to be following suit and hence feels the need to add the CSR clause in the Companies Bill. However, a counter argument for this would be that CSR is still a voluntary act and firms left to their own devices can choose not to comply with the guidelines. However, regulations alone cannot ensure informed acts on the part of firms, governments also need to monitor these firms and their actions. The 2006 Companies Act in Britain, which introduced a requirement for public companies to compulsorily disclose on matters such as social and environmental issues, is an attempt by the British government to ensure better CSR.16 In a first, the MCA in India also put up a set of voluntary guidelines on CSR to elicit response and grow the concept. These guidelines have identified core elements such as care for all stakeholders, ethical functioning, respect for workers’ rights and welfare, respect for human rights, respect for environment, and activities for social and inclusive development. The mandatory CSR provision seems to be the next step in this progression by the MCA.17 Among other success stories, the Mercados Verdes programme in Colombia is viewed as a pioneering example of public sector support for sustainable markets in Latin America.18 The programme has been designed to incentivise production of environmentally-friendly goods and services that are competitive in international markets. In Peru, the responsibilities of Pro Inversion, the private investment promotion agency, include the following – ‘To attract investors able to transfer state-of-the-art technology and to take responsibilities with respect to the development of their social environment’ and ‘To assist in the disclosure, among potential investors, of the role and social commitment they have with the environment and people’.19 The goal of the agency’s work is expressed as being: ‘to foster competitiveness and sustainable development in Peru to improve the welfare of the Peruvian people’.

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‘How Good should your Business Be?’ The Economist (19 January 2008), p.13. ‘Just Good Business’, The Economist (19 January 2008), p.13. 17 For details of the Voluntary Guidelines see, Ministry of Corporate Affairs, India website: http://mca.gov.in/Ministry/latestnews/CSR_Voluntary_Guidelines_24dec2009.pdf. Accessed on 28 March 2011. 18 United Nations Department of Economic and Social Affairs, ‘CSR and Developing Countries: What Scope for Government Action?’, Sustainable Development Innovation Briefs, Issue 1 (February 2007), p.3, www.un.org/esa/sustdev/publications/innovationbriefs/no1.pdf. Accessed on 20 March 2011. 19 Ibid., p.4 16

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Another institutional factor that proves decisive in a firm’s quest for CSR is the presence of strong monitoring mechanisms such as the media, NGOs and the civil society at large. Slightest misbehavior on the part of corporate is met by much ire by the ever-increasing scrutiny net of civil society watchdogs. The media plays a great role in highlighting the social incompetence of firms, costing a big dent in the brand value of these firms. In India, the pesticides controversy had caused the sales of Coca-Cola and PepsiCo products to fall drastically.20 Employee satisfaction is another element that can be added to the CSR debate wherein by adopting CSR initiatives firms can strengthen ties with their workers. GE’s ‘ecomagination’ initiative promoting green technology has struck a chord with consumers and employees alike so much so that employees have contributed new ideas that are worth around US$70 million per annum in energy savings. It has also helped instill a sense of trust in the environmentalist who picked on the company for dumping toxic waste into the Hudson River years ago.21 Further, the role of institutions such as business schools have also come to play a significant role in preparing managers who strive to make the right business decisions while incorporating a CSR vision.22

Some Considerations The preceding section tried to highlight some of the key reasons for a lag in CSR initiatives by firms globally and the case in India is not very different.23 The CSR debate across the globe has now moved beyond blind donations and mere responsibility towards employees. It now entails a conscious incorporation of larger issues such as saving the planet and getting involved. Harvard University’s John Ruggie rightly points out, ‘The theological question – should there be CSR? – is so irrelevant today.’24 Policymakers in India should consider certain factors before finalising the CSR diktat under the Companies Bill. First and foremost, there is a dire need to arrive at a clear definition of CSR and what it entails in the Indian context. A general lack of consensus over a standard has dogged the international debates on CSR and it is essential to get this right before proceeding onto the next step. In tandem with this, the MCA also needs to identify and engage the stakeholders while formulating policies around CSR. Since CSR should be applicable to all companies regardless of their size and sector, the MCA should aim to level the playing field 20

Amelia Gentleman, ‘Pesticide allegations trip up Coke and Pepsi’, The New York Times (22 September 2008), www.nytimes.com/2006/08/22/business/worldbusiness/22iht-coke.2562750.html. Accessed on 17 March 2011. 21 For details see, ‘Just Good Business’, The Economist, (19 January 2008), p.16. 22 Ibid., p.4. 23 The list of factors cited in this paper is not exhaustive. 24 John Ruggie is also the United Nations Special Representative of the Secretary General on human rights and transnational corporations and other business enterprises.

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keeping in mind that each industry works under different sets of constraints. It is essential to try and accommodate the stakeholders as far as possible in order to make CSR more effective. Second, CSR agendas in middle and low income countries have traditionally been less visible internationally and at times have not been recognised as and granted a ‘CSR label’.25 In this context it is important that the Government does not set the national CSR agenda just to gain acceptance by international watchdogs and not to promote socially responsible practices by businesses. That said, internationalisation of standards and adoption of CSR codes and standards such as ISO 14001 and the Global Reporting Initiative’s Sustainability Reporting Guidelines warrant a proactive response on the part of India Inc. to remain globally competitive even on the CSR front. The Government can play a fundamental role in imparting education and assisting small and medium enterprises (SMEs) in responding to these global demands instead of formulating a law and leaving small businesses to their own devices. Third, a compulsory CSR provision would entail a long process of legislations, and a series of allied legislations would also be required to ensure the desired end-use. This, in turn, would require dozen-odd legal provisions to protect such legislation and resources. As Biocon Chairman and Managing Director, Kiran Mazumdar, noted, ‘…would make the process very cosmetic’. For India, which has been dogged by a series of money laundering and similar scams, a CSR mandate by law could add to yet another avenue of fraud and illegality. Wipro Chairman Azim Premji too expressed his concerns recently, ‘My concern is that you get legislation ... and a lot of abuse takes place from that legislation in terms of what you define as CSR and what you define as branding. I would be against it.’26 Another consideration in this regard is whether charity by force can actually yield to desired outcomes? This is an important consideration in the context of the CSR debate in India. Being socially responsible ultimately is a matter of willingness and an attitude of philanthropy cannot be mandated. Fourth, India’s CSR story can be successful only if companies could view CSR from their own perspective as a part of business strategy that also benefits the community. A goal based approach rather than a diktat-based approach could incentivise firms to adopt CSR. For example, Mexican Environmental Protection Agency’s (PROFEPA) Industria Limpia programme, which is based on firm-specific negotiated agreements towards plant-based

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United Nations Department of Economic and Social Affairs, ‘CSR and Developing Countries: What Scope for Government Action?’, Sustainable Development Innovation Briefs, Issue 1, (February 2007), www.un.org/esa/sustdev/publications/innovationbriefs/no1.pdf . Accessed on 20 March 2011. Press Trust of India, ‘Azim Premji against law on mandatory CSR spending by corporates,’ The Economic Times (24 March 2011), http://economictimes.indiatimes.com/news/news-by-company/corporatetrends/premji-against-law-on-mandatory-csr-spending-by-corporates/articleshow/7782555.cms. Accessed on 24 March 2011.

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environmental improvements along with a certification and labelling scheme.27 The programme is designed to attract the ‘leader’ firms in CSR to show leadership by example.

Conclusion While there is still no concrete proof that more responsible firms are more profitable, it is also not evident that less socially responsible ones are not. The challenge then is to balance the scales between profit and sustainable development in the long run as has been recognised by firms such as Walmart and Mars.28In India too, the trend is emerging. For example, Reliance Industries Limited Chairman Mukesh Ambani, who is also the richest Indian, feels that CSR needs to evolve into Continuous Social Business. ‘The purpose of any business cannot be only profit. Profit for the shareholders is important. But unless entrepreneurs have a larger purpose and businesses that change lives of millions of people, a sustainable business cannot be created.’ 29 Further, the proposed CSR provisions in India also include the Public Advisory Committee of the Institute of Chartered Accountants of India (ICAI) that has been set up with a view to protect public interest. ICAI will advise companies to take up CSR projects specific to the industry they belong to. Companies in the chemical industry for example, would be advised to take up projects relating to environmental protection according to them. The ICAI will also chalk out plans for a new accounting system to keep a record of all company spends on CSR. Such guidance perhaps is a better approach than mandating a compulsory spend. World’s leading philanthropists – Warren Buffet and Bill Gates –visited India in March this year in a bid to persuade billionaires to pledge at least half their fortunes under the ‘Giving Pledge’ programme.30 This may well be an indicator of how India Inc. is already doing or is geared to do its bit when it comes to CSR and a law may perhaps not be required. Mathew Bishop and Michael Green in their book, ‘Philanthrocapitalism: How Giving Can Save the World’, have made a case for India’s rise up the philanthropy table and sides Bill Gates’ belief that, ‘India could soon be the world’s second most philanthropic nation, after America.’31 This optimism around India and its philanthropic spirit is perhaps well founded. 27

United Nations Department of Economic and Social Affairs, ‘CSR and Developing Countries. What Scope for Government Action?’, Sustainable Development Innovation Briefs, Issue 1 (February 2007), www.un.org/esa/sustdev/publications/innovationbriefs/no1.pdf . Accessed on 20 March 2011. 28 Michael Skapinker, ‘Why Corporate Responsibility is a Survivor’, The Financial Times (20 April 2009). 29 Press Trust of India, ‘Not just CSR but Continuous Social Business need of the hour: Mukesh Ambani’, The Economic Times (1 March 2011), http://articles.economictimes.indiatimes.com/2011-0301/news/28645671_1_mukesh-ambani-csr-corporate-social-responsibility. Accessed on 17 March 2011. 30 Dow Jones Newswires, ‘Buffett Looks Beyond Home Turf To India For Invest Opportunities’, The Wall Street Journal (22 March 2011), http://online.wsj.com/article/BT-CO-20110322-711288.html. Accessed on 22 March 2011. 31 Mathew Bishop, ‘Philanthrocapitalists Needed in India’, Mint (17 March 2011), www.livemint.com/2011/03/17221001/Philanthrocapitalists-needed-i.html?h=B. Accessed on 18 March 2011.

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Delegated legislation may become indispensible in the wake of future issues such as environmental pressures, impact of global operations of Indian firms on domestic stakeholders and technological collaborations, among others. However, corporates need to first develop and embrace CSR at an individual level. Efforts such as developing internal monitoring systems to gauge quality and the reach of their performance can prepare corporates for a rule-based approach to socially responsible behaviour. .....

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ISAS Insights No. 122 – 13 April 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

India, Libya and the Principle of Non-Intervention C. Raja Mohan1 Abstract Delhi’s decision to abstain on the United Nations Security Council (UNSC) resolution 1973, authorising the use of force in the Libyan civil war was not about expressing India’s nonaligned or non-Western identity. Delhi’s own mixed record on international interventions suggests there was no question of high principle involved in its UNSC vote on Libya. Delhi’s response can be explained in terms of India’s strategic culture that is very risk-averse and rather prudent when it comes to the use of force. It has also been shaped in part by a longstanding domestic political tradition of expressing wariness towards Western intervention in the Middle East. India’s policy on Libya appears to be driven by a cold calculus of national interest and a healthy scepticism about the use of force by third parties towards an internal conflict.

Introduction Delhi’s decision to abstain on the voting on the UNSC 1973, authorising use of force in Libya on 17 March 2011, has disappointed many Western friends of India. They wonder if India is ready to take its place among the ranks of major powers and contribute to the maintenance of international peace and security. The decision has come amidst Delhi’s intensified campaign for a permanent seat in the UNSC and in the very first months of its current tenure as a non-permanent member has added to the frustration of those in the West who support India’s claim.2 The fact that India has found itself agreeing with China, Russia 1

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C. Raja Mohan is Senior Fellow at the Centre for Policy Research in New Delhi, Contributing Editor for The Indian Express and Adjunct Professor of South Asian Studies, Nanyang Technological University, Singapore.The views reflected in the paper are those of the author and not of the institute. Sumit Ganguly, ‘A Pointless Abstention’, The Diplomat (23 March 2011), http://the-diplomat.com/indiandecade/2011/03/23/a-pointless-abstention/. Accessed on 2 April 2011; Dan Twining, ‘What we learned from


and Brazil in reservations against an international intervention in Libya seems to suggest India’s continuing preference for traditional anti-Western positions in multilateral organisations. Within India, there has been no real criticism of the Indian action. On the other hand, there were demands within parliament for a resolution that would condemn the Western intervention in Libya. Although the Government held off the pressures, its political leadership had to compensate by raising its rhetoric against the Western intervention in Libya. 3 This is a good moment, then, to scrutinise India’s attitudes to the question of intervention in the internal affairs of other nations. The analysis below reviews India’s record on the question of intervention, questions the proposition that India’s decision to vote along with China, Russia and Brazil marks the emergence of a new East-West divide and assesses the factors that went into the making of Indian policy on Libya.

The Myth of Non-Intervention The belief that ‘non-intervention’ is a high principle of Indian foreign policy is widespread. Some would want to trace it back to one of the presumed Nehruvian foundations of modern India’s world view – Panchsheel or the five principles of peaceful co-existence. Contrary to the mythology of the Indian discourse, it was not Nehru but the Chinese Premier Zhou Enlai who invented the concept of Panchsheel. During his visit to India in 1954, Zhou Enlai insisted on putting the Panchsheel into the preamble of the 1954 agreement on trade and intercourse between the Tibet region of China and India. Nehru went along. Zhou Enlai had good reason to insist on non-intervention. He wanted India to keep its hands off Tibet and cede the many special privileges Delhi had inherited from the Raj. Those who see Panchsheel as part of the complex evolution of Sino-Indian relations have no reason to eulogise it.4 Over the decades, however, the notion of Panchsheel was abstracted out of its specific historical context and acquired an ideological weight of its own in the Indian world view.5 Tragic as it has been, India and China have conformed to Panchsheel more in breach than in observance of its principles. While Beijing saw India playing the Tibet card in the 1960s and the 1970s, Delhi was deeply riled up by China’s support to various insurgencies in India during the same time. While matters have improved considerably since then, the mutual concerns about issues relating to territorial sovereignty have not gone away. Delhi is anxious about Beijing’s

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the Security Council Debate over Libya’ (18 March 2011), http://shadow.foreignpolicy.com/blog/3313. Accessed on 2 April 2011; for a counterview, see Kanti Bajpai, ‘The Logic Behind the Libya Decision’, Times of India (2 April 2011), p.22. ‘LS (Lok Sabha) demands resolution condemning Libya airstrikes’, Indian Express, (22 March 2011), www.indianexpress.com/news/ls-demands-resolution-condemning-libya-airstrikes/765834/0. Accessed on 31 March 2011; ‘One on Libya, House says can’t impose regime change’, Indian Express, (23 March 2011), www.indianexpress.com/news/one-on-libya-house-says-cant-impose-regime-change/766009/0. Accessed on 31 March 2011. See Claude Arpi, Born in Sin: The Panchsheel Agreement, the Sacrifice of Tibet (New Delhi: Mittal Publishers, 2004). Mahavir Singh, Panchsheel: Retrospect and Prospect (New Delhi: Shipra Publications, 2005).

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position on India’s dispute with Pakistan over Jammu and Kashmir, while China has concerns about the ‘Tibetan Government in Exile’ in India.6 India’s smaller neighbours in the subcontinent would certainly scoff at the notion that nonintervention is a central principle of India’s foreign policy since they have been at the receiving end of Delhi’s many interventions, militarily and politically. Sending troops into East Pakistan to liberate Bangladesh in 1971 and keep peace in Sri Lanka during 1987-90 were among the most notable of India’s regional interventions. The Pakistanis will surely come up with a longer list of Indian interventions and some Nepalese might argue India’s political intervention is a permanent part of their national life. When it comes to the subcontinent, India says it has special responsibility to maintain peace and order in the region and insists that other powers should not intervene in the region.7 This is not very different from the notion of a sphere of influence often claimed by many major powers. Looking beyond the subcontinent, even a cursory look suggests that India has neither claimed nor sought to impose a measure of consistency on how it responds to military interventions by other powers. Since independence, India has taken all possible positions. On some issues, it was active in promoting intervention. In the 1940s, India took the lead in pressing the international community to sanction and punish the apartheid regime in South Africa. In the 1980s, it was Rajiv Gandhi who renewed the international campaign against apartheid. While India opposed some interventions, it has supported or acquiesced in others. During the Cold War, India tended to criticise Western interventions around the world, but was somewhat ambivalent about Soviet interventions in Eastern Europe. This ambivalence came into sharp focus in the manner in which India dealt with the Anglo-French intervention of the Suez and the Soviet intervention in Hungary in 1956.8 Domestic political factors have also influenced Indian responses to military interventions. There has been a particular sensitivity in Delhi to Western interventions in the Middle East. Political parties are reluctant to offend the sentiments of the large Muslim population at 6

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Pranab Dhal Samanta, ‘India equates Jammu & Kashmir with Tibet?’, Indian Express (15 November 2010), www.indianexpress.com/news/india-equates-jammu-&-kashmir-with-tibet/711151/. Accessed on 30 March 2011; Edward Wong, ‘Uneasy engagement: China and India dispute enclave at the edge of Tibet’, New York Times (3 September 2009), www.nytimes.com/2009/09/04/world/asia/04chinaindia.html. Accessed on 2 April 2011; Press Trust of India, ‘Prudently handle Tibet Issue: China Tells India’, Times of India (24 August 2011), p.16. Mohammed Ayoob, ‘India in South Asia: The Quest for Regional Predominance’, World Policy Journal, Vol.7, No.1 (Winter 1989-90), pp.107-33; also, see Subrata K. Mitra, ‘The Reluctant Hegemon: India’s Self Perception and South Asian Strategic Environment’, Contemporary South Asia, Vol.12, No.3 (September 2003), pp.399-417. For a recent reconstruction of the events in 1956 see, Inder Malhotra, ‘East of Suez’, Indian Express (24 January 2011), www.indianexpress.com/news/east-of-suez/741344/. Accessed on 30 March 2011; see also Inder Malhotra, ‘The art of intervention’, Indian Express (14 February 2011), www.indianexpress.com/news/the-art-of-intervention/749698/. Accessed on 30 March 2011.

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home, whatever the merits of the issue might be.9 Take for example Saddam Hussein’s 1990 occupation of its neighbour and member of the non-aligned movement, Kuwait. The United Front government of the day was tongue-tied. Foreign Minister Inder Kumar Gujral went to Baghdad and hugged Saddam Hussein; it did not matter that the sovereignty of Kuwait, a fellow Third World country, was at stake. But there was near unanimous opposition in Delhi to the massive United States (US) intervention to rescue Kuwaiti sovereignty from Saddam Hussein.10 The Muslim factor is important not just to the Congress party and other regional formations like the Samajwadi Party. It also influenced the actions of the Bharatiya Janata Party (BJP). As part of its effort to improve relations with the US, the Vajpayee government gave careful consideration to Washington’s request to contribute troops to the US occupation of Iraq in 2003 – in the end domestic political considerations tilted the Government against the move.11 When overriding national interests were involved, India was prepared to acquiesce in the intervention by major powers, including those in the Muslim world. In the 1980s, India had difficulty publicly opposing the Soviet intervention in Afghanistan. After all, Moscow was India’s main strategic partner throughout the Cold War. It was the major source of arms and prevented Anglo-American initiatives on Kashmir in the UNSC.12 There have also been occasions when India lent strong support to interventions by its friends. Recall the Indian move at the turn of the 1980s to back Vietnamese intervention in Cambodia even at the risk of losing ground political ground in Southeast Asia and alienating the Association of Southeast Asian Nations (ASEAN). It is indeed true that lending support to Vietnamese intervention in Cambodia to oust the genocidal regime of Pol Pot was for a good cause, but also involved some realpolitik – helping Vietnam stand up against China.13 The ambivalence of the Indian worldview towards intervention has endured and is evident during the current crisis in Libya and the Middle East. While the discomfort of the Indian political classes on the Western intervention in Libya was quite evident, there was notice, let alone criticism of the Saudi Arabia’s intervention into Bahrain to protect the minority Sunni regime against the demands for democratisation from the Shia majority of the tiny island nation in the Gulf. At the end of March 2011, India received the Foreign Minister of Bahrain and the National Security Adviser of Saudi Arabia, and seemed silent if not supportive of both governments.14 9

Prithvi Ram Mudiam, India and the Middle East (London: IB Taurus, 1994). J Mohan Malik, ‘India’s Response to the Gulf Crisis: Implications for Foreign Policy’, Asian Survey, Vol.31, No.9 (September 1991), pp.847-61. 11 For a review, see J. Mohan Malik, ‘High Hopes: India’s Response to U.S. Security Policies’, Asian Affairs: An American Review, Vol. 30, No.2 (Summer 2003), pp.104-12. 12 Robert C. Horn, ‘Afghanistan and the Soviet-Indian Influence Relationship’, Asian Survey, Vol.23, No.3 (March 1983), pp.244-60. 13 John W. Garver, ‘Chinese-Indian Rivalry in Indo-China’, Asian Survey, Vol.27, No.11 (November 1987), pp.1205-19. 14 Ministry of External Affairs, ‘Visit of Secretary General of the National Security Council of Saudi Arabia’, Government of India (29 March 2011), www.mea.gov.in/mystart.php?id=530217476. Accessed on 3 April 2011; see also Ministry of External Affairs, ‘Visit of Foreign Minister of Bahrain to India’, Government of India (30 March 2011), www.mea.gov.in/mystart.php?id=530217486. Accessed on 3 April 2011. 10

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The Myth of an East-West Divide India is not the only major power that has double standards when it comes to intervention in the affairs of other nations or the use of force. Few great powers have had consistent policies on this issue and their policies on intervention have been shaped by national interest and domestic politics. On the use of force, Western hypocrisy has had a longer and more consequential record. For decades, Western powers resisted international sanctions against ‘White South Africa’ and protected the apartheid regime well into the 1980s. The West opposed India’s humanitarian intervention in East Pakistan in 1971 and rallied behind Pol Pot’s genocidal clique after Vietnam intervened to oust it in December 1978. Western powers used intervention as a major tool of statecraft throughout the Cold War period, but at the same time acted to counter the military interventions by the Soviet Union and its allies. Since the end of the Cold War, as an intra-state conflict dominated the global landscape, the West came up with such concepts as ‘humanitarian intervention’ and the ‘responsibility to protect’. But it has not been possible at all to adopt a consistent practice on when, where and how the international community should interject itself into civil wars.15 As the US, France and Britain launched their intervention in Libya, it has been quite easy for some in India to mistake the current intervention in North Africa as the return of US military adventurism in the Muslim world, despite the sobering experiences from occupying Afghanistan and Iraq. It has been equally tempting to interpret India’s decision to dissociate itself from the UNSC’s authorisation of a ‘no-fly zone’ as a rediscovery of the forgotten principles of non-alignment. If the West is seen as justifying its decision in terms of a moral ‘responsibility to protect’ the people of Libya against its dictator Muammar Gaddafi, the Indian decision is seen as a return to its traditional emphasis on non-intervention. This convenient antinomy, however, does not survive a close scrutiny. The decision by Germany (a leading light of the West) to join China, Russia, India and Brazil in abstaining from UNSC Resolution 1973 does not allow an ideological framing of the current Libyan context. Many developing countries currently on the UNSC as non-permanent members – including Arab, African and South American – voted the resolution. These countries are South Africa, Nigeria, Lebanon, Gabon and Colombia. If Germany broke ranks with the West, the list of developing countries that went with the Franco-British initiative is an impressive one. The resolution of the 22-member Arab League to request a no-fly zone against Libya in midMarch was critical for the creation of an international consensus in favour of the no-fly zone.16 Although the Arab League’s resolution was riddled with contradictions, it underlined the fact that the Libyan ruler Gaddafi had few friends in the Arab world, who were ready to raise the banner of Arab sovereignty. The Arab League has provided much of the needed 15

For a review, see Alex Bellamy, Responsibility to Protect: The Global Effort to End Mass Atrocities (Cambridge, UK: Polity Press, 2009); see also, Alan J. Kuperman and Timothy W. Crawford, eds., Gambling on Humanitarian Intervention: Moral Hazard, Rebellion and Civil War (New York: Routledge, 2006). 16 Ethan Bronner and David Sanger, ‘Arab League Endorses No-Flight Zone Over Libya’, New York Times (12 March 2011), www.nytimes.com/2011/03/13/world/middleeast/13libya.html. Accessed on 3 April 2011.

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political cover to the Western intervention in Libya, it also allowed Russia, China, India, Brazil and Germany to abstain rather than reject the resolution. Contrary to the image in India of a trigger-happy US embarking on a third war in the Middle East, Washington was deeply divided on defining its response to the Libyan crisis and there was much reluctance within the Obama Administration to be drawn into yet another quagmire in the Muslim world. As Paris and London pressed Washington to support military intervention, US Defence Secretary Robert Gates was at the forefront of the resistance. Gates, who has had served many Presidents in Washington, focused on the costs of enforcing a nofly zone and the possible folly of embarking on yet another intervention in the Middle East. As liberal interventionists in the administration and the neo-conservatives in Republican foreign policy establishments continually pressed for US military leadership in Libya, President Barack Obama agreed to back the no-fly zone.17 While Obama was under pressure to be seen as ‘doing something’, he conditioned his support towards a quick transfer of the military command to be put under the North Atlantic Treaty Organisation (NATO), limiting the role of the military mission to protecting the civilians and affirming that there will be no involvement of the US ground troops under any conditions. In agreeing to intervene in Libya, Obama also sought to differentiate his administration’s policy from that of former US President George W. Bush, by insisting on a number of conditions for US intervention. These included support of the UN, a sufficient moral and national security justification, and the readiness for others to share the burden of the intervention. While this was described as the ‘Obama Doctrine’ on interventions, it was more clearly a response to specific circumstances rather than a definition of high principles. It reflected the caution that had emerged in Washington in the wake of the misadventures in Afghanistan and Iraq and overwhelming political need to limit the US role and thus conserving its energy.18 Just as in the US, in Europe, there have been considerable apprehensions about where the mission to protect the civilians of Libya might end up. There was also some sense that French President Nicolas Sarkozy and British Prime Minister David Cameron were seeing the Libyan mission as a way of shoring up their domestic political standing.

17

For a brief assessment on how the right and left in Washington’s political spectrum often combine to support US interventions, see Stephen Walt, ‘What intervention in Libya tells us about the neo-con liberal alliance’, http://walt.foreignpolicy.com/posts/2011/03/21/what_intervention_in_libya_tells_us_about_the_neocon_liber al_alliance. Accessed on 3 April 2011. 18 For a review, see Howard LaFranchi, ‘Obama on Libya: The Dawn of a Foreign Policy Doctrine?’, Christian Science Monitor (4 April 2011), www.csmonitor.com/USA/Foreign-Policy/2011/0404/Obama-on-Libya-Thedawn-of-a-foreign-policy-doctrine. Accessed on April 4, 2011; For a wider range of views see, ‘Is There an Obama Doctrine?: Room for Debate’, New York Times Online (30 March 2011), www.nytimes.com/roomfordebate/2011/03/29/is-there-really-an-obama-doctrine/the-risks-of-the-obamadoctrine . Accessed on 5 April 2011.

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India’s Search for a Balance India’s abstention and its common position with China, Russia and Brazil does not reflect a new East-West divide, but genuine differences on the merits of the Libyan venture. India’s position is no different from many strong reservations expressed openly in the North American and European debates over the use of force to secure humanitarian objectives, in general and the Libyan intervention, in particular. The Indian decision was not taken as a way of expressing its non-aligned or non-Western identity. It can be explained in terms of India’s strategic culture that is very risk-averse and rather prudent when it comes to the use of force. It can also be understood in terms of India’s domestic politics with its post-colonial tradition of opposing Western interventions in the Middle East. India also is reluctant to concede political space in the developing world to China, by appearing to align uncritically with the West. Within the Indian establishment, there are always concerns about the ‘precedentsetting’ quality of Western interventions and the consequences for India’s strategy to prevent the internationalisation of its own domestic problems and regional disputes. In the specific case of Libya, one of the main differences between Delhi, on one hand, and Paris, London and Washington, on the other, is the timeline of the military intervention. Sarkozy and Cameron appeared to have bet that use of air power over the Libyan skies can produce the desired political results quickly. India was not so sure that the intervention could be kept limited in such a time and scope. There are many scenarios for failure and that an extended air campaign operations will divide and weaken the international, regional and local coalitions against Gaddafi are not far-fetched propositions.19 A failure to oust Gaddafi quickly, India believes, could make matters worse in Libya by prolonging a civil war. Many in the West also suggest that a mission creep is built into the Libyan intervention – from the proclaimed goal of protecting people to promoting regime change. Paris and London assert that doing nothing in Libya would have meant helplessly watching Gaddafi massacre the people in Benghazi, which has been under the control of the opposition since the protests against Gaddafi started in February 2011. Some in the West question the credibility of this widely accepted moral imperative.20 Delhi’s argument, on the other hand, is that the use of force could lead to greater bloodshed. Paris, London and Washington say they have no desire to introduce land armies into Libya. None of them, it would seem, could afford it. If the use of air power does not sufficiently change the balance of power on the ground, between Gaddafi and his opponents and produce a framework for democratic transition, the introduction of an international ground force would become inevitable. On the other hand, abandoning Libya to its fate after a failed intervention might produce a Somalia like situation

19

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For a discussion see, Bruce Crumley, ‘How Libya might go wrong: the French Version’, Time (30 March 2011), www.time.com/time/world/article/0,8599,2062272,00.html. Accessed on 5 April 2011. Steve Chapman, ‘Did Obama Avert a Bloodbath in Libya?: Panicking over a Dubious Threat’, Chicago Tribune (3 April 2011), www.chicagotribune.com/news/columnists/ct-oped-0403-chapman20110403,0,4286197.column. Accessed on April 4, 2011.

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that would leave the region in a far worse condition than before the launch of an international intervention.21 Some in the West argue that Delhi’s abstention from the UNSC resolution means that India is not ready to play the part of a great power and contribute to the management of the world order. That argument, however, is flawed. An Indian endorsement of the use of force in Libya would not have given Delhi a say in either conducting the military operations or defining the terms of the final political settlement. The current operations against Libya are not being run by an international command established by the UNSC; what the UNSC has done is simply open the door for France, Britain and the US to launch a military campaign. India cannot be simply expected to automatically back all Western decisions to use force. Nor would anyone in Delhi buy the proposition that India must prove itself worthy of a permanent seat in the UNSC. At the other end of the spectrum, there are those who believe India is ready to march back to the sterile posturing of the past. They hail or lament India’s decision to sit on the fence as a return to non-alignment and suggesting the possibilities for a new non-Western coalition.22 These propositions involve a profound misreading of India’s position. India’s policy in Libya can indeed be interpreted as being driven by a cold calculus of national interest and a healthy scepticism about the use of force by third parties in an internal conflict. To be sure, some of its leaders in the government and opposition were tempted by the traditional rhetoric on sovereignty and non-intervention.23 The foreign policy establishment’s reactions, however, were clinical and entirely non-ideological. The apolitical articulation of India’s Libya policy has its down side as well. The bureaucratic explanation of the UNSC vote in New York is not a substitute for the much needed Indian leadership’s public reflection on the developments of the Middle East.24 An emphasis on Indian interests in the region cannot and should not prevent Delhi from offering genuine empathy and support to the Libyan people, who have shown such great courage in standing up against a violent and brutalising dictatorship. Indian foreign policy will have a lot more credibility if India is seen as carefully balancing its 21

The summary of Indian views here are based on the author’s conversations with senior Indian officials during March 2011. 22 Jorge G. Castenada, ‘The Trouble with the BRICs’, Foreign Policy (14 March 2011), www.foreignpolicy.com/articles/2011/03/14/the_trouble_with_the_brics. Accessed on 30 March 2011; Ben Zala, ‘Where are the BRICs?’, Eurasia Review, (22 March 2011), www.eurasiareview.com/libya-where-arethe-brics-analysis-22032011/. Accessed on 30 March 2011; Michael Cecire, ‘BRICs Fall Flat on UNSC Libya Vote’, World Politics Review, (28 March 2011), www.worldpoliticsreview.com/articles/8319/bricsfall-flat-on-unsc-libya-vote. Accessed on 30 March 2011. 23 For example see, Finance Minister Pranab Mukherjee’s statement in parliament in response to opposition demands for a resolution condemning Western intervention in Libya. ‘External forces can’t decide on Libyan regime change: India’, Indo Asian News Service (22 March 2011), http://in.news.yahoo.com/external-forcescant-decide-libyan-regime-change-india-20110322-081319-920.html. Accessed on 3 April 2011. 24 For the official Indian position, see ‘India’s Explanation of Vote on the Libyan Resolution in the UN Security Council’ (17 March 2011), delivered in New York by Ambassador Manjeev Singh Puri, Deputy Permanent Representative, www.un.int/india/2011/ind1838.pdf. Accessed on 30 March 2011.

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interests and values. Over the long-term, the Indian strategic community needs to debate on when, where and how India might use or support the use of force by the international community. As India’s weight in the international system increases and its military capabilities become consequential, Delhi will be called upon to contribute more to the maintenance of international peace and security. This debate is long overdue and can only be kick-started by the political leadership at the highest levels. In the near-term what happens in the UNSC and how India votes there is only one part of the story. What Delhi does in and around Libya is probably far more important. Delhi needs to add some important correctives to its current policy on Libya that appears too tilted in favour of the status quo. Whatever the merits of the Franco-British intervention and the prospects for its success, new facts will soon be established in Libya. In responding to this dynamic situation, Delhi could take a number of steps. One is to contribute to the humanitarian relief operations in Libya. Delhi must equip and prepare its military to provide relief to various regions in Libya that are accessible. India must open contact and consultation with the Libyan opposition leaders who have formed a government of their own and have won recognition from some European governments. That it did not back the intervention gives Delhi an opportunity to engage the Gaddafi regime or its successors. Finally, India must be prepared to render all assistance to a possible transition towards political reconciliation and democratic institution-building in Libya. An activist approach and a willingness to take the lead in resolving the conflict, might in fact, lend credibility to India’s claim for a seat at the international high table. .....

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ISAS Insights No. 123 – 20 May 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Anguish in Abbottabad, Pains of Pakistan and American Anger Iftekhar Ahmed Chowdhury1 Abstract The incidents in May 2011, surrounding the death of Osama bin Laden in the quiet Pakistani frontier town of Abbottabad, have shaken the world. The resultant dust has yet to fully settle. The episode has brought anguish to that district, exacerbated the pains of Pakistan and caused much anger in Washington. This paper suggests that the anguish be addressed, pains controlled and anger managed, for greater regional and global peace and stability. It explores whether, as in an unfolding Greek drama, other actors (or factors) can possibly appear on stage to alter the directions of the events of the play. It briefly analyses the many ramifications of the episode for relationships between Pakistan, the United States (US), Afghanistan and India. It underscores the lesson in all this to avoid creating ‘Frankensteins’ to address momentary problems, monstrous creations which may not be able to be controlled and which may make situations go horribly awry.

Introduction Recent violent events in the otherwise serene surroundings of a quiet Pakistani hill town, located in the settled parts of its old north-west frontiers (now called Khaybar Pakhtunkhwa) named after a lesser known English official during the British Raj, have shaken the world. Not so long ago, few foreigners had heard of this quaint but scenically attractive habitation. Today there are few that have not. It houses the Kakul Military Academy, the Pakistani equivalent of West Point, though the country’s once anglophile army officers would prefer a 1

Dr Iftekhar Ahmed Chowdhury is Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore (NUS). He was the (Foreign Advisor) Foreign Minister of Bangladesh from 2007-2009. He can be contacted at isasiac@nus.edu.sg. The views reflected in this paper are those of the author and not of the institute.


comparison with Sandhurst. The town also houses an old renowned school, Burn Hall, an English institution, where once the children of the nation’s elite were sent to imbibe western learning and culture. Burn Hall was once seen as Pakistan’s Harrow, Eton and Rugby, all rolled into one seat of instruction. Any American unless in the hot pursuit of a terror master-mind could be forgiven for mistaking this placid and languid setting for Washington Irving’s village of Sleepy Hollow, a peaceful place until a ‘headless horseman’ rode through it, unleashing his terror. Abbottabad was an unlikely retirement home for the world’s most wanted man, who may have chosen it for that very reason. It was the incongruity of these serene surroundings with his tumultuous past that might have encouraged bin Laden to choose this place as his final address, and given his background, lead a life of terrifying normalcy. Though, now with him in eternal rest below the sea, we shall never know.

The Anguish The serenity of that town was shattered one May night, whose still air was rented with the sound of shoots and explosions, following the intrusion of US troops in four helicopters fulfilling President Obama’s orders. In a series of incredibly rapid and intensely precise manoeuvres, the US navy seals killed the wanted terrorist, took away his body, left behind other corpses and a number of injured for the Pakistani authorities to take care of, although at this same time, baffling enough, Pakistani forces were nowhere in sight. This was all the more incredulous, due to the military academy, mentioned earlier, was less than a kilometre away. Where Pakistani cadets were training hard to be ‘officers and gentlemen’ charged with the defence of the sovereignty of the motherland. The Pakistan Air Force, who see themselves as shaheen or mighty eagles protecting the ‘nation’s sacred airspace’, appeared to be blissfully oblivious of a foreign military conducting an unauthorized and noisy operation deep inside the country. An operation, which including transport time, lasted over two and half hours. Unsurprisingly, the Pakistani nation fell immediately into a deep state of shock. There was great anguish in Abbottabad, and of course, great consternation in the rest of the country. These reactions were all made with good reason. The people felt woefully let down by their army, by which the Pakistani nation had always placed great store. First, how was it that bin Laden was able to live in a secure fashion, though in an austere and Spartan lifestyle, unlike what was contained in the early reports in the western media, in such close proximity of key military installations for over half a decade? It was not so much that bin Laden had led a sheltered life there for so long, but the question of how was it that the authorities were 2


unaware of this fact, in a system in which spies are never in short supply. More seriously, even if elements in the Government were aware, though in their present distraught mood most Pakistanis are unwilling to give the relevant authorities a slight credit of collusion, how was it that the Pakistani Armed Forces were unable to prevent the American incursion, or at least offer a modicum of resistance? Some utterly bewildered citizens of Abbottabad, psychologically strained by the non-performance of the object of their admiration, the army, refused to believe the man in question was bin Laden at all. They have argued, with more wishful aspiration than logic, that it was actually a Pashtu retiree called Akbar Khan, who was unsuspectingly having his tea when the Americans entered and shot him. Not that anyone confused bin Laden with Florence Nightingale, but the Pakistanis saw the whole affair as a national affront. Of course, in the fog of war truth is often the victim and changing explanations and reinterpretations did not enhance credibility of all that was stated, but the one certainty was that bin Laden was history. There were some reports that Pakistani jets did scramble, but immediately rethought their reaction, appreciating the irony and possible unsavoury results of an aerial ‘shooting-war’ with the US, a ‘current’ ally. For the first time in many years the army, largely immune to criticism in the professional and military spheres, has been put on the dock. On 13 May 2011, the top generals were grilled for hours in the Pakistan parliament, running through a gauntlet of accountability that is quite rare. Indeed, Talat Masood, an analyst who is a retired general himself, remarked that this could be the true ‘beginning of democracy’.

The Pains If what Talat Masood has said is true, then it is uncertain if the civilian government would or could take advantage, seizing the moment to assume control. For a variety of reasons this seems unlikely. For one thing, the civilians have not earned any more praises themselves, and there are already vociferous public calls for them to resign. Another point is that they need the support of the army to survive, to keep domestic militants on leash, and to take the retaliatory measures ‘in full force’, as Prime Minister Yousaf Raza Gillani announced in parliament on 9 May 2011. However, at least for now, the government is protected by the fact of a weakened army, but much will depend on the resultant fallout from these happenings. Gillani delivered his speech in English, and not Urdu as one is wont to do in Pakistan, aiming the contents equally at Washington as at his people. He called the much maligned powerful Inter Services Intelligence (ISI) agency ‘a national asset’ and describing the American action as a ‘flawed military campaign’. He did assert with some justification that Al-Qaeda has killed many more 3


Pakistanis than Americans and that Pakistan would never be in cahoots with them. On 13 May 2011, in a sad illustration of this point, the Pakistani Taliban led by Hakimullah Masood made the first post bin Laden ‘revenge strikes’ in Charsadda and Khaybar Pakhtoonkhwa, killing more than 80 Pakistani paramilitary cadets. The pains of Pakistan keep ever mounting.

The Anger There is an explicable anger in America. This is mostly aimed at the Pakistani authorities for the supposed sheltering of bin Laden. Alternately, there has also been remarkable ‘anger management’ in Washington. In line with the behaviour of what has to be the world’s most responsible state-power. The Obama administration is well aware that Pakistan is complex, divided, and often at war with and against itself. Washington understands Pakistan’s indispensability on multiple levels. First, it is essential to have Pakistan’s broad support in the area of counterterrorism. Second, Pakistan is critical to a solution of the Afghanistan issue. Third, Pakistan is a nuclear weapon country and this capability must never be allowed to fall into unwanted hands. Fourth, a disgruntled Pakistan can enter into a nuclear cooperation with Iran that could utterly destabilize the region for all times to come. A fifth and final reason is that Washington may, if it has not already done, consider avoiding a future confrontation with Pakistan. Another major adversarial incident with Pakistan may suddenly become the last straw on the camel’s back. Passions may heighten to great lengths clouding reason. In another conflict situation the decision-making, command and control of Pakistan may be rendered chaotic and some may wish unleash Armageddon. The American support of US$3 billion annually may suddenly become an irrelevant non-criterion. The Pakistani President may not confine his reaction to writing an op-ed in a US newspaper, as President Zardari has done. This doomsday scenario is highly unlikely, but in nuclear strategies zero chance of conflict is always the best option.

The Options The Pakistani side almost immediately began to scout around for options. On 8 May 2011, President Asif Ali Zardari travelled to Moscow for a four-day visit, his first ever to Russia. While the trip may have been planned earlier, due to the fact it takes place in the aftermath of the bin Laden saga, it assumes a special significance. Another trump card, China, is being played simultaneously. Immediately after the American raid, China spoke up extolling Pakistan’s anti-terrorism credentials, stating that Pakistan was 4


in the ‘forefront’ of the struggle. Prime Minister Gillani will now visit China, whom he has recently described as Pakistan’s ‘best, most trusted friend’. Meanwhile, US Senator John Kerry, while in Afghanistan, has called upon Pakistan to show itself as a ‘real friend’. As of now, it seems Pakistan is not listening and looking elsewhere for friends.

The Ramifications The saga in Abbottabad has several ramifications for the politics of the region and the world. The first is the onus of Pakistan’s relations. Senator Kerry, seen as a friend to Pakistan, has already visited Islamabad to try smoothening out some ruffled feathers. It is unclear to what extent he has succeeded. He may have his work cut out for him in Washington, trying to persuade the Congress continue its support for the Pakistani army as in the past. Should this support (totalling nearly US$3 billion) be withdrawn, US-Pakistan relations will hit a new nadir. Second, in Pakistan there is chances spate of violence, which has indeed begun. It seems, as is exemplified in the Charsadda bombing, the ‘vengeance’ is being subcontracted out to the Pakistani Taliban by the Al-Qaeda. The pressure on the government will be enormous, and one result could be a combined endeavour by the civil and military authorities to address the problem. The third would be regarding Afghanistan. The Pakistanis may even tolerate some American impunity, if at the end there is an installed government in Kabul that is friendly towards Islamabad. This would probably mean a government that is connected to the Haqqani group or the so-called ‘Quetta Shura’. China, which is investing heavily in Afghanistan now, would probably back such an installation. If such a change could be pulled off then there could be some resultant satisfaction in Islamabad, Washington and Beijing. Though, here the problem would be India, which will be chary. In fact, Prime Minister Manmohan Singh’s recent trip to Kabul was an effort to wean Kabul away from such an eventuality. As it is often the case in global politics, sadly, just because there is a problem, does not mean there is a solution.

Conclusion The drama that began of the first days of May will not end anytime soon. Like in a Greek tragedy, will there be a deux ex machina or ‘god out of a machine’ that suddenly arrives on the scene and alters the outcome of an event? There Given the two and a half hour response time of the Pakistani army in this case, how can perceptions not be degraded or expectations 5


of a quick response, should such a case of a nuclear threat, be given value? What if India quickly seizes territory as per their so-called ‘cold start’ strategy as a negotiating tactic? In that case, would the Pakistani army initiate a nuclear war with horrendous consequences, just because they have miserably failed to provide conventional defence? So are the armed forces an irrelevant White Elephant that consumes an awful amount of resources without return? If the real enemy is in the West, then why fight India at all – the real Islamic fundamentalist may not believe in sovereign states they consider secular or in any case temporal, and would see no reason to fight a war with India to annex Kashmir to Pakistan, a state that they also consider an enemy? Washington must enter all these possibilities into its calculations. Battle wins may not always deliver war victories. Obama seems to be well aware of this axiom. So far he appears to have his head on his shoulders and heart in the right place, both quite dexterously aligned. The episode of bin Laden brings a story to mind. In the early nineteenth century, Mary Shelley was living with her husband on the banks of the lovely Lake Geneva, incidentally in a city that one could compare in natural beauty to today’s Abbottabad. There it is said, on a stormy night as nature unleashed her furies on those otherwise gentle environs, she sat and crafted a short novel called ‘Frankenstein’, the tale of a creation which was ultimately unable to be controlled by the creator. He went horribly awry and became a monster, not unlike what the US did with Al-Qaeda and Osama. Mary Shelley had delivered the world a message, which we all will do well to heed, in politics as in life. .....

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ISAS Insights No. 124 – 10 June 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Power-Play of Peers in the Pacific: A ‘Chimerican’ Chess Game? Iftekhar Ahmed Chowdhury1

Abstract Of late there has been much talk of a new AirSea Battle Concept (ASBC), a synergising calibration of the two services enhancing punch and effectiveness on the part of the United States (US), to strategically engage adversaries in conflict situations. There was mention of this by the US Secretary of Defense at the recent Shangri-La Dialogue in Singapore. Though direct reference to China was eschewed, there was no doubt as to whom it was directed towards. The Chinese response for now was in words, but this article argues that it will come in kind, over time. The result could be a power-play in the naval arena of the Pacific between the two peers, the US and China, that could have the effect of destabilising a delicate equilibrium. In order for that not to happen, all actors involved would need to be circumspect and take special care. The room for unintended consequences will be large. Signals given and received, and perceptions in this connection, will be key in shaping behaviour.

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Dr Iftekhar Ahmed Chowdhury is Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore (NUS). He was the (Foreign Advisor) Foreign Minister of Bangladesh from 2007-2009. He can be contacted at isasiac@nus.edu.sg. The views reflected in this paper are those of the author and not of the institute.


Introduction In a not too distant a future the Pacific Ocean, it is apprehended, may be less calm than is implied by its name. Large swathes of it, in mostly what is known as the West Pacific, could become host to nations competing in the naval sphere, engaged with one another in something like a chess game, moving figures, or rather battle-assets, across the watery board in accordance with perceived self interests. Two powers, who now strategically view each other as peers, are likely to take a lead in this phenomenon – China and the US. To describe their symbiotic relationship, the neologism „Chimerica‟ was coined by the historian Niall Ferguson and the economist Moritz Schularick in late 2006, referring both to the potential cooperation and the possible confrontation between the two countries.2 Interestingly, the expression is also connected to a monstrous, fire-breathing creature in Greek mythology, composed of many different animals in one body, called „chimera‟, which has come to mean a „foolish fantasy‟. It is now becoming increasingly unclear as to which of the two, cooperation or confrontation, more aptly describes Sino-American relations, and whether there is an element of a „foolish fantasy‟ involved. The global audience is constantly receiving mixed signals.

The AirSea Battle Concept At the recent Shangri-La Dialogue in Singapore, the US Secretary of Defense, Robert Gates, made no bones about how the US means to keep its own powder dry. At the first plenary session, while also speaking on how Sino-American relations were progressing on a „positive‟ note, later down the line he said, „The US Navy and Air Force have been concerned about anti-access and area-denial scenarios for some time. These two military services are working together to develop a new concept of operations – called “AirSea Battle” – to ensure that the military will continue to be able to deploy, move, and strike over great distances in defense of our allies and vital interests.‟3 Gates eschewed mentioning China on this occasion, but it was crystal clear he was not referring to Brunei, and in any case US analysts had already cited China earlier in discussions on the

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Niall Ferguson, „The Trillion Dollar Question: China or America?‟, Telegraph (1 June 2009), www. telegraph.co.uk/comment/5424112/The-trillion-dollar-question-China-or-America.html. Accessed on 9 June 2011. Robert M. Gates, „International Institute for Security Studies (Shangri-La Dialogue)‟, US Department of Defense (4 June 2011), www.defense.gov/speeches/speech.aspx?speechid=1578. Accessed on 5 June 2011.

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ASBC. While ASBC had been debated upon and written on before, this was the first time there was mention of it at ministerial level to a ministerial audience with a Chinese ministerial presence. The Chinese Minister, General Liang Guanglie, immediately rejected hints of criticism of his country‟s „peaceful rise‟. He said, „You say our actions do not match our words … I strongly disagree.‟4 One must wait and see how they respond in kind, even if the response takes awhile, for time is not necessarily of the essence in China. One may only guess what it can be. One educated guess is that China will take note of this concept in formulating its own strategy. But first, what „anti-access and area-denial‟, or A2/AD as it is known now in strategic shorthand, was Gates talking about? This is the belief among certain US policymakers that China‟s military modernisation aims at denying the US air and maritime freedom of manoeuvrability, both in terms of access and area, in the Western Pacific, by targeting bases and ships with precision-guided missiles, a development designed to render the current „American way of war‟ prohibitively costly.5 The result was the ASBC, whose purpose is to defeat „adversaries across the range of military operations, including adversaries equipped with sophisticated anti-access and area denial capabilities. The concept [addresses] how air and naval forces will integrate capabilities across all operational domains, air, sea, land, space, and cyberspace – to counter growing challenges to US freedom of action‟.6 The ASBC assumes, that failing deterrence, a conflict with China will be protracted, in which case the Navy and Air Force‟s assets would be required to provide mutual support in a modern equivalent of some of the innovative strategies and tactics employed by the US during World War II, or more recently, in a AirLand forces combination, against the Soviet Union in Europe during the Cold War.7 The two Chinese „modernising‟ weapon systems that are most worrisome to the US are the J 20 stealth fighter and the DongFeng 21 D anti-ship carrier killing missiles. The J 20 has been called „the game changer‟ by the Washington think tank Jamestown Foundation. This, equivalent of the American F-22 A Raptors, as well as the F-35 Joint Strike Fighters, is seen as rendering all air defence systems in the region obsolete. No radar arrays are capable of picking up this stealth aircraft, and therefore it can remain undetected throughout its flight (up to Guam without

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Financial Times (6 June 2011). Greg Grant, „CSBA AirSea Battle Concept; More Stealth, Long Range Strike to Counter Chinese Battle Networks‟, DefenseTech (18 May 2010), http://defensetech.org/2010/05/18/csba-releases-its-airsea-battle-co. Accessed on 9 June 2011. Quadrennial Defense Review Report (Washington DC: US Department of Defense, 2010), p.7. Jose Carreno, Thomas Culora, Captain George Galdorisi, US Navy(Retd.), and Thomas Hone, „What‟s New About the AirSea Battle Concept?‟, US Naval Institute Proceedings Magazine Vol. 136/8/1290 (August 2010), http:// www.usni.org?print/6245. Accessed on 4 June 2011.

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refuelling).8 Moreover, according to a renowned defence expert, Bill Sweetman, the editor of „Aviation Week‟, its larger structure than originally assumed, points to a heavy weapon load. 9 The DongFeng (East Wind) 21 D is a precious killer-missile that supposedly can destroy a US Super-Carrier in one strike. It is said to employ a complex guidance system, a low radar signature, and a manoeuvrability that renders its flight path unpredictable. It has the capacity to evade tracking system, with the possibility of travelling at a speed of mach-10, reaching its maximum range of 2,000 km in 12 minutes.10 The ASBC envisions a two-stage campaign. First, the attempt would be to „blind‟ the Chinese reconnaissance strike complex and then deny them accurate targeting capabilities through cyber attacks, electronic warfare aircraft and other means. The idea is to render the Chinese missile magazines useless by degrading the capacity to guide. The second stage would involve targeting Chinese assets in the mainland and seas, and establishing a blockade of the Chinese sea lines for communications. In all this the US Navy and the Air Force would closely calibrate their actions. Also, relevant procurements and weapon productions would be undertaken.11 The problem with this would be two-fold, it is possible that the Chinese would retaliate with a nuclear-strike at the first stage of the combat, thus, altering the nature of the conflict early [just as any aggressive move into Europe by the conventionally superior Warsaw Pact during the Cold War would have had the „trip-wire‟ effect of unleashing the North Atlantic Treaty Organization‟s (NATO) nuclear retaliation]. Secondly, new procurements would cost more funds, over and above the fiscal year (FY) 2011 budget of US$668.6 billion, already straining US resources, and the US Congress currently is not in a generous mood.

Chinese Battle Concept What is the Chinese naval doctrine? Initially, it was no more than the defence of the coast lines. Over time, around the mid-1980s, they evolved an „off-shore‟ defence concept that had a threefold mission; first, to keep the enemy within limits and resist invasion from the sea, second, to

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For details of its capabilities see, Robert Johnson, „China Claims Air Superiority with Its New J-20 Stealth Fighter‟, Business Insider (10 May 2011). Aviation Week (3 January 2011). „Report: China Develops Special „Kill Weapons‟ to Destroy US Aircraft Carrier‟, US Naval Institute (31 March 2009), http://www.usni.org/news-and-features/chinese-kill-weapon. Accessed on 5 June 2011. Greg Grant, „CSBA AirSea Battle Concept; More Stealth, Long Range Strike to Counter Chinese Battle Networks‟, DefenseTech (18 May 2010), http://defensetech.org/2010/05/18/csba-releases-its-airsea-battle-co. Accessed on 9 June 2011.

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protect national sovereign territory, and third, to safeguard national unity and maritime rights. At the outset the interests to be protected were within the so-called „first island chain‟ stretching from the Kuriles, Japan, the Ryukyus and Taiwan to the Philippines and Borneo, though later the goal seems to have extended to the „second island chain‟, running from the Kuriles and Japan to the Bonins, Marianas, Carolines, and the Indonesian archipelago.12 It is also necessary to bear in mind that more than 90 per cent of China‟s trade by volume is transported by sea, as two-thirds of its oil needs will be met from overseas by 2015.13 This implies the need to protect the routes. At a seminar in Singapore in 2008, a participant Huang Jin said that the People‟s Liberation Army Navy is the fastest growing force in the Chinese military.14 Since 2000, China has procured around 20 major surface vessels as destroyers and frigates, at least 31 new submarines and plans to build six aircraft carriers, commissioning the first by 2015.15 Obviously, therefore, there are „blue- water‟ aspirations. Understandably, for the reasons stated above and also for the fact that China is slated to overtake the US economy soon, indeed by 2020, if one is to believe PricewaterhouseCoopers, an economy of that magnitude would feel the need to protect itself. 16 At present, though, the size of its defence budget is at US$97.7 billion, only a fraction of that of the US.

Some Ramifications for the Region At the Shangri-La Dialogue in Singapore, the Chinese Minister did not specifically respond to Gates‟ reference to the ASBC. The Chinese are not wont to make remarks off the cuff without requisite, and oftentimes thorough, preparations. However, what he did say could have significant relevant ramifications. Insisting that „quite a big gap‟ still exists between China and that of more developed nations (implying that there should not be), he observed, „Our forces are mainly equipped with second generation technology now, but more developed countries (read:

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13 14

15

16

Milan Vego, „China‟s Naval Challenge‟, US Naval Institute Proceedings Magazine (29 March 2011), www.us ni.org/magazines/proceedings/2011-04/chinas-naval-challengemagazines/proceedings/2011-04/chinas-navalchallenge. Accessed on 9 June 2011. Ibid. „Between Rising Naval Powers: Implications for Southeast Asia of the Rise of Chinese and Indian Naval Powers‟, S. Rajaratnam School of International Studies (18-19 November 2008). Richard A. Bitzinger ‟China‟s Naval Ambitions: Aircraft Carriers Will Make Waves‟, Straits Times (8 July 2009). „China can overtake US economy by 2020, says PricewaterhouseCoopers‟, The Economic Times (21 January 2010), http://economictimes.indiatimes.com/news/economy/indicators/china-can-overtake-us-economy-by-2020says-pricewaterhousecoopers/articleshow/5483012.cms. Accessed on 9 June 2011

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„the US‟) are … already moving into the fourth generation.‟ This is a strong argument for a yet greater build-up by the Chinese military, underscoring that currently, in comparison with others, it has been insufficient, and that as China develops it will have the moral right and practical compulsions to further strengthen its defence potentials. A Chinese analyst, Senior Colonel Fan Gaoyue, commenting directly on the ASBC has said, „This cycle is not beneficial to China or the US. In fact the People‟s Liberation Army will never target the US military “except” if it intervenes in the Taiwan conflict or launches a pre-emptive strike against China. If AirSea Battle aims to stop a growing tilt in the balance of power, it means that the US intends to obtain greater advantages over regional militaries. The US already enjoys the balance of power in Asia-Pacific. The US has the strongest military and has no counterpart in the world.” He described the ASBC, if it is modelled on the AirLand Battle model during the Cold War, „as the wrong decision [by the US] at a wrong time at a wrong place‟, because the Cold War situation no longer existed, and the Asia-Pacific region was a stable one at this time.17 It is conceivable, of course, that the ASBC is designed mainly to attract some budgetary attention. For instance, as already stated in this article, there is no existing radar capability to detect a stealth craft such as J 20. The concept would involve such procurements, and, therefore, also the need for appropriate resources for the purpose. Though, the practical effect would be inviting the Chinese to an arms race, if not to make up the gap with the US the possibility of which lies well beyond the rim of the saucer, but at least to keep the gap constant or even to reduce it and most certainly not widen it. There is a differential in the equilibrium that the Chinese would tolerate, but they would perhaps react to anything more. More hazardous, it could lower the nuclear threshold for the protagonist, in this case China, which perceives itself to be conventionally too inferior. On the other hand, if the idea is to reassure the US allies and partners in the region, this could have the opposite effect of delinking them. This will be particularly true if the Chinese attempt to respond to new US initiatives widens the gulf between them and consequently enhance their vulnerability. They would then be chary of continuing a partnership with a more distant player, should their own insecurity be heightened. If China should develop the capacity in the process to hit US cities, then these Asian littorals would question the credibility of an ally, however powerful, to put its own population in line for them. All this could result in an unwarranted 17

„US AirSea Battle concept targeting China‟, Peoples Forum (27 April 2011), www.peopleforum.cn/viewthread .php?tid=89782&extra+page%3D1. Accessed on 4 June 2011.

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destabilisation of an otherwise fairly stable region. To prevent this from happening, all major actors involved must therefore be circumspect and take special care. The room for unintended consequences will be large. Signals given and received, and perceptions in this connection, will be key in shaping behaviour. Henry Kissinger had once written, „Confrontation with China should be the ultimate recourse, not the strategic choice.â€&#x;18 Wise words from a vastly experienced and intensely pragmatic thinker. .....

18

H. Kissinger, Does America Need A Foreign Policy: Towards Diplomacy for the 21st Century, (New York: Simon & Schuster, 2002), p.136.

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ISAS Insights No. 125 – 14 June 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

China-Pakistan Relations: Evolution of an ‘All-Weather Friendship’ Iftekhar Ahmed Chowdhury1

Abstract The paper examines the evolution of what is now viewed as an ‘all-weather relationship’, the bilateral linkages between China and Pakistan. It seeks to demonstrate the nature of this partnership that has withstood the test of time and what is the impact on it of certain recent international developments like the death of Osama bin Laden, and the resultant strains between the United States (US) and Pakistan. It argues that these events have raised the implications of Sino-Pakistan relationship from a regional to a global level, with the likelihood that the matrix on which it will be played out will now be wider.

Introduction An enduring feature of international relations in contemporary times has been the high level of bilateral connections between China and Pakistan. Initially, they were strange bedfellows; one a socialist state and the other Muslim-majority, one a Western ally and the other a significant member of the Eastern Bloc. Yet, driven by perceived mutual common interests they managed to

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Dr Iftekhar Ahmed Chowdhury is Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore (NUS). He was the (Foreign Advisor) Foreign Minister of Bangladesh from 2007-2009. He can be contacted at isasiac@nus.edu.sg. The views reflected in this paper are those of the author and not of the institute.


achieve such close proximity that the relationship now appears to have become deep-rooted, multi-dimensional and sustainable. President Hu Jintao has described it as ‘higher than the mountains and deeper than the seas’. Prime Minister Yousaf Raza Gillani has matched the poetic parlance by describing China as ‘the most beloved of all nations’. A recent Pew Survey of Pakistan’s public opinion showed that 84 per cent of those polled had a favourable view of China and 16 per cent of the US. That says it all! This rendered Pakistan the most pro-China country in the world. Unsurprisingly, both China and Pakistan describe their bilateral relationship as an ‘allweather friendship’, in their political grammar, the highest in the pecking order of any type of bilateral linkages.

History of Evolution In 1950, Pakistan became the first Muslim country and the third non-communist state to recognise the People’s Republic of China. Throughout the 1950s, China’s relations with both India and Pakistan moved on an even keel and when Zhou en-Lai visited both countries in 1956, he tried his hands at balancing when he spoke with equal fervour of ‘Hindi-Chini bhai bhai’ and ‘Pak-Chin bhai bhai’. Though, when the relations with India soured by 1962 followed by the war, and ‘bhai bhai’ became ‘bye-bye’, the relations with Pakistan, perhaps due to that very reason, grew and the borders were quickly settled. The Pakistan International Airlines linked China to the outside world. Pakistan, technically a Western ally as a Central Treaty Organization (CENTO) and a Southeast Asia Treaty Organization (SEATO) member, became a conduit connecting China with the US and facilitated, former US Secretary of State, Henry Kissinger’s and, former US President, Richard Nixon’s visits to Beijing in the early 1970s. During the 1980s, Pakistan helped both the US and China to supply arms to the Afghan guerrillas fighting the Soviet Union, to whom Pakistan had never felt close, partly for its ties with India, its stated position on Kashmir and for a sense of perceived betrayal in some Pakistani quarters during the Tashkent Agreement in 1966 (that concluded the 1965 Indo-Pakistan War). In 1986, Beijing and Islamabad signed a Comprehensive Nuclear Cooperation Agreement and it is widely believed that China’s support was critical in Pakistan achieving nuclear weapon capabilities. Finally, in 2007, China became Pakistan’s biggest arms supplier with no strings attached and their true ‘strategic partnership’ began.

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Some Ruffled Feathers Occasionally, along the way there have been some ruffled feathers. Pakistan was not always satisfied with the reasons why China never militarised the strong verbal support during the IndoPakistani wars of 1965 or 1971. This was particularly true, during the Kargil conflict in 1999, when China appeared to take a neutral position between India and Pakistan, and had asked the visiting Pakistani Foreign Minister, Sartaj Aziz, to ‘settle disputes peacefully through dialogue and negotiations’. Indeed in 1996, Chinese President Jiang Zemin did cause some ripples of surprise in Pakistan, when he asked that India and Pakistan build a cooperative relationship and set aside the ‘difficult issues’. The reference to Kashmir was not specifically mentioned but widely understood. In fact, China had always been a bit uncomfortable on the continued stress on Kashmir by Pakistan. As a principle, ‘self-determination’ could have adverse ramification for, say, Tibet and nationalism based on religion was unpalatable, due to ramifications for the Chinese Muslims of Xinjiang. Also, on the part of China, there was some unhappiness over, the former Pakistan President, Pervez Musharraf’s leanings towards the US. Over time, Pakistan, it seems, began to understand the subtlety and compulsions driving China’s postures. Eventually, Musharraf also turned to China and was able to get Beijing to criticise certain US actions in Pakistan. When there was some opposition to holding the Olympics in China in 2008, the Pakistanis showered flower petals on the procession carrying the torch through the country. China continued its generous economic and military backing to Pakistan and, in turn, Pakistan supported China on all issues of importance to China. These included questions of China’s sovereignty over, say, Taiwan, Tibet and Xinjiang, and other sensitive issues such as human rights, just as China has lauded Pakistan’s ‘counterterrorism’ role in the face of some negative vibes from the US.

Current Bilateral Ties Strategic The father of the Pakistani nuclear bomb, Dr A.Q. Khan, was a great friend of China. Indeed, China has always been a source of support and inspiration to Pakistan’s nuclear programmes. When stringent export controls imposed by Western countries rendered procurement of uranium enrichment equipment difficult for Pakistan, the China National Nuclear Corporation reportedly provided 5,000 ring magnets, key components to the bearings that facilitate the high-speed rotation of centrifuges. China also designed and supplied heavy water for a Khushab reactor, 3


which aids production of plutonium, key for building smaller tactical theatre weapons. This is important for Pakistan to build a possible first strike war-fighting deterrent of miniature battlefield tactical weapons, to be mounted on the recently tested Hatf-IX missiles with only a 60 km range and with a radiation fallout restricted to the battlefield. It has been claimed that this has already been achieved. Of course, Pakistani scientists provided enormous intellectual backup in these endeavours. Today, Pakistan probably has the fastest growing nuclear armoury in the world – somewhere between 90 and 105 warheads, or 70 to 120 by another account – a source of satisfaction to Pakistanis and worry to many other nations. China is the source that largely equips Pakistan’s military, a powerful element in Islamabad’s policymaking. For the Pakistani Army, apart from small arms purchases, a joint venture project produces the Al-Khalid MBT-2000 tanks. Since 2007, for the Pakistan Air Force (PAF), China has been producing the multirole fighter aircraft JF-17 Thunder Fierce Dragons, (known in China as FC-1 Xiaolong) of which Pakistan has probably already inducted 22, while testing eight more and eventually looking to procuring 150. The PAF already has a fleet of Chinese aircrafts, including F-7 PGs and A 5s. When Gillani visited Beijing in May 2011, following the US incursion into Pakistan that led to the killing of Bin Laden, the fast delivery of 50 JF-17s to Pakistan was agreed upon. At the end of the visit the Pakistani Defence Minister announced that Islamabad was requesting China to build a naval base for Pakistan in Gwadar, where Tianjin Zhongbei Harbor Engineering is already working on a US$1.6 billion project. While a Chinese spokesman has denied it, it is significant that to the Pakistani Minister it appeared like a cherished aspiration that he perhaps wanted fulfilled. Since 2009, China has also been supplying the Pakistan Navy with F-22 P frigates.

Economic and Trade China is investing heavily in infrastructures within Pakistan. Apart from nuclear power projects, the Gwadar Port and the Karakoram Highway along the ancient silk route, which began in 1966, there are several mega-projects in which China is involved – particularly in the sensitive province of Balochistan. Next to the port, the China Harbor Engineering Company is building an international airport. In the same region, China’s Great United Petroleum Holdings is developing a US$13 billion oil refinery. Though, the political turmoil in Pakistan and economic challenges have led to decrease in foreign direct investment, which in fiscal year (FY) 2010-11 shrank by 28 per cent to US$1.23 billion in the 10 months leading up to April 2011. The Asian Development Bank has predicted that the Pakistani economy will grow by a moderate 2.5 per cent in 2011 and 4


3.7 per cent in 2012. In the struggling economy of Pakistan the consumer prices are still high and the budget deficit is growing to 5.5 per cent of the gross domestic product above a 4.9 per cent target for FY2011-12. Wa Gang, China’s Minister for Science and Technology, has said, ‘should growth improve, so will investments’. In 2010, bilateral trade grew 27.7 per cent over the previous year to US$8.67 billion, with China exporting US$6.94 billion, and importing US$1.73 billion. During the Gillani visit, there was talk of raising those figures to US$15 billion by 2015. A soft power that China exerts is that there are 6,000 Pakistani students currently studying in China and additional visits are being organised in each other’s countries for young people. The cooperation between both civil and military officials has also been very strong. Indian authorities have noticed this cooperation and have raised a point about the People’s Liberation Army engineers operating in Gilgit-Baltistan.

Drivers of Foreign Trade While China is definitely a nation that has ‘stood up’ (as Chairman Mao Zedong reportedly said) and is on the ‘rise’, Beijing sees this as a non-threatening and a ‘peaceful development’ or heping jueji, an expression attributed to the scholar Zheng Bijian. There are certain ‘original roots’ in China’s behaviour pattern, dating back to Mao’s three-fold classification of the world, which view the ‘first world’ as the source of all instability. It is well known that there are redlines that China will not allow to be crossed, such as an attack on its territory. But do current economic interests, such as the US$3 billion investment in Aynak mines in Afghanistan, constitute as ‘core’ of an interest as ‘territory’ does? This remains the key question. Deng Xiaoping’s sobering advice ‘Tao Guang Yang Hui’ remains valid. It is difficult to translate, but roughly states, not to ‘hide brightness, bide time and build capabilities’ as Western translators have suggested. Though, it could also mean to ‘keep a low profile, be modest and prudent, and seek neither hegemony nor confrontation’ as many Chinese scholars insist. Still, an increasing assertiveness is palpable, made apparent by the current US$91.7 billion Chinese defence budget, the second largest in the world. The manufacturing of J-20 Stealth Jets and DongFeng 21 D aircraft carrier killing missiles added to its ambitious blue-water naval plans reflect a burgeoning capability that would logically find an expression in policy. Empirical evidence shows the river of Chinese policy meanders, but does not suddenly change course. While China will be anxious to be seen as a constructive player in the global scene, its growing economic and military strength will find fruition in endeavours to slowly place itself in a pivotal 5


position of international affairs. While detailing China’s potentials, Stephen Roch, former Chairman of Morgan Stanley, has said, ‘This is not a time to bet against China.’ For Pakistan there are constants and variables that drive its external behaviour. Pakistan has always sought extra regional linkages to narrow its power gap with its larger neighbour, India. This is its constant. The variables are the partners it turns to, initially to Western alliances and later to China. The length of its relationship with China, however, is rendering this into a constant. Pakistan’s perception of India as an existential threat left it with no time or patience for idealism in foreign policy such as hobnobbing with non-alignment or Panchshila. H.S. Suhrawardy, a Prime Minister in mid-1950s, acidly remarked on this non-alignment in a mathematical metaphor, ‘zero plus zero equals zero’. Pakistan’s recent bitter experiences with the West and the North Atlantic Treaty Organization may have brought to the fore another significant potential adversary from the West. Indeed, there are those Pakistanis, including fundamentalist Islamicists, who may be beginning to feel India is the lesser adversary. The answer to this may also lie in turning to China, as the Gillani visit in May shows. A US$5.95 billion defence budget, as the current Pakistani one is, is clearly insufficient for these objectives. This also means China for Pakistan is not just a counterpoise to the regional preeminent power but also to other pre-eminent global actors. This implies the graduation of this relationship to another level. Conclusion The relationship between Pakistan and China cannot just be measured in statistics. It is far greater than the sum of its parts. A practical test of how this relationship will impact on global politics will lie in the post-US withdrawal from Afghanistan. Pakistan will possibly want to see a government in Kabul that it is comfortable with. This may include elements of the Taliban. China will want its assets protected, and will appreciate a Pakistani role in this. Gillani, during a recent visit to Afghanistan, has reportedly already advised on the need for Kabul, even under Karzai to be wise and connect with Beijing. While it is too sensitive to bring Russia into this ‘Great Game’ yet, President Asif Ali Zardari had visited Moscow before Gillani travelled to Beijing. This was for the second meeting of the quadrilateral discussions – comprising of Russia, Pakistan, Afghanistan and Tajikistan – on the Afghan issue, the first took place in the Tajik capital of Dushanbe in July 2010. So can Pakistan also play the role of a conduit, at least in Afghanistan, between Beijing and Moscow as it once did between Beijing and Washington? With the Iranian Foreign Minister recently visiting China , can Pakistan persuade Iran, a fellow 6


Muslim country though with whom bilateral relations have blown hot and cold, into this set of understandings? These are challenges that confront the diplomacy of both Pakistan and China. Next year, Pakistan will sit in the United Nations Security Council, as India is sitting now and China is a permanent member. Obviously, the two friends will have a chance to coordinate their global policies, providing a wider matrix to play out their bilateral relations. It will be important to do so because Pakistan and China have now emerged as each other’s closest allies. They will also need to work through one perceptional difference. Pakistan is often in a hurry, because of exigencies. For China, on the other hand, time is not of the essence. When asked about the impact on history of the French Revolution of 1789, Zhou en-Lai famously remarked, ‘It is too soon to tell!’ .....

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ISAS Insights No. 126 – 23 June 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

The Great American Debate: Is the Drawdown of Forces in Afghanistan a Realistic Option? Shanthie Mariet D'Souza1

Abstract As Afghanistan prepares for transition, United States (US) civilian and military leaders are fiercely debating over the scale and pace of a drawdown in US forces. Given that the Taliban insurgency is demonstrating its potent strike capabilities even in the relatively stable north and west of Afghanistan and talks of a negotiated settlement are gathering momentum, the US military is keen to pursue the current counter-insurgency strategy in order to negotiate from a position of strength. However, the civilian camp in the administration is unwilling to concede to an extended war and is citing rising costs and new geopolitical priorities to bring the US troops home. As the debate between the two camps intensifies, it is bound to impact the course of transition to the Afghan forces over the next three years.

Introduction An emerging consensus in favour of the drawdown of forces from the ‘long war’ in Afghanistan is gathering momentum in US policymaking circles. Buoyed by the accomplishment of one of the key objectives for a US military presence in the Afghanistan region – the killing of Osama bin Laden – and compelled by the rising costs of war, which is being seen as too expensive to continue, President Obama seems set to keep his 1 December 2009 promise to bring the troops home. In a new set of domestic and geopolitical priorities, 1

Dr Shanthie Mariet D’Souza is Visiting Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. She can be contacted at isassmd@nus.edu.sg. The views reflected in this paper are those of the author and not of the institute. The views and findings are based on author’s interactions with key Afghan interlocutors and stakeholders in MayJune 2011 and US officials, policymakers and academia in Washington D.C. in May 2011.


which include addressing the economic difficulties in the US and refocusing their attention to East Asia, the US presidency appears to be convinced about the need and timing for this move out from Afghanistan. The drawdown, which was slated to begin in July 2011 and to be completed by 2014, will leave only a few thousand US troops in charge of counter-terrorism duties, as outlined by the yet to be formalised US-Afghan strategic partnership. As the date draws closer and Afghanistan grapples with an uncertain future marked by the divisive debate in the US and among its allies, it is almost a certainty that the ‘boys are going home’, boosting President Obama’s re-election bid in 2012.

Widening the Civilian Military Divide The articulations from both the civilian and military viewpoints have shown a persisting difference of perceptions as evident from the time of the inception of the Af-Pak strategy. Under Vice President Joe Biden, along with his National Security Council (NSC) Adviser Tom Donilon, the civilian camp has adopted to weigh heavily on the aspect of the finite resources and troops for counter-terrorism operations and are pushing for a July 2011 announcement of 30,000 in cuts over the succeeding 12 months, while the military perspective led by commander of US and North Atlantic Treaty Organization (NATO) troops, General David Petraeus, advocates a larger footprint in the counter-insurgency campaign combined with departing Secretary of Defense Robert Gates who emphasises on the need of lowest possible reduction over a longest period of time (i.e. 15,000 troops over 18 months). While the US civilian leadership does not appear averse to an accelerated reduction of forces, the military hedges against any such step. The latter fears that a sudden and drastic reduction of troops from Afghan provinces would not only weaken the defences of vulnerable areas, but could also lead to a capitulation of the recovered areas from the control of insurgents. Such a move would probably only prove to be counter-productive, especially when the present assessment of capability of the Afghan forces for independent action remains uncertain, particularly with the Afghan National Police, which will form a critical component of the future counter-insurgency campaign. General Petraeus has expressed his concerns about an overhasty withdrawal, warning that the Taliban will attempt to regain lost territory, ‘We’ve always said they would be compelled to try to come back.’2 Voicing similar concerns, Lieutenant General David Rodriguez, Deputy Commander of US forces in Afghanistan, has said, ‘I am concerned about a drawdown that is not totally aligned with the growing Afghan capabilities or is so rapid that the army and police will make mistakes or temporarily leave gaps. Now, if this happens the Taliban can regain their foothold among a fearful population.’3 2

3

David E. Sanger, Eric Schmitt and Thom Shanker, ‘Steeper Pullout Is Raised as Option for Afghanistan’, The New York Times (6 June 2011), http://mobile.nytimes.com/ article?a=799555&f=77. Accessed on 7 June 2011. ‘US Military Warns Against Hasty Afghan Withdrawal’, Voice of America (3 June 2011), www.voanews.com/english/news/asia/US-Military-Warns-Against-Hasty-Afghan-Withdrawal123121268.html. Accessed on 7 June 2011.

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The military viewpoint against a hasty drawdown is buttressed by the ongoing ‘spring offensive’ of the Taliban, which is marked by steep levels of violence, even in the relatively stable areas like Herat in western Afghanistan. Insurgents have stepped up attacks in parts of Afghanistan that were announced by President Karzai on 22 March 2011 as ‘stable’. Such response to attacks is scheduled to be handed over to Afghan military control by July 2011, coinciding with the beginning of the drawdown of US forces. Going by the trends of violence so far, the Taliban insurgency appears to have put a new emphasis on a campaign of assassinations towards important government and police officials. Afghan official and local sources have revealed to the author that the insurgent campaigns and targeted killings of key government officials and police chiefs are intended to undermine the early stages of a transition to full Afghan responsibility for security in seven of the country’s provinces and cities, most of which have been considered safe and incident free. On 30 May 2011, the Taliban attacked an Italian NATO base, as well as the central shopping district in the western city of Herat killing seven people, most of which were civilians. Two days earlier, on 28 May 2011, a bomb planted at a meeting between German NATO officers and local police officials in northern Afghanistan killed General Daoud Daoud, the regional police chief for northern Afghanistan. On 24 May 2011, the Taliban ambushed the convoy of Gulab Mangal, Governor of Helmand Province, as he left the provincial capital, Lashkar Gah. The Governor’s car was riddled with bullets, but he miraculously survived.4 Since April 2011, two suicide attacks have taken place in the Laghman Province. While 14 civilians were killed on 23 May 2011, a previous attack in the barracks of the Afghan National Army killed four people.5 This escalation of violence is clearly part of the insurgent’s strategy to instil fear among the local people who are likely to view the US withdrawal as conceding to the violence potential of the insurgents, rather than the US’ domestic and economic compulsions. A withdrawing army amidst an ongoing battle is less likely to be viewed as a victorious army. Even the process of attracting the fence-sitters from the insurgency to the ongoing attempts of reconciliation is likely to suffer as a result. The lack of clarity and coordination in defining the end game in Afghanistan is evident in the approaches towards the processes of reconciliation. While the civilian administration’s efforts have hinged critically on the success of the negotiated settlement with the Taliban, the same has never been fully embraced by the military commanders. Clearly, the military wants to fight and negotiate from a ‘position of strength’, where as the civilian administration, as evident from the Biden-Donilon approach, is unwilling to provide them that leverage. Vice 4

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Rod Nordland, ‘Taliban Aim to Derail Afghan Security Transfer’, The New York Times (1 June 2011), www.nytimes.com/2011/06/02/world/asia/02afghanistan.html. Accessed on 3 June 2011. Farzad Lameh, ‘Taliban claim Laghman attack’, Central Asia Online (23 May 2011), http://centralasiaonline.com/cocoon/caii/xhtml/en_GB/newsbriefs/caii/newsbriefs/2011/05/23/newsbrief-08. Accessed on 5 June 2011.

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President Joe Biden and Obama’s trusted NSC Adviser Tom Donilon favour troop cuts, regardless of the state of security in Afghanistan and the current status of negotiations with the Taliban. As the US policymakers grapple with the contours of the political settlement and reconciliation attempts with the Taliban, the drawdown of forces is bound to be seen as fulfilment of the condition laid out by the Taliban. This in no way would help the US to negotiate from a position of strength. Senator John McCain, speaking at the recently concluded Shangri-la Dialogue on 4 June 2011, emphasised the critical need to talk from a position of strength, even if it requires weathering another season of fighting in Afghanistan. McCain insists that the troop withdrawal beginning July 2011 should only be symbolic and should not exceed the removal of more than 3,000 military personnel.6 Even the outgoing Defence Secretary Gates argues against a fast withdrawal. Gates has said, ‘My view is that we have got to keep the pressure on. We are not quite there yet.’7 President Obama, on the other hand, insisted in April 2011 that the beginning of the drawdown would be significant, exclaiming, ‘People will say this is a real process of transition; this is not just a token gesture.’8 However, these considerations of caution are unlikely to figure in the strategic calculations of the civilian camp. The heightened fiscal pressures, coupled with Osama bin Laden’s killing will shift the balance of power towards the Joe Biden-led civilian camp that had been sceptical of the troop surge from the very beginning and now favour a troop drawdown faster than the top military commanders find it necessary to chart the course of the conditions on the ground to sustain the fragile and reversible gains.

Sustaining an Unsustainable War? There is increasing bipartisan concerns in the US over the cost and sustainability of the Afghan War, especially in the current economically challenging times. Comparisons have already been made between the Afghan War and Iraq. The US$1 million per year per deployed service member in Afghanistan figure – given the existing constraints of supplying fuel and other supplies to this landlocked nation – far exceeds what was comparatively cheaper in Iraq, where finding fuel for the forces was rarely problematic. Supplies to Afghanistan are trucked often through difficult routes, which add to overall costs.

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‘McCain seeks small Afghan troop cut’, Financial Times (6 June 2011), www.ft.com/cms/ s/0/67fdc7ea9020-11e0-85a0-00144feab49a.html#axzz1OaVN6yCA. Accessed on 5 June 2011. David Alexander, ‘Gates warns against quick pullback in Afghanistan’, Reuters (6 June 2011), http://news.yahoo.com/s/nm/20110606/pl_nm/us_afghanistan_gates. Accessed on 7 June 2011. Brian Montopoli, ‘How many troops will Obama bring home from Afghanistan in July?’, CBS News (6 June 2011), www.cbsnews.com/8301-503544_162-20069464-503544.html. Accessed on 7 June 2011.

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In the fiscal year (FY) 2011-12, the US military will spend US$113 billion on its operations in Afghanistan and is already seeking US$107 billion for the following year.9 To many of the President’s civilian advisers this price is just too high, given a wide federal budget gap that will require further cuts from domestic programmes and increased deficit spending. Moreover, concerns abound over the funding and feasibility of training and maintaining a huge Afghan army, which has already consumed more than US$28 billion. The Pentagon seeks another US$12.8 billion for FY2012. Questions are being raised on the feasibility of building and sustaining a large Afghan army, when the real need is developing an effective police force in Afghanistan. Diminishing Footprints in Afghanistan? There is a considerable amount about policy fuzziness not just on the contours of the pace and numbers of the drawdown, but also on the type of footprint the US needs to have in post2014 Afghanistan. While the US Afghan policy can be expected to undergo another revamp after the 2012 US presidential elections, irrespective of its outcome, the year-long run up period will continue to be marked by several upheavals, each directed at reducing troop strength in the war-torn country. At the start of 2011, with violence raging after nearly a decade of war, a minimal pullout of less than 5,000 troops was anticipated. Military experts contemplate that the drawdown of some 15,000 soldiers over the next year would balance political and military concerns without endangering the overall counter-insurgency campaign. 10 An announcement to this effect by President Obama, through a primetime address on 22 June 2011, confirmed the withdrawal to be 33,000 troops by the end of 2012. This will bring down the curtains on the debate over the scale of the US military presence in Afghanistan till the end of 2012, still leaving another 68,000 troops on the ground. However, the debate over the strength of the forces to be stationed in the post-July 2014 scenario is likely to continue. Key US officials and policymakers, during interactions and discussions with the author, have revealed that the number could be anywhere between 20,000 to 30,000 troops. This number will be confirmed with the signing of the yet to be formalised US-Afghan strategic partnership. These forces backed by a superior aerial power would possibly be stationed in ‘joint facilities’ (also known as strategic bases) and play a supportive role for the Afghan forces.

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Rajiv Chandrasekaran, ‘Cost of war in Afghanistan will be major factor in troop-reduction talks’, The Washington Post (31 May 2011), www.washingtonpost.com/world/national-security/cost-of-war-inafghanistan-will-be-major-factor-in-troop-reduction-talks/2011/05/27/AGR8z2EH_story.html. Accessed on 1 June 2011. Missy Ryan and Caren Bohan, ‘Analysis: White House prepares initial Afghan drawdown’, Reuters (2 June 2011), www.reuters.com/article/2011/06/02/us-usa-afghanistan-idUSTRE7510PV20110602. Accessed on 3 June 2011.

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The drawdown understandably will allow US forces to limit themselves to counter-terrorism efforts, while gradually allowing Afghan forces to do the bulk of the counter-insurgency duties. However, the intended strategic communication that the US forces will stay put in the joint facilities to hedge against both internal and external aggression seems to have sent a confused message to the regional stakeholders. This is evident from the ‘hedging’ strategy the regional powers are currently adopting. Regional countries like Iran, Russia and China are likely to view even the limited US military presence as a part of a containment strategy. Without a process of regional dialogue and consultations, such concerns will only increase. This would propel regional powers to increasingly sustain their strategies of supporting proxies, in a situation of significant political re-alignment, further adds to Afghanistan’s destabilisation. As the consensus on the drawdown and end state remains elusive, the prospects for long-term stabilisation of Afghanistan and the region will continue to be a distant goal. .....

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ISAS Insights No. 127 – 1 July 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

India in Africa: Summits and Beyond Suvi Dogra1 Abstract The Indian Prime Minister Manmohan Singh’s six-day tour of Africa (23 through 28 May 2011) demonstrated India’s desire to forge closer ties with the continent and be an active participant in its growth and developmental process. A number of agreements were signed during the second India-Africa Forum Summit (24 and 25 May 2011) and bilateral meetings with Ethiopia (25 and 26 May 2011) and Tanzania (26 through 28 May 2011) ranging from trade and education to development assistance. The renewed vigour of India’s engagement comes in a landscape of a deepened Chinese presence in Africa. This paper analyses the achievements of the Summit and Prime Minister’s bilateral visits to Africa. The paper also explores India’s development cooperation with the continent in this background.

Introduction While trade interactions between Asia and Africa can be traced back to the days of the Silk Road, the last decade saw both India and China make bigger strides into Africa as economic partners. Securing natural resources was the key driver for the two countries to begin with, economics and trade are now also at the helm of both China and India‟s interests in Africa. China‟s economic transition in the continent, however, has been more prominent than India‟s. Given the massive investments made by China, India‟s relations with Africa have, therefore, received far less attention than that of China-Africa relations. 1

Suvi Dogra is Research Associate at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. She can be reached at isassuvi@nus.edu.sg. The views reflected in the paper are those of the author and not of the institute.


Indian Prime Minister Manmohan Singh‟s recent tour of Africa portrayed India as a partner in the development process building upon historical and cultural ties that the two regions share. He began his tour from the Ethiopian capital of Addis Ababa, also the seat of the African Union (AU), to participate in the second Africa-India Forum Summit held on 24 and 25 May 2011. Following the Summit, the Prime Minister embarked upon a bilateral visit to Ethiopia which was then followed by a visit to Tanzania. Dr Singh‟s tour marked a more pronounced display of India‟s soft power, deployed in a bid to emerge from, if not counter, China‟s shadow in the continent. A look at the range of declarations and Memoranda of Understanding (MoUs) signed by the two partners demonstrates that India is now more assertive in its engagement with Africa. Recognising Africa as an emerging region in the world, Dr Singh‟s statement that „the IndiaAfrica partnership rests on three pillars of capacity building and skill transfer, trade and infrastructure development,‟2 had summarised the new dynamics of India-Africa bilateral ties. Another pillar, which emerged as a subset of the points flagged by Dr Singh, is the aspect of development assistance (discussed in a later section of this paper) and India‟s emergence as an effective donor.

The India-Africa Forum Summit Both India and China have utilised bilateral and multilateral forums such as the India-Africa Forum Summit, the Forum on China-Africa Cooperation (FOCAC) established to coordinate relations between the two entities, the China Africa Business Council and the India Brazil South Africa Dialogue Forum (or BRICS) for furthering engagement with African countries in the larger global context. The India-Africa Forum Summit, however, has been crucial for penning a fresh chapter in Indo-African ties. In 2008, India and Africa relations received a much needed fillip with the formation of the first India-Africa Forum Summit held in New Delhi. While most observers believe that the Summit was a reactionary response to China‟s elaborate FOCAC in Beijing in 2008, the Summit proved to be the first significant platform for bilateral engagement and serious dialogue. The third ministerial conference of the FOCAC was turned into a special summit that was held in Beijing on 4 and 5 November 2006, where a Declaration of Beijing Summit and FOCAC Action Plan (2006-2009) were adopted by 49 heads of state and government from China and African countries. The Declaration included provisions such as doubling of China‟s 2006 assistance to Africa and provision of US$3 billion of preferential loans to

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David Smith, „India starts trade talks with African countries in effort to rival China‟, The Guardian (23 May 2011), www.guardian.co.uk/world/2011/may/23/india-trade-talks-africa-china. Accessed on 31 May 2011.

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Africa, amongst other provisions.3 The India-Africa Forum Summit even though moderate in nature was a demonstration of India‟s commitment to secure its foothold in the continent. The Summit has perhaps been the only institutional forum of its kind between the two partners spanning between areas of economic, social and diplomatic linkages. Under the theme „Enhancing Partnership: Shared Vision,‟ the second Summit held 24 and 25 May 2011 in Addis Ababa, in collaboration with the 53-member AU, was a tangible progression from the preceding summit in 2008. The Summit concluded with the adoption of two key declarations – the Addis Ababa Declaration and the Framework for Enhanced Cooperation. However, Prime Minister Manmohan Singh‟s announcement of US$5 billion aid to Africa remained the highlight of his trip grabbing media attention across the globe. The Addis Ababa Declaration 4 broadly highlights major areas of cooperation and mutual concern. Some of the issues featured in the Declaration include the mutual recognition of the importance of multilateralism and the South-South cooperation. The declaration also showcased a comprehensive reform of the United Nations‟ (UN) system, including the expansion of the UN Security Council (UNSC), non-discriminatory and verifiable elimination of nuclear weapons and other weapons of mass destruction, countering of terrorism, piracy, human and drug trafficking, climate change, sustainable economic growth, and achievement of the Millennium Development Goals. The Framework for Enhanced Cooperation, on the other hand, is aimed at broadening the outreach and scope of the Africa-India Framework of Cooperation and its Plan of Action (adopted in 2010), giving additional substance to the growing partnership. It sets out specific agreements to cooperate in a range of areas, such as economics, political science, technology, research and development, social development and capacity building, health, culture and sport, tourism, infrastructure, energy, environment, media and communications. With a wider spectrum of areas covered at this time, the bilateral ties are clearly deepening in terms of not only trade and investment, but also the development of aid and other areas of cooperation.

Trade and Business It is well established now that the „scramble for Africa‟ was motivated primarily because of the natural resources – ranging from oil and gas to gold, iron ore, manganese and uranium – that have been the envy of growing nations, such as India and China, that need these 3

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For details on the Beijing Summit see, „Forum on China-Africa Cooperation‟, www.focac.org/eng/ltda/ dscbzjhy/. Accessed on 24 June 2011. For details see, „Second Africa-India Forum Summit 2011: Addis Ababa Declaration‟, Press Information Bureau, Government of India (25 May 2011), http://pib.nic.in/newsite/PrintRelease.aspx?relid=72319. Accessed on 24 June 2011.

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resources to augment their economic growth. Unlike China‟s state-led engagements with Africa, India‟s ties with Africa have been led by the business community and private sector investments. Major Indian investors in Africa include companies like Oil and Natural Gas Corporation Limited, Tata, Bharti Airtel, Essar, Zydus, Ranbaxy, Tata Consultancy Services, Infosys. A look at the bilateral trade data puts into perspective the difference in the levels of economic engagement which India and China have with Africa. The bilateral trade between Africa and India was around US$46 billion in the year 2010.5 China‟s bilateral trade with Africa in 2010, on the other hand, stood at US$126.9 billion, which is almost three times that of India-Africa trade. It is not surprising that Anand Sharma, India‟s Minister for Commerce and Industry, reached Africa with a delegation high level chief executive officers for a twoday visit prior to Dr Singh‟s tour. The Trade Minister also set a target of US$70 billion for India-Africa trade by 2015. It was also announced that India and the Southern Africa Customs Union (SACU) are in the process of finalising a preferential trade agreement (PTA) to further trade linkages with the continent.6 The India-SACU PTA is also likely to be concluded this year. This agreement is proposed to cut tariffs on a limited number of products between the two regions, and is expected to eventually expand to a fully-fledged free trade agreement. The SACU comprises of Botswana, Lesotho, Namibia, South Africa and Swaziland. The other opportunity for India could surface through the African Grand Free Trade Area, scheduled to materialise in the next three years and will encompass 26 countries from Egypt to South Africa, the talks for which were launched in June 2011.7 Given India‟s interests in the continent, the outcomes of such a free trade area can further deepen India‟s engagement with Africa.

Aid, Development and South-South Cooperation8 While India may not have had the economic muscle to match China‟s growing influence in Africa in the past, the country has employed its soft power to gain stronger footing in the continent. Historically, India has provided assistance to Africa, by way of the Indian Technical and Economic Cooperation and the Special Commonwealth Assistance for Africa 5

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„Joint Statement of India-Africa Trade Ministers‟, Ministry of Commerce, Government of India (21 May 2011), http://commerce.nic.in/WhatsNew/Joint_Statement_India_Africa_Trade_21_05_2011.pdf. Accessed on 24 June 2011. Anand Sharma, „India-SACU PTA to conclude soon – Immense Opportunities for Strategic alliance in SME Sector‟, Press Information Bureau, Government of India (4 June 2010), http://pib.nic.in/release/ release.asp?relid=62334. Accessed on 24 June 2011. Ed Cropley, „Cape-to-Cairo “Made in Africa” bloc to boost trade‟, Reuters (16 June 2011), http://af.reuters.com/article/investingNews/idAFJOE75F00920110616?sp=true. Accessed on 16 June 2011. For details see, „Second Africa-India Forum Summit 2011: Addis Ababa Declaration‟, Press Information Bureau, Government of India (25 May 2011), http://pib.nic.in/newsite/PrintRelease.aspx?relid=72319. Accessed on 24 June 2011.

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Programme. However, there is little doubt that India‟s contributions to its African partners were small in the initial decades of these programmes. While India's development assistance to Africa is still small economically, especially in comparison to China, it has received a major boost over the past few years, growing more than 20 per cent in this time period. Among other initiatives, the Focus Africa Programme sought to enhance commercial relations between India and African countries by offering export subsidies to Indian companies trading with African nations and tied lines of credit to African governments and other regional entities. The Techno Economic Approach for Africa India Movement (also known as TEAM-9), on the other hand, provides eight West African countries with credit lines worth US$500 million. Further, India offers bilateral debt relief, support for UN peacekeeping operations, and humanitarian assistance to several African countries. India‟s US$5 billion pledge for the next three years, under the lines of credit, to help Africa achieve its development goals, is one of the key examples that India‟s Africa policy has received the much needed economic commitment. To put the numbers into perspective, India‟s annual healthcare budget is around US$5.9 billion. The loan package is a follow up to the US$5.4 billion credit India offered at the first India-Africa summit in 2008.9 With this, one can say that India‟s development assistance to Africa has taken a new dimension that is concomitant its economic growth trajectory. This new founded impetus has much to do with India‟s rapid economic growth. Besides the aid package, India has also pledged US$700 million to build institutions and establish training programmes. During the ministerial meeting in the course of the IndiaAfrica Forum Summit, Dr Jean Ping, Chairman of the African Union Commission (AUC) and, India‟s Minister of External Affairs, S.M. Krishna signed five MoUs to strengthen the longstanding partnership between Africa and India. This was agreed to be done through the establishment of vocational training and incubation centres across the continent, as well as the creation of new institutions, such as the India-Africa Institute of Information Technology (Ghana), the India-Africa Institute of Educational Planning (Burundi) and the India-Africa Institute of Foreign Trade (Uganda). India will also extend US$300 million to develop a railway line between Ethiopia and Djibouti. There are also plans of an India-Africa virtual university and more than 22,000 higher education scholarships for African students. India will contribute US$2 million to the African Union Mission in Somalia.10 Further, the India-Africa Business Council has been proposed to encourage more trade and investment flows along with a transfer of technology. India‟s soft power diplomacy has finally found a firm definition with regards to Africa and the South-South Cooperation. On the back of this, Africa plans to support India‟s push for 9

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Saubhadra Chatterji, „India announces sops for Africa‟, Business Standard (25 May 2011), www.businessstandard.com/india/news/india-announces-sops-for-africa/436712/. Accessed on 31 May 2011. Ibid.

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UN reform in September 2011. AUC Chairman Jean Ping has also urged African countries to support India's bid to become a permanent member of the UNSC.11

Moving Ahead Tanzanian President Jakaya Kikwete during Indian Prime Minister Manmohan Singh‟s visit to Tanzania noted that while the Chinese had offered a 200-bed hospital to his country, „Indians have helped to train the people who will work in these Chinese built hospitals.‟12 This is a reiteration of India‟s new found prowess and its departure from its „mouse like diplomatic clout‟ to ambitions and actions that match its „elephantine weight‟. 13 While India has made limited diplomatic inroads to Africa in the past, its soft power methods have helped it gain stronger footing in the continent, backed by limited yet effective economic support. In addition, there has always been the goodwill factor that India has banked from the constant support given to African liberation movements at both the bilateral and multilateral levels. The Indian Prime Minister‟s visit to Africa has made apparent the Indian government‟s efforts to carve a different trajectory for its relations with the continent, distinct from the Chinese practices. It is also clear that India is willing to invest social, human and economic capital to make its presence felt in the region. The process of partnering Africa in effectively employing aid for development projects as opposed to pre-decided aid plans can give India an edge over Chinese presence in the continent. Whether India can sustain its sprint in Africa will also depend on how India finds and embraces new opportunities and garners support to realise its geopolitical ambitions. .....

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Siddharth Varadarajan, „Africa to back Indian push for U.N. reform in September‟, The Hindu (23 May 2011), www.thehindu.com/news/national/article2042547.ece. Accessed on 1 June 2011. 12 Siddharth Varadarajan, „Tanzania, India find „South-South' ties in good health‟, The Hindu (27 May 2011), www.thehindu.com/news/national/article2054421.ece?mstac=0. Accessed on 1 June 2011. 13 „India in Africa: Catching Up‟, The Economist (28 May – 3 June 2011), p.35.

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ISA S Insights No. 128 – 10 August 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Pakistan’s Deteriorating Economic Situation: How Much of it is Caused by Politics? Shahid Javed Burki 1 Abstract Pakistan’s economy is in a state of deep crisis, the worst in its troubled history. While some natural disasters – an earthquake in 2005 and floods in 2010 – contributed to the poor performance of the economy, much of it was the result of weak management by the civilian government that took office in the spring of 2008. The cumulative loss to the economy during the five-year tenure of the current administration may be as high as 16 per cent of the gross domestic product (GDP). On a number of previous occasions the military intervened when the government in place was deemed to be performing poorly in the economic field. Such an outcome seems unlikely this time around as the military has become conscious of the latent power of the street. This has been demonstrated by the Arab Spring. The country’s youth and the civil society do not want to see the army intervene in politics once again. That said, the current government, as it prepares for the general elections that must be held before the spring of 2013, has adopted a populist approach towards economic management. This includes the recent decision by the central bank to ease the supply of money. This may win votes but may further aggravate the already weak economic situation.

Introduction If the Pakistani economy were growing at a rate of 6 to 7 per cent a year, it would be performing as well as Bangladesh of today while still lower by a couple of points from 1

Mr Shahid Javed Burki is Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He can be reached at sjburki@yahoo.com. The views expressed are those of the author and do not necessarily reflect the views of the institute.


India’s current rate of GDP increase. Instead the rate of GDP growth in 2010-11 was only 2 per cent and, even for those who are optimists, the rate in 2011-12 will not be higher than 3 per cent. This means that the economy is performing well below its potential by as much as 4 to 5 per cent a year. I pointed this out to President Asif Ali Zardari in a meeting in his office a few months ago. He said that that was an unfair comparison – comparing apples with oranges. ‘The Indians have had democracy ever since they became independent; Bangladesh also has had years of democratic rule. Pakistan was governed by military dictators for a good part of its history. Democracy returned to the country less than three years ago. Without democracy you cannot have sustained economic growth,’ he explained. The democratic government of Pakistan People’s Party (PPP) took office in March 2008, with its leader Yusuf Reza Gilani as prime minister. The PPP had won the most seats but not a majority in the elections held in February. It initially formed a coalition with the Pakistan Muslim League under Mian Mohammad Nawaz Sharif which collapsed in May. General Pervez Musharraf held on to power as president until August 2008 when he was forced out of office and replaced by PPP’s co-chairman Asif Ali Zardari 2. Since then the elected representatives of the people have had total control over economic policymaking. How well have they performed? One answer to this question is to estimate the loss of potential national income because of indifferent policy performance. Extending the above arithmetic to the period during which the elected civilians would have held power suggests a cumulative loss of close to US$30 billion in national income, equivalent to US$166 per head of the population.

Failures of Public Economic Policy in Six Areas Has the return to democracy been good for economic development? As indicated above, the economy is performing considerably below the rates of growth being achieved by other countries of mainland South Asia. Some of this poor performance can be blamed on factors beyond the control of policymakers in Islamabad. The great flood of 2010 shaved off at least one percentage point from the rate of growth, at least for a year, possibly even two. Terrorist activities, which have taken such a heavy human toll and are exacting a heavy economic price, cannot be blamed on government policies. It is the consequence of geo-politics with Pakistan a largely passive player. The Lahore-based Institute of Public Policy estimated in its 2009 annual report that persistent terrorism was costing the economy in a number of different ways. ‘These costs (direct and indirect) aggregated to Rs678 billion (approximately US$8.4 billion) in 2008-09, equivalent to 5 per cent of the projected GDP.’ 3 Some of this could have been contained and, therefore, reduced by the adoption of the right sets of policies. It would 2

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Asif Ali Zardari and his son Balal Bhutto Zardari were elected co-chairmen of the Pakistan People’s Party following the assassination of Benazir Bhutto on 27 December 2007. Institute of Public Policy, State of the Economy: Emerging from the Crises, Lahore, 2009, p. 13.

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not be an exaggeration to suggest that poor policies are costing the economy at least 2 to 3 per cent in lost growth every year. If this trend continues poor policy performance would have cost the economy 16 per cent of the gross domestic output in the five-year period between 2008 and 2013. The failure of the policymakers stretches over a number of fronts. At least six of these matter a great deal: absence of a clear leadership in economic matters; absence of strategic thinking concerning the revival of the economy and bringing growth back; absence of clear division of authority between the central government and the provinces; absence of fiscal discipline; reliance on central bank finance to meet the government’s fiscal deficits; and lack of attention to increasing Pakistan’s share in the global markets. Most of these failures can be lumped together under the heading of poor economic governance. Perhaps the most important of these failures is not to entrust economic management to one individual who should then have appointed a team reporting to him on different matters. There was hope that the appointment as finance minister of Dr Hafeez Sheikh, who had gained some invaluable experience working at the World Bank and also as a minister in one of the administrations under President Pervez Musharraf, would result in the economy being placed in the hands of an individual with demonstrated ability and reasonably good relations with the political establishment. Sheikh quickly brought a talented team together – Shahid Kardar as governor of the State Bank of Pakistan, the country’s central bank, and Nadeem ul Haque as deputy chairman of the Planning Commission – but it soon became apparent that he was not given the political space that was needed to design and implement an effective economic policy. Important personnel changes were forced upon him. He had worked with two central bank governors and two secretaries of finance since taking office. Shahid Kardar, the governor, resigned in July 2011 followed by Jaffer Qamar, the chief economist at the Planning Commission and the government’s auditor general Tanvir Ali Agha. Sent on the defensive, the finance minister was not able to develop a strategy for the economy’s revival. The failure covered both the short term as well as the long term. In spite of strenuous efforts, he was not able to develop a tax policy that would have satisfied the International Monetary Fund (IMF) that blocked the release of US$4 billion from the US$11 billion committed as an emergency loan in late 2008. Central to the fund’s programme was the reform of the general sales tax that would have helped to increase by a bit the abysmally low tax-to-GDP ratio. It is now about 9 per cent, one of the lowest in the world. The political leadership based in Islamabad was not able to persuade the provinces to adopt the new measure. The result is not just the loss of support of the IMF. It has also seriously constrained government spending in a number of sectors important for the health of the economy. Pakistan today is investing about a third of what is required for the development of its vast human resource and about half of what is needed for improving its underdeveloped physical infrastructure. 3


While the Planning Commission got busy developing a long-term strategy for growth and produced several versions of a five-year plan, it does not have the total commitment of the political machinery to start implementing it. 4 The Commission’s draft papers present a change in what it terms the development paradigm. It is right for the planning officials to focus on improving economic efficiency rather than increasing investment to move growth to a higher plane. An investment-focused approach would need the resources the country does not have. But the focus on obtaining growth from efficiency means improving the quality of governance. This in turn means rebuilding institutions, improving the quality of human resource, reforming the structure of the civil service, putting in place effective legal structures to ensure, among other things, that contracts are observed. While all these initiatives are worthwhile and will contribute to economic betterment, it would take a long time before they become effective. They will not speed up economic recovery and place the country on the same growth trajectory as the rest of South Asia. As the World Bank’s World Development Report for 2011 emphasises, it takes a generation to develop institutions that would support and sustain economic and social development. ‘Even the fastest-transforming countries have taken between 15 and 30 years to raise their institutional performance from that of a fragile state today, says the report.’ 5 The World Bank considers Pakistan to be one of the several fragile states in the world today. There was hope that the adoption of the 18th amendment to the constitution would pass on to the provinces the responsibilities that really belong to them but the process of transfer has not proceeded smoothly. The timing of the amendment in the summer of 2010 and the issuance of the National Finance Commission (NFC) award in the fall of 2009 were done in the reverse order. The latter should have preceded the former. However, the provinces, having been given additional resources as a consequence of the NFC award, are not prepared to accept additional responsibilities unless they come with new resources. The resourcestrapped federal government does not have much funding to pass on to the provinces. Decentralisation of authority, therefore, is not happening according to the envisaged timetable. 6 Adopting a responsible fiscal stance has proved to be extraordinarily difficult for the democratic government in Pakistan. It understands that the deficits that the government is currently running are unsustainable. And yet it has shown carelessness in terms of controlling current expenditures or disciplining large loss-incurring enterprises. Senior government officials continue to spend public money on themselves or on those activities that do not have 4

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Government of Pakistan, The Planning Commission, Pakistan: New Growth Framework, Islamabad, April 2011. The World Bank, World Development Report, 2011: Conflict, Security, and Development, Washington D.C., 2011, p.10. For a detailed discussion of the 18th amendment, see Shahid Javed Burki, ‘The 18th Amendment: Pakistan’s Constitution Redesigned’, ISAS Working Paper No. 112, 3 September 2010; and Institute of Public Policy, State of the Economy: Devolution in Pakistan, Fourth Annual Report, Lahore, 2011.

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a positive impact on the economy. Public corporations such as Pakistan International Airlines, the railways and Water and Power Development Authority continue to run heavy losses. The government has leaned on the central bank to adopt an accommodating monetary policy that will adversely affect the long-term health of the economy. On 30 July 2011, Acting State Bank Governor Yaseen Enver announced that the discount rate was being brought down from 14 per cent to 13.5 per cent. The acting head took a position different from the one adopted publicly by Kardar. The former governor had openly expressed a deep concern over Islamabad resorting to the printing press for financing large fiscal deficits. His successor adopted a different policy stance. ‘The key parameter in this assessment is the outlook for inflation which in FY 2012 is expected to remain in line with the announced target. SBP’s forecast for inflation ranges between 11 and 12 per cent,’ he told the press in a meeting following the announced cut. 7 According to Bloomberg, ‘Shahid Kardar’s departure as central bank chief on July 12, the second person to quit the post in a year, had threatened to expose a breakdown in policymaking, undermining efforts to revive growth amid rising costs and terrorism. The risks fanned Pakistan 10-year government bond yields to the highest levels after Greece among debt markets tracked by Bloomberg.’ 8 The final economic management problem is the disregard of the country’s export potential. While other South Asian nations are racing ahead developing niches in the global marketplace – India in the sectors of information technology, pharmaceuticals and health services; Bangladesh in garments – Pakistan remains wedded to old products (textiles) and old markets (North America and Europe). It has lost market share both in total manufactured goods exports and textile and clothing exports in 2005-08 to exporters from other major developing countries. 9

How Politics Influences Economics While politics and political science have mostly been ignored by economists, it is difficult to understand many developments in economic history without bringing them in as explanatory factors. Without an appreciation of the environment in which policymaking is carried out it is hard to fully understand why those in power do what they do. Why did Governor Shahid 7 8 9

Shahid Iqbal, ‘SBP cuts interest rate to 13.5 pc’, Dawn (31 July 2011), p.1. Bloomberg, ‘Pakistan cuts rates after bank chief resigns’, Gulfnews.com (31 July 2011). Institute of Public Policy, State of the Economy: Devolution in Pakistan, Fourth Annual Report, Op. Cit, p. 18.

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Kardar of the State Bank of Pakistan resign after being in office for only a few months? Why, after the governor’s departure, did the central bank decide to lower the rate of interest when Pakistan has the second highest rate of inflation in Asia? Economic theory and practice would have suggested a tightening of money supply, not its easing. This was not expected by a dozen or so senior economists who, when they were questioned before the bank’s credit committee met, predicted that either the policy would not change or there might be a slight rise in the rate. India, for instance, faced with a lower rate of inflation than in Pakistan has raised the discount rate eleven times last year. The Pakistani central bank’s action confounded economists and further eroded the confidence of those watching economic developments about the seriousness of the policymakers in addressing the grim economic situation the country currently faces. The answers to these questions are not to be found in economics but in politics. As democracy continues to take hold in the country, policymakers are working to ensure their survival not only by keeping the men in uniform satisfied with their performance. This is what happened in the past when a series of prime ministers were sent home by the powerful military for having failed to provide good economic management. Their removal was in fact demanded by senior politicians who occupied the opposition benches in the legislature. And when the military intervened even the press welcomed its arrival. There are no calls this time around for history to repeat itself. The reason is that political forces are looking at some of the developments outside the country’s borders and drawing important lessons for shaping their own actions. Three of these developments are particularly important. Two of these occurred – or, more accurately, are still occurring – in the Arab world while the third took place in Turkey which, like Pakistan, is a large Muslim country engaged in an effort to strengthen the democratic structure still in the process of being built. The first of these is the effective use by the youth in the Arab world of the new media to get organised and challenge the established political order. They used such new instruments of communication frameworks as Facebook and Twitter and such devices as the IPad and mobile telephones to gather and demonstrate on the streets. This expression of discontent did not need political organisations for mobilisation. The strength of this uprising was drawn from the depth of despair that had built up over years and decades. The authoritarian regimes in Tunisia and Egypt were not able to use their well-developed security forces to keep themselves in power. Once the military establishment in these two countries indicated that it would not intervene to keep in place the discredited leaders, regime change became inevitable and happened quickly. Yemen, Libya and Syria have not gone the way of Tunisia and Egypt for the reason that those in power have managed to stay there by exploiting the social, cultural and religious divisions in their societies. They may have bought some time for themselves but not longevity.

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As Reza Aslan wrote in Time magazine’s special issue on Islam, ‘a new kind of global identity is forming across North Africa and the Middle East as young people – who make up the overwhelming majority of the region’s population – are beginning to rise up and demand a voice in their political and economic destinies. While this so-called Arab Spring has progressed in fits and starts and though it has been more successful in transforming certain societies (Tunisia and Egypt) than others (Libya, Syria), what is taking place across the lands that Ibn Battuta [the 14th century Arab explorer] travelled centuries ago is not, as it has often been portrayed in the West, merely a nationalist phenomenon. On the contrary, this generation – which is intimately interconnected by new communication technologies like satellite television, social media and the Internet – has formed a new kind of transnational identity, one that cannot be identified by any ethnic, national or sectarian borders. It is an identity founded on young people’s shared ambition to free themselves from the grip of their corrupt and inept political, religious and economic institutions…’10 The second lesson being drawn from the Arab Spring by Pakistan’s old as well as new political establishment is that the ‘street’ has been inserted as another balancing factor in the evolving democratic systems. If there is general dissatisfaction with the way the executive branch is acting and its actions cannot be constrained or controlled by the legislature and the judiciary, the street will be prepared to act. The ‘street’ is not just in the Arab world but is in all parts of the Muslim world. It is able to throb with activity because of youth of the population. The median age of the populations in Muslim countries is much lower than in other parts of the world. It is only 21 years in Pakistan, which means that some 80 million people in a population of 180 million are below that age. Most of them are not active participants in the established political order. They are, however, deeply concerned about their present economic situation and future prospects. They will become politically active if the state of the economy continues to follow its present trend and does not promise them a better future. The third important development of note is the sudden departure of all senior military commanders in Turkey. As Anthony Shadid, the Pulitzer prize winning journalist, wrote in The New York Times, ‘fifty years ago, when a populist prime minister tangled with the Turkish military, he ended up on the gallows, the mandate of three election victories little consolation. This time around, the rivalry climaxed with most of Turkey’s military high command resigning simultaneously, its leader complaining of powerlessness and bad press.’ 11 There is a consensus among analysts that this action by the commanders has strengthened the position of Recep Tyyip Erdogan, the thrice elected prime minister, rather than weakened it. The once powerful militaries in the Muslim world have had to recognise that the people of their countries want representative political orders in place rather than rule 10

11

Reza Aslan, ‘World Wanderer: Ibn Battuta chronicled the medieval era’s great globalization force: Islam’, Time (1 August 2011), p.33. Anthony Shadid, ‘Turkish prime minister climbs a higher perch in wake of resignations’, The New York Times (30 July 2011), p.1.

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by strong men. The Pakistani military establishment recognises this. It has also been weakened by the circumstances surrounding the death of Osama bin Laden, killed in an operation launched by American troops deep inside Pakistani territory. The military is still attempting to explain to the people how a foreign force could penetrate so deep into the country’s territory without its knowledge. And if there was knowledge of this operation why was it allowed to take place?

Conclusion An important lesson Pakistan’s political establishment has drawn from these developments is that it cannot simply rely on the support of its traditional constituencies. It has to keep an eye on the way people are reacting to its policies. The street also matters. It also seems to have gained some confidence that the military, while still influential in several aspects of policymaking, is not likely to directly intervene. These are reasonable responses to the important developments outside the country’s orders but they have not resulted in good economic policymaking. One important illustration is the way Islamabad is dealing with the State Bank and the way it is using monetary policy to keep the street on its side. Most political mistakes are made by sacrificing the future to the present. It is quite clear that the current rulers are getting ready for the next general elections. They have to be held in the next 20 months. If held under the current political dispensation this would be the first time in the country’s history that an elected government would have completed its full term. To get to that point the PPP-led government seems to have concluded that it is important to bring growth back by easing money supply and that tightening of money would reduce investment by the private sector and thus slow down the rate of increase in employment. These are short-term responses to a difficult economic situation but their consequences will, in the long run, be politically and economically grim. .....

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ISA S Insights No. 129 – 25 August 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

United States’ Economic Problems and Their Ripple Effects Shahid Javed Burki 1 Abstract This paper examines the agreement reached on 2 August 2011 between President Barack Obama and the United States (US) Congress on increasing the debt ceiling and discusses its likely ripple effects on the global economy. While South Asia is not well integrated into the global economy to feel the impact of developments a long distance from its borders, it too will be affected. The ripples will reach its shores.

Some Recent Development It was not supposed to have happened this way. The great recession that lasted for a bit more than one year, from 2008 to 2009, was supposed to end with a sharp recovery. History tells us that the sharper the downturn the shaper the recovery. The latest data released by the US Commerce Department on the rates of growth in the country’s economy paints a very different picture. It turns out that the recession was deeper than the earlier estimates. According to the revised national income accounts produced by the US government going back to 2003, the downturn during the great recession was much deeper than previously thought – in other words, the great recession was even greater. The Commerce Department said that the economy contracted by 5.1 per cent between the fourth quarter of 2007 and the second quarter of 2009. The earlier estimate was 4.1 per cent. Under the revised data, the US economy declined by 0.3 per cent in 2008, lower than the previous estimate of no growth. 1

Shahid Javed Burki is Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS) in the National University of Singapore (NUS). He was former Finance Minister of Pakistan, and former VicePresident of the World Bank. The author can be contacted at isassjb@nus.edu.sg. The views expressed are those of the author and do not necessarily reflect those of the institute.


The contraction in 2009 of 3.5 per cent was weaker than the previous calculation of 2.6 per cent. The economy grew a little faster in 2010, rising at 3.0 per cent rather than at 2.9 per cent thought previously. The recovery has been even slower. The Commerce Department has revised the GDP (gross domestic product) growth estimates for the first two quarters of 2011. America’s GDP grew at an annual rate of less than one per cent in the first half of 2011. The pickup in the rate of growth is much slower than most economists had predicted. GDP increased by 0.4 per cent in the first quarter and at only 1.3 per cent in the second quarter. If history had repeated itself, the recovery from the recession should have been at a rate twice as high as the contraction; 10 per cent in the 2009-11 period rather than the anemic rate of less than 1.5 per cent. Why this departure from history? Should the history of recessions and recovery be rewritten? The answer to both questions is probably yes. The great recession was different from those that occurred before. The latest downturn took place while the global economy was being restructured. Some of the activities in the older but richer economies were moving to the new emerging states. The pace of change was measured by the speed of redundancy; as some of the established firms undertook new investments, they chose to locate them in the emerging world. Growth of demand was much higher in these countries. They also had cheaper labour and the state’s involvement in the development of physical and human capital had provided an investment-supportive environment. This story has often been told. The other development of import is the way the American political system handled the debt ceiling problem. A few hours before the deadline was reached for raising the debt ceiling in the US President Barack Obama reached an agreement with Congress to increase the limit so that the country would continue to service its debt to domestic as well as foreign bond holders. Even some of the Congressmen, who had pledged that the ceiling would not be raised unless the level of government spending was lowered by an equal amount, finally relented. They were scared that the rating agencies such as Standard & Poor’s, and Moody’s would lower the rating of the US debt from AAA to something lower if Congress failed to act. This rating downgrade would have rippled quickly through the US as well as the global economy, setting the stage perhaps for another recession if not a depression. The debt agreement will have enormous consequences for the economic role of the American state. It promises a sharp reduction in public sector expenditure. This is being done at a time when the state needed to keep stimulating the economy in light of the slower-than-expected pace of recovery from the recession. Because of the contraction of government activities that will inevitably result, America will not be able to retune its economy and remain competitive against rising Asia. The country needs to invest massive amounts of public money in the rebuilding of rapidly deteriorating physical infrastructure and in improving the skill base of

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its population. This will be more difficult now, hastening the process of Asia’s catching-up. This conclusion will be discussed below in greater detail.

The Reaction There was a sense of relief that the contorted manoeuvrings among the many actors on the political stage in Washington ended by saving the country from defaulting from its obligations. The politicians finally got their act together and the US averted a default. However, as discussed below, there was unease at both the content of the agreement and the way it was reached. All parts of the political spectrum were uncomfortable – the right, the left and the centre. Wall Street greeted the agreement with a plunge in the Dow Jones industrials, extending its decline to nine consecutive days, the longest declining trend since 1978. The trend was broken on 3 August 2011, but with only a slight increase. Larry Summers, former treasury secretary and a senior economic advisor to President Obama for a couple of years, can be placed at the centre of the US political spectrum. He quoted Winston Churchill – as did many other commentators – in expressing his misgivings about the debt deal in an article in the Financial Times. Churchill had said at a moment of exasperation that the US always does the right thing after exhausting all other alternatives. Summers wrote that ‘…relief will soon give way to alarm about the US’ economic and fiscal future’. 2 Centrists are also worried about the confluence of many adverse circumstances and their impact on the development of the global economy. Again to quote from Summers: ‘With growth at less than 1 per cent in the first half of the year, the economy is now at stall speed with the prospects of adverse shocks from a European financial crisis that is decidedly not under control, spikes in oil prices, and confidence declines on the parts of businesses and households. Based on the flow of statistics the odds of the economy going back into recession are at least one in three – if nothing is done to raise demand and spur growth.’ 3 The reaction from the right – the informed rather than the ideological part of the political divide – was also expressed through the pages of the Financial Times. Carmen Reinhart and Vincent Reinhart – the latter from the conservative think-tank, the American Enterprise Institute – felt that ‘negotiations between President Barack Obama and congressional leaders found a sliver of common ground…But a temporary ceasefire in this fiscal year will not address the country’s long-run problems. The rating agencies are therefore justified in reconsidering America’s triple-A rating.’ 4 The political right’s gripe was based on the fact that the Democrats had pulled off a deal by postponing fiscal adjustments to a much later 2 3 4

Lawrence Summers, ‘Relief at an agreement will give way to alarm’, Financial Times (3 August 2011), p. 7. Ibid. Carmen Reinhart and Vincent Reinhart, ‘Deal or no deal, a downgrade is deserved’, Financial Times (2 August 2011), p. 7.

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date. This was called the ‘back-loading’ of the process with most of the promised decline in the deficit coming later in the 10-year period during which spending was to be cut by US$2.8 trillion. For them, cuts to spending should come quickly. ‘If moves are made quickly, there is much good that can now be done. But the chances are that the stalemate will return, and any declarations of victory over a debt downgrade are likely to prove premature.’ 5 It was precisely the promised cut in public expenditure that made the left very unhappy with the agreement. Writing for The New York Times, Paul Krugman called the agreement ‘a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America’s long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will make America a long way down the road to banana-republic status.’ 6 The left, following Keynes, was particularly worried that the state was being pulled back precisely at a time when it was needed to stimulate the economy. According to Krugman: ‘The worst thing you can do in these circumstances is to slash government spending since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.’ 7 That the adjustment to government spending would be done so quickly that it would further weaken a weakening American economy was precisely the worry of the left (Krugman) and the centre (Summers).

The Ripple Effects There were two aspects of America’s current economic situation that were not expected even by those who were convinced that the country will eventually surrender its position as the world’s predominant economy. One, the change will happen but would come slowly and, this being so, there would be time to make the needed adjustments by those who, in some way or the other, were deeply attached to the US economy. This was particularly the case for China and other economies of East Asia. Two, this process of delinking had already begun. It was called ‘de-coupling’ by some analysts. Gradually the economies in Asia in particular were being decoupled from that of the US. According to this line of thinking, China would be the centre of gravity for the Asian economies. Both assumptions turned out not to be entirely correct. America’s decline – both in absolute terms as well as in relative terms – was hastened by the great recession of 2008-09. There is now expectation – even by the economists working at the International Monetary Fund who are not given to radical thinking – that China, having overtaken Japan in terms of the size of 5 6 7

Ibid. Paul Krugman, ‘The President surrenders’, The New York Times (31 July 2011), p. 19. Ibid.

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its economy, may go on to overtake the US within a decade or a decade-and-a-half. And decoupling did not happen to the expected extent. The great recession, for instance, affected all parts of the world, even those that had built strong economic ties with China. And, the realignment of the large economies within the global system was to happen differently. It was expected that some large Asian economies would grow at rates much higher than those of the old and rich nations in North America and Europe, thus ushering in a new period of ‘catch up’, closing Asia’s gap with the developed parts of the world. That is happening. The rates of GDP increase in China and India are three to four times the rates at which America and Europe are growing. However, there is an unexpected development. Some of the larger economies are seeing their currencies gaining ground on the dollar and the euro. China is moving slowly but at a deliberate pace to make its currency, the renminbi, a reserve currency. For the moment, it is concentrating on concluding currency-swap arrangements with some of its major trading partners. That way, a significant part of its nonAmerican and non-European trade can be settled in renminbi without converting it first into dollars. How will the deeper than expected recession of 2008-09 and slower than anticipated recovery affect the countries outside the US? How will the debt deal influence the global economy, in particular that of Asia – and within that continent, of South Asia? That the American economy would lose ground to the large economies of Asia is not news any more. What is news is that the pace of change will quicken. And what is still not fully recognised is that the weakening of the American state as a consequence of the debt deal would affect one aspect of the American economy that was supposed to prolong its status as an economic superpower. Those who were not troubled by the loss of American manufacturing jobs to emerging economies took comfort in the fact that the country continued to retain an enormous advantage over all other nations in the areas of innovation, management and technological development. America had found a way of building new enterprises – or ‘start-ups’ in the language of finance – that combined these three attributes. The success of Google, Facebook, Twitter, and Gentex and before that of Microsoft and Oracle were examples of American enterprise that came to dominate the world in some of the newer sectors of the global economy. But in all these areas the American state had played a large role. Many of the technologies that have had an enormous impact on the way the global economy and the society function owe their development to the encouragement provided by the US government. This encouragement came in the form of government-subsidised research or in the form of government procurement. This will become increasingly difficult if the working of the state is seriously constrained by financial cutbacks. What is also problematic for the American economy is that this emphasis on reducing the size of the government is happening along with a growing hostility towards immigration. Once again the American right has not recognised the larger implications of its anti-immigration 5


stance. What has kept the American economy vibrant even when the rate of fertility was rapidly falling is its openness in bringing the needed workforce from abroad. Immigrants not only picked crops in the fields, built buildings and repaired roads. They also peopled the country’s universities, research institutions and hospitals. Partly because of 9/11 and also because of the perceived threat to the American way of life, there is a growing sentiment in the country against immigration. This too would have an adverse effect on innovation, management and technological change. Without fully realising it, America seems to be moving in the direction Europe has taken. There the economic dynamism that only the young can provide is being sacrificed on the altar of cultural purity. These developments have profound implications for the countries in Asia that have large and young populations. China has entered a different demographic phase compared with the populous countries of South Asia. Partly – but only partly since rapid economic growth also affects the rate of fertility – China will reach the stage of stable population long before South Asia gets to that point. In South Asia the human resource can be put to use in two different ways that will contribute further to the region’s rise. By providing its people with advance education and appropriate skills, the region can offer partnerships to American firms constrained by the government’s imposed frugality and also by the their inability to bring from the outside as many skilled people as needed. Also, these countries can leapfrog into those areas in which greater space will become available as a result of some of the financial and immigration constraints being imposed on the American economy and society. As economists have recognised for a long time, policies often have unintended consequences. This is likely to be the case with the debt deal done on 2 August in Washington. .....

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ISA S Insights No. 130 – 22 August 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

DMIC: Addressing India’s Infrastructure Woes? Amitendu Palit and Suvi Dogra1

Abstract India’s largest integrated infrastructure project -- the Delhi Mumbai Industrial Corridor (DMIC) – is currently under implementation. The DMIC is expected to significantly enhance connectivity among the states it covers. It is the latest example of Indo-Japan collaboration in infrastructure development in India. This paper discusses the main features of the project and argues that while the economic benefits from the DMIC are enormous, care should be taken to ensure that its progress does not get affected by problems of land acquisition, multiple agency co-ordination and slow project implementation.

Introduction Infrastructure has been variously identified as one of the most pressing constraints affecting the Indian economy. Poor infrastructure, particularly physical infrastructure, such as lack of adequate quality roads, highways, sea ports and airports, adversely affects both producers and consumers by increasing costs. While producers pay more due to delays in transportation and wastages during movement of goods, consumers suffer from high prices created by supply shortages resulting from late arrival of goods and also the costs passed on by producers.

1

Dr Amitendu Palit is Head (Development & Programmes) and Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore (NUS). Ms Suvi Dogra is Research Associate at ISAS. The authors can be contacted at isasap@nus.edu.sg and isassuvi@nus.edu.sg respectively. The views expressed are those of the authors and do not necessarily reflect those of the institute.


Developing transport infrastructure has been a key priority for India. A series of initiatives to improve connectivity such as National Highway Development Programme (NHDP), Bharat Nirman, Providing Urban Services in Rural Areas (PURA), Jawaharlal Nehru National Urban Renewal Mission (JNNURM), National Rail Vikas Yojana and National Maritime Development Programme (NMDP) are being implemented. Achieving quick progress, however, has not been easy. Historically, state resources have been instrumental in providing public goods in both developed and developing countries. India’s ability to build infrastructure has been affected by fiscal constraints of the central and state governments. There have been efforts to involve private initiative in infrastructure-building through publicprivate-partnerships (PPPs). Roads have been foremost of these PPPs. Of late, the PPP projects have begun yielding results. One of the best examples is the Delhi-Noida toll bridge constructed on a build-own-operate-transfer (BOOT) principle. However, most PPP projects taken up so far have shown considerable delays in reaching financial closure and have not been particularly effective in bridging the infrastructure deficit.2 There is little doubt that large-scale infrastructure projects in India still need to be propelled by the state. It is also clear that fiscal hardships of the Indian state underline a role for foreign development assistance in building infrastructure. The upcoming Delhi-Mumbai Industrial Corridor (DMIC) being built in collaboration with Japan is a pertinent example.

DMIC The DMIC primarily involves establishment of a dedicated freight corridor (DFC) of around 1,500 km between Delhi and Mumbai with terminals at Dadri in the national capital region (NCR) of Delhi and the Jawaharlal Nehru Port near Mumbai. The area around the DFC is being developed as the DMIC.3 Seven states figure in the DMIC region. These are Delhi, Gujarat, Haryana, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh. The DMICinfluenced area covers more than 66 per cent of the combined geographical areas of the states it runs through. It will incorporate nine mega-industrial zones of about 200-250 square km each and will have a high-speed freight line, three sea-ports, six airports, a six-lane intersection-free expressway between Delhi and Mumbai, as well as a 4,000 MW power plant. 4 The DMIC seeks to ‘create a strong economic base with a globally competitive environment and state-of-the-art infrastructure to activate local commerce, enhance foreign investments and attain sustainable development’.5 2

3

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An example of the delays experienced can be seen in the first privately financed water and sewerage project in Tirupur in Tamil Nadu, which was executed through a special purpose vehicle (SPV) and on a BOOT basis, and took more than 10 years to complete from conceptualisation to financial closure. A corridor is actually a development axis which connects economic poles in combination with efficient traffic flow. Development takes place at those locations where there is strong and dynamic economic interaction. It focuses on balanced urbanisation and a strengthening of the open lands. For further details, see the DMIC website: http://delhimumbaiindustrialcorridor.com. Ibid.

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The main objectives of the project in terms of building industrial and physical infrastructures are given in Table 1. Table 1: DMIC’s Objectives

1. 2. 3.

4.

5. 6.

7.

Industrial Infrastructure Developing new industrial clusters Upgrading existing industrial estates/clusters Developing modern integrated agroprocessing zones with allied infrastructure Developing information technology (IT)/IT-enabled services (ITeS) hubs and allied infrastructure such as knowledge parks and high-tech service centres Providing efficient logistics chain with multi-modal hubs Building primary and secondary schools, colleges, polytechnics, centres of excellence in various disciplines, management and engineering institutes and multi-techno institutes Augmenting water supply facilities by identifying and developing new sewerage and drainage projects

1. 2. 3.

4.

5.

6.

7.

Physical Infrastructure Developing‘Knowledge Hubs’with integrated approach Feeder road/rail connectivity to sea ports, hinterlands and markets Developing existing port infrastructure and green-field sea ports with dedicated jetties for efficient cargo movement Upgrading/ modernising airports and establishing green-field airports and airstrips Setting up power generation plants with transmission facilities for augmenting power supplies in the region Ensuring effective environment protection mechanisms such as green office complexes, water recycling and reuse, and use of solar energy Developing integrated townships with residential zones and green buildings

An apex body, headed by the finance minister and including other central ministers and chief ministers of the respective DMIC states, is providing overall guidance, planning and approvals for the project. The Delhi Mumbai Industrial Corridor Development Corporation (DMICDC) has been established as a special-purpose vehicle (SPV) to coordinate project development, finance and implementation. A state-level entity/nodal agency is coordinating between the DMICDC, different state government entities and project implementing agencies/other SPVs belonging to the state governments, the central government and their agencies. The DMICDC has representation from the central government, state governments and financial institutions. The central government owns 49 per cent of the equity in DMICDC, while the Infrastructure Leasing and Finance Corporation (IL&FS) and the Industrial Development Finance Corporation (IDFC) own 41 per cent and 10 per cent, respectively. 3


There are, however, plans to recast the ownership structure by transferring 51 per cent of the equity with IL&FS and IDFC to government financial institutions.6 The development strategy for the DMIC is based on the competitiveness of each of the DMIC states and identification of high impact/market driven nodes along the DMIC. Each node is envisaged as a self-sustained region with quality infrastructure and good connectivity to the freight corridor, ports and hinterlands. In order to fully utilise potential economic benefits of the corridor, the DMIC proposes to link under-developed regions along the corridor to more developed ones. This is expected to create effective forward and backward linkages between more and less developed areas as well as enhance business and employment prospects. The market-driven nodes are proposed to be in two categories: investment regions (with an approximate minimum area of 200 sq km) and industrial areas (with an approximate minimum area of 100 sq km). Twenty four nodes, including 11 investment regions and 13 industrial areas, have been identified in consultation with state governments.

Indo-Japan Collaboration The project is the latest example of Japanese involvement in infrastructure building in India. Japan has been an active partner in India’s development for several years as the largest bilateral provider of overseas development assistance (ODA). Japanese business interests in India have been growing steadily and India is identified by Japanese corporations as the most promising country for long-term investment7 Japan’s role in upgrading and expanding India’s infrastructure is evident from the several projects in India that it is involved with in electricity (electricity distribution and upgrading project in Bangalore, transmission modernisation system in Hyderabad), road (Delhi Mass Rapid Transport System) and sea-port (Visakhapatnam port expansion project). Japan has provided long-term financial assistance for funding the western DFC. Beginning from an involvement in the planning and feasibility study stages, Japan has been providing concessional financing to the DMIC through its government-to-government (G2G) programmes along with technical assistance. Japan’s decision to partner the DMIC was taken during Indian Prime Minister Manmohan Singh’s visit to Tokyo in December 2006. The Japanese contribution of US$75 million is in the form of a commercial loan from the Japan

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Shruti Choudhury and Deepshikha Sikarwar, ‘Delhi-Mumbai industrial corridor proposal to get Cabinet’s nod this week: DMIC special purpose vehicle structure recast soon,’ The Economic Times (09 August 2011), http://articles.economictimes.indiatimes.com/2011-08-09/news/29867191_1_industrial-corridortrunk-infrastructure-dmic-project. Accessed on 19 August 2011. Report on Overseas Business Operations of Japanese Manufacturers, FY2010 (the 22nd) Survey on Foreign Direct Investment by Japan Bank for International Cooperation (JBIC). http://www.jbic.go.jp/en/about/press/2010/1203-01/index.html. Accessed on 19 August 2011.

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Bank for International Cooperation (JBIC). The DMIC is being built along the lines of the successfully operating Tokyo-Osaka industrial corridor in Japan.8 The Indo-Japan collaboration in the DMIC also pertains to collaboration in developing ecocities in the DMIC region and establishing a project development fund (PDF) to undertake activities such as master planning, feasibility studies, preparation of detailed project reports, obtaining necessary approvals and bid process management for projects to be taken up in the DMIC region. The fund will be set up with equal contributions from the governments of Japan and India. India signed its third bilateral comprehensive economic partnership agreement (CEPA) with Japan on 16 February 20119. The CEPA came into force from 1 August 2011. Barely a month after signing the CEPA, the two countries unveiled a plan to launch 24 green cities along the DMIC. Preparatory work has begun on pilot projects in seven green cities. These cities will have optimised energy supplies, 24-hour potable water supply, bicycle and walking paths, and waste-recycling systems. Leading Japanese companies such as Hitachi, Mitsubishi, and Toshiba are expected to participate in the design and construction of the cities. Japan is also weighing the feasibility of running high-speed bullet trains along the corridor. A feasibility study – sponsored by the Ministry of Economic Trade and Industry (METI) of Japan - will explore the possibility of trains running at maximum speeds of 200 km per hour along the corridor, which will be much higher than 130 km per hour speed at which India’s fastest trains, Rajdhani and Shatabdi Expresses, run.10 If introduced successfully, these highspeed trains would significantly reduce the journey time between Delhi and Mumbai.

Upsides and Downsides In several ways, the DMIC is the shot-in-the-arm that India’s infrastructure needs. This is not only because it can significantly improve connectivity and bring down production costs, it can also generate virtuous multiplier effects by augmenting employment, industrial production and exports. The scales of these benefits are significant given that the project will cover states that account for sizeable economic output and transactions in India. These states account for almost 54 per cent of India’s gross industrial output, 60 per cent of total exports and nearly half of total foreign direct investment (FDI) inflows into India during the last decade. The states also cover large parts of India’s road and rail networks. Major ports 8

9 10

The corridor is along the 515-km Tokaido-Shinkasen high speed railway built in 1964. The network spans about 2,000 km and connects the industrial areas of Tokyo, Osaka and Nagoya, apart from providing efficient port connectivity for these areas. The other two are with Singapore and South Korea. Himanshu Kaushik, ‘200kmph train for DMIC?’, The Times of India (19 July 2011), http://articles.timesofindia.indiatimes.com/2011-07-19/ahmedabad/29789975_1_semi-high-speed-raildevelopment-speed-trains-bullet-train. Accessed on 19 August 2011.

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coming under the ambit of the corridor cover roughly a third of total cargo handled across the country. The DMIC states are also home to big chunks of India’s mineral resources. Potential investors – both foreign and domestic – will keenly watch the progress on the project. As connectivity improves and the proposed investment regions and industrial areasare being developed, new opportunities are expected to appear in several industries within the DMIC region. These include gems and jewellery, engineering, chemicals and petrochemicals, oil and gas, textiles and apparel, food processing, IT/ITES, cars, ship repairing/building, tourism and other knowledge-based industries. While the potential economic gains from the project are enormous, there are unavoidable challenges facing it during implementation. The sheer size of the project requires it to be implemented in phases to ensure sustainability. Involvement of multiple agencies from central and state governments portends a major challenge for co-ordination. The issues of coordination are not limited to those among Indian agencies only. For the country’s largest foreign-funded project, there is need to ensure effective co-ordination between foreign and domestic agencies too. This would be no less challenging given the imperatives of managing tricky aspects such as differences in work culture and approaches to project management. Other than co-ordination, there are typical systemic domestic inefficiencies to be overcome. Foremost among these is land acquisition. Avoiding land acquisition crises such as those faced during implementation of special economic zones (SEZs) will be a major challenge for the project. The success in this respect will depend on the ability of private developers and state governments to negotiate with landowners to reach mutually satisfactory outcomes. The overall rate of progress on the project will depend critically upon the capabilities of the DMIC states to proceed on their individual targets. Gaps are already visible in this regard with Gujarat appearing to be a better performer than the others in implementing the ‘early bird’ projects.11 States such as Uttar Pradesh and Madhya Pradesh do not have particularly distinguished track records in project implementation. Even more industrially advanced states such as Maharashtra and Haryana have experienced delays in implementing projects which, again, are partly on account of difficulties arising from problems of co-ordination and land acquisition, in addition to other procedural and administrative problems. Different phases of the project might take much longer than expected to finish given the uneven paces of project implementation among the states. This would be unfortunate since a project of such an ambitious vision, scale and scope does not deserve to get afflicted by India’s systemic traditional drawbacks. .....

11

‘Gujarat tops in DMIC Project Execution: Amitabh Kant’, Business Standard (23 July 2010), http://www.business-standard.com/india/news/gujarat-tops-in-dmic-project-execution-amitabhkant/102604/on. Accessed on 19 August 2011.

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ISA S Insights No. 131 – 25 August 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Suicides in India: The Economics at Work Amitendu Palit and Pratima Singh 1

Abstract Suicides in India have been rising steadily over the last couple of decades. The number of suicides committed on economic grounds has more than doubled between 1991 and 2009. This paper studies the pattern of suicides in 10 states reporting highest suicides for the year 2009 and analyses the economic factors behind these suicides. The paper finds that bankruptcy or sharp changes in economic status, along with poverty, are major factors driving suicides in India’s relatively prosperous states, while property disputes, career problems and unemployment are doing so in the relatively poorer states. The paper argues that economic prosperity in India has not necessarily resulted in economic security. Suicides on economic grounds might increase unless India is able to develop effective social security mechanisms for tackling economic hardships.

Introduction In a country of more than 1.2 billion people, suicides do not create much stir as a socio-economic phenomenon, unless they are associated with somewhat sensational features. According to the latest statistics provided by the National Crime Records Bureau, suicides claimed 127,151 lives 1

Dr Amitendu Palit is Visiting Research Fellow at the Institute of South Asian Studies, an autonomous research institute at the National University of Singapore. He can be contacted at isasap@nus.edu.sg. Ms Pratima Singh is Research Associate at ISAS. She can be contacted at isasps@nus.edu.sg. The views expressed are those of the authors and do not necessarily reflect those of the institute.


in India in 2009, which is merely 0.01 per cent of the total population. However, they show considerable increase from 78,450 and 108,593 reported suicides in 1991 and 2000 respectively. The fact that more people are taking their lives in India indicates that there are strong factors at work precipitating suicides. Official statistics group suicides in India into several categories according to their determinants. These can be broadly divided into two groups: economic and non-economic factors. Economic factors include bankruptcy or sudden change in economic status, poverty, property disputes, professional/career problems and unemployment. Non-economic factors driving suicides include illnesses and drug abuse and also emotionally disturbing causes such as unsuccessful personal relationships, death of near and dear ones or failure in examinations triggering destructive emotional shocks. This paper attempts to study the economic factors behind suicides in India. Farmer suicides in various parts of India caused by financial indebtedness have drawn considerable public attention in recent years. But what is relatively less noticed and discussed is the overall large number of people taking their lives due to a variety of diverse economic factors. This is reflected in the number of suicides on economic grounds having more than doubled from 5,627 in 1991 to 11,228 in 2009. 2 The actual number of suicides might well be more given that several suicides are unreported and not captured by official statistics. Clearly, suicides in India precipitated by economic factors are not confined to farmers alone, but have a more broad-based dimension. This paper aims to study some of these dimensions by analysing the pattern of suicides on economic grounds in the top ten states reporting suicides in India.

State Scenario During the year 2009, West Bengal reported the largest number of suicides followed by Andhra Pradesh, Tamil Nadu, Maharashtra, Karnataka and Madhya Pradesh (Table 1).

2

Authors’ own calculations based on data from the National Crime Records Bureau. Accidental Deaths and Suicides in India, 2009, http://ncrb.nic.in/CD-ADSI2009/suicides-09.pdf. Accessed on 23 May 2011.

2


Table 1: Highest Suicide States in India

Rank

State

2009

Percentage Share of Total

1

West Bengal

14,648

11.5

2

Andhra Pradesh

14,500

11.4

3

Tamil Nadu

14,424

11.3

4

Maharashtra

14,300

11.2

5

Karnataka

12,195

9.6

6

Madhya Pradesh

9,113

7.2

7

Kerala

8,755

6.9

8

Gujarat

6,156

4.8

9

Chhattisgarh

5,883

4.6

10

Rajasthan

5,065

4.0

Source: The National Crime Records Bureau of India; Retrieved from http://ncrb.nic.in/CD-ADSI2009/TABLES.htm

It is noticeable that the top ten suicide states in India include Andhra Pradesh, Tamil Nadu, Maharashtra, Karnataka and Gujarat, which are among the well-off and economically advanced states of the country. These five states and Kerala – another top suicide state – have per capita incomes higher than the national average. 3 Between them, these six states reported more than 55 per cent of India’s suicides in 2009. Though this might tempt one to conclude that more suicides in India take place in the richer states, it may not be entirely so. There are examples of higher than national average per capita incomes states such as Haryana, Punjab and Uttarakhand, which do not figure among top suicide states. Leaving aside these six states, the remaining four among the top ten states – West Bengal, Madhya Pradesh, Chhattisgarh and Rajasthan – have per capita incomes lower than the national average and are relatively poorer states. High suicides in these states (a combined proportion of 27 per cent of total suicides in the year) indicate that some of the relatively poor states are afflicted by the problem as well. From an analytical perspective, the top ten suicide states of India can be divided into two broad economic groups: ‘more developed’ (Andhra Pradesh, Gujarat, Karnataka, Kerala, Maharashtra, Tamil Nadu) and ‘less developed’ (Chhattisgarh, Madhya Pradesh, Rajasthan, West Bengal). For a better understanding of economic factors driving suicides in both categories, it is important to examine the incidence of suicides occurring in each of the states according to the individual 3

National average for the year 2009-10 was reportedly Rs. 46,492. Data from Per capita Net State Domestic Product and Per capita Net National Product at Current Prices (as on 15 May 2011). Directorate of Economics Statistics of respective State Governments, and Central Statistical Organisation, http://planningcommission.nic.in/data/datata ble/1705/final_96.pdf. Accessed on 30 May 2011.

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factors driving these suicides. This is shown in Table 2. Similarly, Table 3 provides a break-up of state-wise suicides according to the profession of the individuals (eg. service, unemployed, self-employed, etc.). Table 2: Share of States in Suicides due to Economic Causes State

50.7 10.6 10.2 8.3 0.0 4.6

Causes Professional/ Career Problem 8.9 7.2 21.3 1.9 4.9 6.3

88.0

84.3

West Bengal

2.8

Madhya Pradesh

Andhra Pradesh Tamil Nadu Maharashtra Karnataka Kerala Gujarat High-Income States

Chhattisgarh Rajasthan Low-Income States Total (of 10 states)

Bankruptcy/ Sudden Change in Economic Status 28.1 4.5 24.2 7.7 17.9 5.7

Poverty

Property Dispute

Unemployment 9.6 5.6 4.4 3.4 2.4 1.6

10.4 15.1 12.7 4.9 0.8 11.9

50.6

27.0

55.9

1.5

19.8

23.2

17.3

2.5 0.9 1.3

2.7 0.2 0.4

9.9 2.4 4.0

7.3 1.2 9.5

6.8 0.8 0.9

7.5

4.8

36.1

41.2

25.8

95.5

89.1

86.7

68.2

81.7

Source: The National Crime Records Bureau of India; Retrieved from http://ncrb.nic.in/CD-ADSI2009/TABLES.htm. Note:

Shares represent the proportion of suicides occurring in a particular state due to a particular cause as a percentage of total suicides attributable to that cause.

Andhra shows the largest number of suicides among the developed and economically better-off states of India. The two largest economic determinants of suicides in Andhra are bankruptcy or sudden change in economic status and poverty. The state accounts for 28 per cent of the total suicides in the country due to bankruptcy and 51 per cent of suicides forced by poverty. This is similar to factors at work in Maharashtra, where in addition to bankruptcy, professional/career problems and unemployment appear to be major economic drivers of suicides. Unemployment and poverty appear dominant factors in Tamil Nadu, as do they in Karnataka where bankruptcy also appears to be influencing suicides. It is interesting to note that Kerala does not account for 4


any of the national suicides driven by poverty, but rather is responsible for a large chunk of suicides caused by bankruptcy. Indeed, it is the second largest state accounting for self-deaths caused by bankruptcy. Finally, Gujarat appears to have been affected more by unemployment and career problems than poverty. Looking at the four relatively economically laggard states, West Bengal shows a strikingly high incidence of suicides driven by property disputes, followed by career problems and unemployment. Property disputes are significant drivers of suicides in Rajasthan and Madhya Pradesh as well. Madhya Pradesh has been affected by unemployment and career problems as well. Chhattisgarh shows a fairly large incidence of suicides arising from career problems too. Table 3: Share of States in Suicides Categorised by Profession State

Profession Self– Self– Employed Employed (Business (Professional Activity) Activity) 17.5 13.7 10.8 9.2 5.4 17.7 8.6 4.3 7.8 6.4 4.4 15.5

Self– Employed (Farming / Agriculture) 14.1 6.2 16.7 13.3 5.2 3.4

Self– Employed (Others)

Service (Private)

Unemployed

11.6 16.7 16.7 8.2 4.2 6.1

7.5 20.9 9.2 5.6 8.4 6.1

63.5

57.7

54.6

66.8

58.9

59.4

West Bengal

7.9

14.2

17.4

5.8

6.1

9.3

Madhya Pradesh

6.1 2.8 5.2

3.4 5.1 1.6

7.8 1.4 3.7

10.5 3.8 1.5

8.1 10.5 5.0

4.8 4.0 4.8

22.0 85.5

24.4 82.1

30.3 84.9

21.6 88.4

29.7 88.6

22.8 82.2

Andhra Pradesh Tamil Nadu Maharashtra Karnataka Kerala Gujarat High-Income States

Chhattisgarh Rajasthan Low-Income States Total (of 10 states)

12.0 11.1 12.7 12.5 7.7 3.3

Source: The National Crime Records Bureau of India; Retrieved from http://ncrb.nic.in/CD-ADSI2009/TABLES.ht Note:

Shares represent the proportion of suicides occurring in a particular state by those of a particular profession as a percentage of total suicides attributable to that profession.

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The official data on state-wise suicides also helps in looking at the professions of people committing suicides. Six broad categories can be arrived at in this regard: service (private), selfemployed (business activity), self-employed (professional activity), self-employed (farming/agriculture), self-employed (others) and unemployed. The first category refers to the salaried in private sector. The next four covers various categories of self-employed including farmers, and the last one considers the unemployed. Among the richer states, Andhra reflects the largest number of suicides for the self-employed in business and farming. While incidents of farmers’ suicides in Andhra are well known, it is surprising to note that the state accounts for 17.5 per cent of national suicides attributable to the self-employed in business. The self-employed in farming also account for significant suicides in Maharashtra, where the proportions of self-employed (business) and service (private) suicides are also noticeably high. Tamil Nadu does not account for as many suicides from the selfemployed professionals as Andhra and Maharashtra. The unemployed are found taking their lives the most in Tamil Nadu with the state accounting for more than 20 per cent of unemployed suicides in the country. Tamil Nadu also has one of the largest incidences of suicides from service (private). Both self-employed (farming) and self-employed (other) suicides are high in Karnataka and much less in Kerala and Gujarat. Unemployed suicides account for most of Kerala’s suicides while Gujarat appears to be considerably affected by suicides by self-employed (professional). West Bengal – among the economically relatively poorer states – has largest share of suicides from the self-employed (business), followed by the unemployed. Farmers’ suicides, surprisingly, are not the dominant profession among suicides in poorer states except in Chhattisgarh and partly in Rajasthan. Incidence of the self-employed (business) taking their own lives is fairly high in Madhya Pradesh, while service (private) suicides are significant in Rajasthan.

Digging Deeper A study of the economic factors and professions driving suicides in 10 of India’s major states throw some light on the nature of issues precipitating suicides. In this respect, there are some distinctions between factors at work in the relatively high-income and low-income states. The top six high-income states account for 68.5 per cent of total suicides in India attributable to economic factors. The most significant economic drivers of suicides in these states are bankruptcy/sudden change in economic status and poverty with the six states discussed in this paper accounting for 88 per cent and 84.3 per cent of the bankruptcy and poverty-driven suicides in the country (Table 2). They also account for 55.9 per cent of suicides arising from 6


unemployment and around half of suicides caused by professional/career problems. On the other hand, property dispute is a much less significant cause for suicides in these states. It is an important cause behind suicides in the lower-income states mentioned in this paper, where career problems and unemployment, also lead to loss of several lives. Between themselves, the four low-income, high suicide states discussed in the paper account for 18.1 per cent of total suicides attributable to economic reasons. Career problems and unemployment appear to be common causes influencing suicides in both high and low-income states in the country. The suicides data does not give information on victims from which profession committed suicides on what grounds. For example, it is not possible to know how many people committing suicides from the self-employed (farming) profession did so due to bankruptcy. Nonetheless, observations drawn from individual analysis of economic factors driving suicides in the top 10 states, and the professions of suicide victims, does help in reaching at some broad conclusions. There is little doubt that India’s relatively richer states account for a considerable part of suicides driven by economic factors, particularly bankruptcy and poverty. However, while these states show fairly high suicide tendencies among all professions, they are particularly high on suicides from self-employed (professionals and business) and service (private). These trends probably indicate high incidences of bankruptcy or sharp change in economic status among the selfemployed (professionals and business) and service professions precipitating suicides. For example, a common factor influencing suicides particularly in urban areas could be inability to service high-cost debts due to sudden loss of income from equity market. The high share of these six states in suicides committed out of poverty is primarily due to large contribution from Andhra, which accounts for more than 50 per cent of such suicides. The shares are around 10 per cent or little less for Tamil Nadu, Maharashtra and Karnataka. Gujarat shows much less suicides from poverty, while Kerala has none. But states like Andhra in particular, and Tamil Nadu, Maharashtra and Karnataka to some extent, are probably facing circumstances where the poor are being driven to suicides more than elsewhere in the country. These are also the states where suicides by self-employed (farmers) are fairly high underlining the distinct possibility of poor farmers being driven to suicides in situations where income poverty is reinforced by bankruptcy. The four low-income states reported in this paper account for roughly 18 per cent of total suicides attributable to economic factors. As pointed out earlier, bankruptcy or poverty are less critical factors in influencing suicides in these states. Property disputes, unemployment and career-related problems are the more precipitating causes affecting the self-employed in business and farming and obviously the unemployed. While unemployment and career-related difficulties are expected features of states like West Bengal and Madhya Pradesh, where shallow industrial 7


bases and subdued economic activity have constrained job opportunities and career prospects, property disputes, and the high number suicides resulting from such disputes, are rather surprising findings. Other than Chhattisgarh, property disputes are noticed to be prime movers behind suicides in West Bengal, and also in Madhya Pradesh and Rajasthan. The importance of the factor can probably be explained by highlighting the significance of property as an incomegenerating asset in these states, where opportunities of earning income from other sources are much limited. Lack of economic opportunities forces households to rely on property as the sole source of wealth. But the limitation also increases individual claims on property, often between members belonging to same households, forcing disputes that stretch over long periods in time, resulting in emotional frustrations and economic hardships arising from costs of litigation leading to desperate decisions like taking one’s life. Matters are not helped by poor systems of maintaining property rights and title deeds, which only accentuate hardships.

Grim and Gloomy Suicides in India prompted by economic factors are clearly increasing as is evident from the doubling of such suicides during 1991-2009. This is perhaps inevitable in a country struggling to come to grips with sweeping changes unleashed in an economy saddled with institutions and social systems ill-equipped to handle such changes. While factors determining suicides are often specific to individual instances and typical of the location and time where they occur, some broad trends cannot be overlooked. India’s prosperous states have not been able to develop mechanisms for safeguarding economic distresses arising from rising occasions of bankruptcy. Much of these occasions are probably related to inability of individuals to remain financially solvent for servicing loans or mortgages. This applies to both rural and urban individuals. While rural suicide victims might be falling prey to vicious loan cycles set off by high interest microfinance schemes and the lack of alternative financing, urban victims are more prone to illusions of more prosperous lives gathered from sudden windfall gains made in equity markets. It is worth noting that the reference period for analysis in this paper was the year 2009, when markets in India crashed after the global recession leading to large contractions in wealth and economic surpluses of several households and families relying on market-based savings instruments for not only subsistence earnings, but also rising gains. In addition to abrupt changes in economic status, which such dependence can create, it is obvious that there is no state-supported mechanism in terms of social security that can help individuals and households in such precarious conditions. Thus the crisis and the resultant financial distress and its adverse implications might have influenced the suicide statistics for the year. Unless Indian states devote more attention to social security provisions, economic factors might claim more lives in India through rising incidence of suicides. The economic factors discussed in 8


this paper are closely connected. Bankruptcy enhances poverty, which, from a different perspective, is always reinforced by unemployment and endless costs of lingering property disputes. The rising suicides are clear indication of India’s economic prosperity not necessarily generating economic security. With the different states showing different trends in suicides, a more rigorous study of the suicide trends in each of the states reporting high suicide numbers is required before any of the hypotheses mentioned in the paper can be verified. However, there is enough evidence to highlight that these trends would require a better set of development initiatives that would focus on the need to spread economic progress more broadly and improve rural infrastructure through policy measures. Suicides due to economic determinants in India, and not just farmer suicides, require both attention, as well as policy changes. .....

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ISA S Insights No. 132 – 1 September 2011

469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Iran, US and the Afghan Conundrum Shanthie Mariet D’Souza1

Abstract The difficult US-Iran relations have further complicated the search for an ‘end game’ in Afghanistan. The ongoing talks of the yet-to-be-inked US-Afghan Strategic Partnership deal has raised concerns in Iran of a prolonged US military presence beyond 2014. While the US and Iran share a common goal of preventing the return of the Taliban in Afghanistan, the dynamics of the great power relations could impede the process of effective transition and create long-term instability in the war-torn country. The ongoing discussions about a long-term security agreement between the United States and Afghanistan, termed „US-Afghan Strategic Partnership‟, outlining the prospect of American troops prolonging their stay in Afghanistan beyond 2014 has caused considerable disquiet in the region. These secretive negotiations come amid a scramble among regional powers to position themselves for what senior US officers are now describing as the „out years‟ and are seen in the region as leading to the beginning of another „Great Game‟. According to the details of the yet-to-be-formalised US-Afghan Strategic Partnership, limited US troop presence (20,000-30,000) carrying out specialised counter-terrorism operations and secondary support, mentoring and air power back-up to the Afghan forces would be based in at least five bases for the next two or three decades.2 1

2

Dr Shanthie Mariet D‟Souza is a Visiting Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous institute at the National University of Singapore (NUS). She can be reached at isassmd@nus.edu.sg. The views reflected in the paper are those of the author and not of the Institute. The views and findings are based on the author‟s interactions with key Afghan interlocutors and stakeholders in May-June 2011 and US officials, policymakers and academia in Washington, DC in May 2011. Shanthie Mariet D‟Souza, The Emerging Faultlines of the US-Afghan Strategic Partnership, ISAS Brief No. 210, (10 August 2011), http://www.isas.nus.edu.sg/Attachments/PublisherAttachment/ISAS_Brief_210_-_Email_The_Emerging_Faultlines_150820111153 35.pdf. Accessed on 18 August 2011. Ben Farmer, US troops may stay in Afghanistan until 2024, The Telegraph (19 August 2011), http://www.telegraph.co.uk/ne


Iran’s Perception of US Involvement in Post-2014 Afghanistan: Engagement or Encirclement? Neighbouring countries like Iran are vociferous in stating opposition3 to any arrangement that will allow the US to position itself firmly in a country which shares a 936-kilometre-long border with the Islamic republic. Iranian Interior Minister Mostafa Mohammad-Najjar has been categorical in stating that a strategic treaty between the US and Afghanistan will pose a threat to the interests of Iran and other regional countries. Iran has repeatedly maintained that outsiders are not capable of establishing security in Afghanistan.4 In 2001, Iranian and American interests coincided in Afghanistan and both sent military advisers, money and weapons to help the Northern Alliance fight the Taliban. Many in the US concede that the most constructive period of US-Iranian diplomacy since the fall of the Shah of Iran took place in the months after the 2001 terrorist attacks in the US.5 Iran played a constructive role in the Bonn process in 2002. However the situation changed dramatically with the Bush administration policies towards Iran being dominated by the Iraq war and nuclear issues. President George Bush‟s listing of Iran among the „axis of evil‟ was viewed as a surprising payback for Tehran's cooperation on Afghanistan in Bonn.6 Concerns over Iran's nuclear programme and allegations of arming militants in the region notwithstanding, Gen David H. Petraeus, commander of US forces in the region, stated in 2009 that Washington and Iran could coalesce in stabilising Afghanistan. Admiral Mike Mullen, chairman of the Joint Chiefs of Staff, echoed a similar sentiment in late January 2009.7 These overtures by US military officials have been followed by concrete steps by the Obama Administration to include Iran in discussions on a regional solution for Afghanistan.

3

4

5

6

7

ws/worldnews/asia/afghanistan/ 8712701/US-troops-may-stay-in-Afghanistan-until-2024.html. Accessed on 20 August 2011. „U.S.-Afghan strategic treaty will endanger Iran‟s interests: minister‟, Tehran Times (24 July 2011), http://old.tehrantimes.com/index_View.asp?code=244580. Accessed on 15 August 2011. Iran's Envoy Renews Opposition to US Permanent Bases in Afghanistan, FARS News Agency, Tehran (12 April 2011), http://english.farsnews.com/newstext.php?nn=9001231848. Accessed on 1 August 2011. „U.S.-Afghan strategic treaty will endanger Iran‟s interests: minister‟, Tehran Times (24 July 2011), http://old.tehrantimes.com/index_View.asp?code=244580. Accessed on 15 August 2011. Following the 9/11 attacks, the United States joined the Northern Alliance which aided by massive American airpower, drove the Taliban from power. The coalition then worked closely with the United States to secure agreement among all elements of the Afghan opposition on the formation of a broadly based successor to the Taliban regime. James Dobbins, „Engaging Iran‟ in Robin Wright (ed.), „The Iran Primer: Power, Politics, and U.S. Policy‟, United States Institute of Peace, Washington, DC, December 2010. A year later, shortly after the invasion of Iraq, all US bilateral contacts with Tehran were suspended. Since then, confrontation over Iran's nuclear programme has intensified. Washington has accused Iran of supplying Iraqi militias and Afghan insurgents with weapons to attack American troops. Iran, for its part, has arrested several Iranian-American citizens on what appear to be spurious charges. James Dobbins, „How to Talk to Iran‟, The Washington Post (22 July 2007), http://www.washingtonpost.com/wp-dyn/content/article/2 007/07/20/AR2007072002056.ht ml. Accessed on 1 August 2011. Greg Bruno and Lionel Beehner, Iran and the Future of Afghanistan, Backgrounder, Council on Foreign Relations, Washington, DC (30 March 2009), http://www.cfr.org/iran/iran-future-afghani stan/p13578. Accessed on 19 July 2011.

2


On 20 March 2009, President Barack Obama reached out to Iran through a televised address in which he offered a „new beginning‟8 in resetting US ties with Iran. In his new strategy for the Afghan war, President Obama supported Germany's calls for a „contact group‟ and listed Iran as a key player.9 Iranian and American officials held their first talks about ending the war in Afghanistan under the Russian initiative amid signs that President Obama‟s efforts to reset relations with Tehran were paying off.10 Despite these attempts, the overarching differences on the nuclear issues and allegations of Iran‟s covert support to the insurgents11 have stymied prospects of achieving any tangible cooperation on Afghanistan. With the increasing acrimony and deterioration of relations, Iran now wants the US and its NATO allies to pull their troops out from Afghanistan. Iran‟s fears of US troop presence near its borders was heightened with the 300-hectare airbase being built by the US in the desert area of Holang in Ghorian district of Herat province, just 45 kilometres from the Iranian frontier. The US military and the Afghan government state that the base is being built for the Afghan National Army. Some experts, however, opine that this base can put Iran‟s entire air space under American domination. 12 Since 2004, the Shindand airbase in the same Herat province has been renovated and grown triple in size to become the second largest military airbase in Afghanistan next to that of Bagram.13

US and Iran Manoeuvres: Covert Games, Overt Accusations The difficult US-Iran relationship is said to have contributed to the instability in Afghanistan in the last decade. US officials have long maintained that Iran has been a source of destabilisation in Afghanistan and Iraq. They have accused Tehran of extending its anti-US position to aid the insurgency. Speaking to the Senate Armed Services Committee in March 2011, General Petraeus testified that Iran had provided support for Taliban insurgents in „measured amounts‟ -- enough „to make life difficult for us, but not enough actually to 8

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Jason Djang, A New Year, A New Beginning, The White House Blog (19 March 2009), http://ww w.whitehouse.gov/Nowruz/. Accessed on 13 August 2011. Jesse Lee, A New Strategy for Afghanistan and Pakistan, The White House Blog (27 March 2009), http://www.whitehouse.gov/blog/09/03/27/A-New-Strategy-for-Afghanistan-and-Pakistan/. Accessed on 15 July 2011. Christina Lamb, US and Iran open Afghanistan peace talks, The Sunday Times (29 March 2009), http://www.timesonline.co.uk/tol/news/world/middle_east/article5993094.ece. Accessed on 2 August 2011. Iran Remains Top Terror Sponsor, Voice of America, Middle East (26 August 2011), http://www.voanews.com/policy/editorials/middle-east/Iran-Remains--128507928.html. Accessed on 27 August 2011. Captured Taliban Commander: 'I Received Iranian Training', Radio Free Europe Radio Liberty (23 August 2011), http://www.rferl.org/content/captured_taliban_commander_claimstrained _in_iran/24305674.html. Accessed on 24 August 2011. US Building Big Army Base Near Iran Border, Daily Times, Pakistan (29 November 2004), http://www.rense.com/general60/USbuildingbigarmybase.htm. Accessed on 21 August 2011. John Robles, „US Afghan strategy: senseless, merciless‟, The Nation (23 July 2011), http://nation.com.pk/pakistan-news-newspaper-daily-english-online/International/23-Jul-2011/US-Afghanstrategy-senseless-merciless. Accessed on 17 August 2011.

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succeed‟.14 On 28 July 2011, David S. Cohen, the Treasury Under Secretary for Terrorism and Financial Intelligence, announced that Iran had entered a „secret deal‟ with an al-Qaeda offshoot that provided money and recruits for attacks in Afghanistan and Pakistan.15 Senior NATO commanders have warned repeatedly that Iran is supplying the insurgency with weapons, money and even training at camps on the Iranian side of the border. In May 2010, Gen Stanley A. McChrystal, then the NATO commander in Afghanistan, warned that Iran was training Afghan fighters inside Iran. In March 2011, Adm Mullen told Congress that these sizable weapons shipments from Iran had been intercepted.16 Tehran has refuted these charges. The Iranian government on the other hand charges the US to be aiding the Balochi Sunni insurgent group Jundullah, which has been responsible for killing several senior Islamic Revolutionary Guards Corps officers. Iran has tried to substantiate its accusations with statements from the Jundullah leaders. In 2010, Iranian state television broadcast a statement by a captured Jundullah leader, Abdolmalek Rigi, in which he said that he received support from the US.17 Although the US denies any such support and claims such statements to have been extracted under duress, the continuation of the Balochi insurgency with an impact on Iran's territorial integrity will most likely result in furthering Iranian actions that undermine US goals in Afghanistan.18

Rationalising Tehran's Strategy in Post-Taliban Afghanistan The American presence in its neighbourhood Iraq and Afghanistan places immense pressure on Iran, which it seeks to offset by competing against the US for influence in these countries. 14

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In testimony to the Senate Armed Services Committee on Tuesday, Petraeus confirmed that NATO had recently intercepted a weapons shipment that the British linked to Iran. According to Petraeus, Iran‟s Qods Force, a branch of the Iranian Revolutionary Guards Corps, provided 48 122-mm rockets to a „known Taliban facilitator‟. The rockets are twice the range of the 107-mm rockets the Taliban typically employ, with „twice the bursting radius‟. Spencer Ackerman, Petraeus Doesn‟t Sweat Iran‟s Rockets in Afghanistan (15 March 2011), http://www.wired.com/dangerroom/2011/ 03/petraeus-doesnt-sweat-irans-rockets-inafghanistan/. Accessed on 18 March 2011. The Obama Administration has accused Iran of entering into a secret deal with an Al Qaeda offshoot that provides money and recruits for attacks in Afghanistan and Pakistan. The US Treasury Department designated six members of the unit as terrorists subject to American sanctions. The US intelligence community has in the past disagreed about the extent of direct links between the Iranian government and Al Qaeda. Matthew Lee and Bradley Klapper, „Iran Accused Of Al-Qaeda “Secret Deal” By U.S. Officials‟, Huffington Post (28 July 2011), http://www.huffin gtonpost.com/201 1/07/28/iran-al-qaedadeal_n_912512.html. Accessed on 1 August 2011. Alissa J. Rubin, „British Link Iran to Rockets Found in Afghan Province‟, The New York Times (9 March 2011), http://www.nytimes.com/2011/03/10/world/middleeast/10iran.html?_r=1. Accessed on 1 August 2011. „Iran Jundullah leader claims US military support‟, BBC (26 February 2010), http://news. bbc.co.uk/2/h i/8537567.stm. Accessed on 17 August 2011. Alireza Nader & Joya Laha, „Iran‟s Balancing Act in Afghanistan‟, RAND, Santa Monica, CA, 2011, http://www.rand.org/content/dam/rand/pubs/occasional_papers/2011/RAND_OP322.pdf. Accessed on 16 August 2011.

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At the official level, Tehran's primary objectives are to secure its eastern flank by stabilising Afghanistan, which sends a steady flow of illicit weapons, narcotics, refugees and migrants into its territory. Shia Iran strongly opposes the return of the Sunni Taliban to power in Kabul. To this end, Iran‟s national interests in Afghanistan often coincide with US objectives. Iran‟s predominant interest is in having a stable Afghanistan as its neighbour, but since Afghanistan is neither safe nor stable, Iran will continue to play a „double game‟.19 Analysts argue that while such considerations and contradictions will have a strong bearing on US strategy in Afghanistan, it is also important to situate them within the „broader tapestry of Iran's diplomacy in Afghanistan and central Asia that does not necessarily preclude the possibility of US-Iranian cooperation in Afghanistan. In Iranian foreign policy, it is possible to discern a recurring pattern -- while Tehran deals with neighbouring governments using official diplomatic channels, it also pursues a „shadow diplomacy‟, sponsoring non-state proxies and seeking to expand its influence at the sub-governmental level.‟20

Iran’s Soft Power Approach: Reconstruction, Trade and Development Aid One area in which Tehran has sought to exert influence in post-Taliban Afghanistan is in economic assistance and reconstruction. Besides playing an active role in the Bonn Conference, Iran pledged US$560 million at the Tokyo Conference on the Reconstruction of Afghanistan in 2002, and an additional US$100 million at the 2006 London Conference. 21 Iran has been active in Afghan reconstruction efforts, particularly in the western portion of the country in the provinces of Herat, Farah, and Nimruz. The Iranian government has funded several transportation and energy infrastructure projects, including building roads and railway links, setting up schools, and constructing Herat's electricity grid. Iran has created a sphere of influence and a security buffer zone in the industrial heartland of Afghanistan.22 Much of the Iranian aid to Afghanistan has been spent on infrastructure projects, mainly transportation links between Iran, Afghanistan and the central Asian republics, creating mechanisms of greater integration and dependence on Iran. A 123-kilometre road linking Herat in western Afghanistan to the Dogharoun region in Iran has already been completed, 19

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Janne Bjerre Christensen, Strained Alliances: Iran‟s Troubled Relations To Afghanistan And Pakistan, Danish Institute For International Studies (DIIS), Copenhagen 2011, http://www.diis.dk/graphics/Pu blications/Reports2011/RP2011-03-Strained-Alliances_web.pdf. Accessed on 17 August 2011. This two-pronged approach is visible in Iranian dealings in the Gulf, in the Levant - Hezbollah in Lebanon springs immediately to mind and in Central Asia. Erin Fitzgerald, Iran's Shadow Diplomacy,Huffington Post(8 August 2011),http://www.huffingtonpost.com/erinfitzgerald/iransshadowdiplomacy_b_920702.html. Mohsen Milani, Iran and Afghanistan, The Iran Primer, United States Institute of Peace, http://iranprimer.usip.org/sites/iranprimer.usip.org/files/Iran%20and%20Afghanistan.pdf. Accessed on 10 July 2011. Most of Iran‟s pledged reconstruction assistance, estimated at US$660 million, is in Herat. Mohsen Milani, Iran and Afghanistan, The Iran Primer, United States Institute of Peace, http://iranprimer.usip.or g/sites/iranprimer.usip.org/files/Iran%20and%20Afghanistan.pdf. Accessed on 10 July 2011.

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and work is underway to link Afghanistan to the Iranian port of Chabahar on the Gulf of Oman, which would alleviate Afghan dependence on the Pakistani port of Karachi. In January 2009, Afghan President Hamid Karzai and Indian Foreign Minister Pranab Mukherjee inaugurated a new road between Zaranj and Delaram, connecting Nimruz province to Chabahar in Iran. Iran has encouraged trade on this route, granting Afghan exporters a 90 per cent discount on port fees and a 50 per cent discount on warehousing charges and giving Afghan vehicles full transit rights on the Iranian road system.23 Commerce (excluding petroleum) between the two countries amounts to over a billion dollars a year. 24 There is also a multi-billion-dollar project to connect Iran, Afghanistan and Tajikistan via rail, and construction of the first leg from the Iranian border to Herat is already underway. Such transportation links with Iran provide landlocked Afghanistan an outlet to trade with the world economy, increasing commerce while extending Iranian influence. Afghanistan represents a significant untapped export market for Iranian products. Therefore, Iran has sought to foster closer economic ties with its eastern neighbour since the fall of the Taliban in 2001. Iran has also encouraged Afghan businesses to relocate their international offices from the United Arab Emirates to Iran. Iran has extended some assistance to the Afghan government to enforce a stronger border control mechanism in its counter-narcotic efforts. It has built and handed over outposts to Afghan border guards. Iranian President Mahmoud Ahmadinejad has expressed Iran‟s willingness to help Afghanistan bring the cultivation of illicit drugs under control.25 Of late, Iran has also drawn up a plan to legalise the presence of Afghan refugees in Iran. According to the plan, the Iranian foreign ministry will charge a fee of 300 Iranian rial from each Afghan national who plans to enter the country and will give the money back to them whenever they decide to leave Iran.26 Nevertheless, its acrimonious relations with the US have prevented closer cooperation between the two countries in Afghanistan. Iran‟s strategy of balancing US and allied (Saudi Arabia and Pakistan) powers in the region, maintaining domination in the Islamic world and deterring a US attack on its nuclear facilities have instead facilitated Iranian support for the Taliban27 albeit measured. Having thus gained „strategic depth‟ in western Afghanistan, Iran 23

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The 215-km highway, which was financed by the Indian government and built by its Border Roads Organisation, was completed at the end of 2008. The road has encouraged Afghan businessmen to shift their transit of goods from Karachi harbour in Pakistan to Chabahar port in southern Iran. „Official: Iran to Export 3mln litters of Gasoil to Afghanistan on Daily Basis‟, FARS News Agency (12 August 2011), http://english.farsnews.com/newstext.php?nn=9005210927. Accessed on 12 August 2011. „Iran ready to help Afghanistan control drug cultivation: Ahmadinejad‟, Tehran Times (21 July 2011), http://old.tehrantimes.com/index_View.asp?code=244435. Accessed on 1 August 2011. „U.S.-Afghan strategic treaty will endanger Iran‟s interests: minister‟, Tehran Times (24 July 2011), http://old.tehrantimes.com/index_View.asp?code=244580. Accessed on 1 August 2011. Iran‟s support for Shia Iraqi insurgents (extensive training, funding and provision of advanced weapons) has been much greater than its support for the Taliban—hence the use of the term measured in describing Iran‟s level of support to the Taliban. Alireza Nader and Joya Laha, „Iran‟s Balancing Act in Afghanistan‟, RAND,

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has developed an asymmetrical capability to disrupt US operations or retaliate against American troops, should Iran‟s nuclear facilities be attacked.28 It remains a fact that a shared antipathy towards America is the only common ground between Shia Iran and the factions of the Taliban insurgency; on the other hand, President Karzai is regarded as the better long-term bet and applaud his increasingly anti-American stance. 29 Iran remains one of the most important donors and supporters of the Afghan government. At the same time, Tehran‟s hostility towards the US has led to the cutting down of fuel supplies to Afghanistan in the cold months last year as it was argued that Kabul had siphoned the petrol and diesel to NATO forces. This move sparked an outcry in Kabul. The spectacle of hundreds of stranded fuel tankers at the border crossing of Islam Qala, in north-eastern Iran, recalls similar scenes last autumn along Pakistan‟s frontier with Afghanistan, when the Pakistanis blocked traffic in protest against American missile attacks on their territory.30 Iran's influence in the western province of Herat though pervasive is not always welcome among the locals. 31 However, Tehran feels that the US troop presence in Afghanistan, including the setting-up of a consulate and base in Herat, will prevent it from playing a larger role in a country with which it shares deep historical, cultural, civilisational and economic ties and considers it to be its „sphere of influence‟. Tehran further fears that the prolonged US stay in Afghanistan will negate the possibility of enhancing its influence permanently. To counter this, Tehran has attempted to entrench itself deep inside the Afghan body politics.

Creating a Pro-Iranian Constituency in Afghanistan Allegations have been rife of Iran permeating the power structures in Afghanistan. Money bags, political manoeuvring and covert aid are a few of the ways in which Tehran has

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Santa Monica, CA, 2011 http://www.rand.org/content/dam/rand/pubs/occasional_papers/2011/RAND_OP 322.pdf. Accessed on 10 August 2011. Mohsen Milani, Iran and Afghanistan, The Iran Primer, United States Institute of Peace, http://iranprimer.usip.org/sites/iranprimer.usip.org/files/Iran%20and%20Afghanistan.pdf. Accessed on 10 July 2011. ‘Edgy neighbours: Relations between Afghanistan and Iran are not what they may seem‟, The Economist (27 January 2011), http://www.economist.com/node/18014604. Accessed on 1 August 2011. The Afghan government and the NATO forces insist that the petrol and diesel in question serve civilians only. But Iran points at the 'coincidence' that transshipments more than doubled in 2010, when America launched its surge against the Taliban. Author‟s discussions with locals in the western province of Herat in June 2007. Iranian influence in this region runs deep; the city of Herat served as the capital of the Persian empire in the early 15th century, and remained a centre of Iranian power and culture until it was taken by Dost Mohammed Khan in 1863 and made a de facto Afghan border state. Greg Bruno and Lionel Beehner, Iran and the Future of Afghanistan, Backgrounder, Council on Foreign Relations, Washington DC (30 March 2009), http://www.cfr.org/iran/iran-future-afghanistan/p13578. Accessed on 14 May 2011.

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attempted to cement and expand its relationship with Kabul. In October 2010, President Karzai‟s office admitted to receiving cash payments amounting to thousands of euros from Iran, year after year. The New York Times reported that, in August, Iran‟s ambassador to Afghanistan, Feda Hussein Maliki, gave a bag filled with euros to Karzai‟s chief of staff, Umar Daudzai, on Karzai‟s personal aircraft. The payment reportedly was intended to promote Iran‟s interests and to counter US and other western influence in Afghanistan 32 Such cash payments, for obvious reasons, have not gone down well with the US administration, prompting the State Department to declare that it was „sceptical of Iran's motives‟ in Afghanistan. US officials feel that „the bulging sacks of cash handed over to a top Karzai aide are only the tip of the iceberg‟.33 Western diplomats and Afghan officials say far larger sums are regularly passed on to various groups and persons within Afghanistan in order to retain their sympathy towards Iran. Politically, the Islamic republic maintains close relationships with Afghanistan's Hazara and Tajik Shias and focuses on supporting Shia political parties, mobilising Shia mullahs and influencing the Afghan media.34 A recent media report detailed Iranian influence in the city of Herat, where money made available by Tehran has created a special relationship between western Afghanistan and Iran. „Iranian money builds roads and industrial parks; store-bought goods from soup to nuts are most likely to have Iranian provenance; and waves of Iranian cash buoy sparkling new mosques and opulent homes. Iranian power even takes the most literal form: Tehran helped build and pay for Herat's electrical grid. Many see pattern of Iranian sway that extends far beyond the border regions, permeating the heart of Afghanistan's power structure.‟35 Fears of a pro-Iranian lobby playing an influential role in Afghan politics could turn out to be true. Close associates of President Karzai say that his inner circle, which belong with Hizb-eIslami, is increasingly pushing him to move closer to Iran as the US forces recede. Hizb-eIslami, led by Gulbuddin Hekmatyar, has long served as a proxy for Iran. Not surprisingly, the Hizb-e-Islami has described establishment of permanent US military bases in Afghanistan as an „eternal occupation‟36 of the country, toeing the Tehran line.

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William McQuillen and Phil Mattingly, Iran Must Not Meddle in Afghanistan, U.S. Says After Bag of Cash Reported, Bloomberg (25 October 2010), http://www.bloomberg.com/news/2010-10-24/iran-must-notmeddle-in-afghanistan-u-s-says-after-bag-of-cash-reported.html. Laura King, „In western Afghan city, Iran makes itself felt‟, Los Angeles Times (13 November 2010), http://articles.latimes.com/2010/nov/13/world/la-fg-afghanistan-iran-20101114. Erin Fitzgerald, „Iran's Shadow Diplomacy‟, Huffington Post (8 August 2011), http://www. huffingtonpost.com/erin-fitzgerald/irans-shadow-diplomacy_b_920702.html. Accessed on 10 August 2011. Laura King, „In western Afghan city, Iran makes itself felt‟, Los Angeles Times (13 November 2010), http://articles.latimes.com/2010/nov/13/world/la-fg-afghanistan-iran-20101114. Accessed on 1 August 2011. „Talks on Details of US-Afghan Strategic Deal Ended‟, Tolo News, Afghanistan (19 July 2011), http://tolonews.com/en/afghanistan/3409-talks-on-details-of-us-afghan-strategic-deal-ended. Accessed on 20 July 2011.

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In the 2010 parliamentary elections, Iran apparently provided monetary support to the Hazaras who have gained considerable prominence and clout in the Afghan political scene.37 Of the 249 seats in the lower house, 50 went to the Hazaras, an outsized portion of power compared with their numbers. As many as 11 Hazara candidates swept the elections in Ghazni, winning all the seats in the Pashtun-majority province. 38Pashtuns, the major ethnic group in Afghanistan, deprived of an opportunity to vote because of Taliban threats and poor security in the South, do not see the turn of events favourably. Iran‟s increasing influence on the Afghan political scene thus cannot be discounted, particularly when the attempts of reconciliation and negotiation towards the Taliban are gaining momentum. Whether Karzai is willing to play to the tune of Iran is not known. However as his relations with the NATO alliance in general and the Obama Administration in particular have notably deteriorated during the last two years, he is not shy about using dealings with Iran to deliver an occasional sharp rebuke to the West. As an affront to the US allegations on issues of corruption and governance, Karzai invited Iranian President Ahmadinejad for a visit to the country in March 2010. Ahmadinejad duly obliged, coinciding his visit with the then US Defence Secretary Robert M. Gates‟s visit to Kabul. At a joint news conference with the Iranian president, Karzai stood by placidly as Ahmadinejad delivered a blistering antiAmerican tirade.39 In recent years, visits between the two countries have increased and politicians of both countries have participated in jointly organised forums. These forums have been used by the Iranians to vent their opposition against what they fear as the US ploy to stay longer in Afghanistan. For example, on 23 July 2011 Iranian Interior Minister Mostafa MohammadNajjar said at the meeting of the committee chairmen of the Iranian and Afghan parliaments in Tehran that such a strategic treaty will pose a threat to the interests of Iran and other regional countries.40

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Although Sunni Muslims constitute 80 per cent of Afghanistan's population, the country does have a sizeable Shia minority of 19 per cent. The Hazaras, a Persian-speaking ethnic group which is concentrated mainly in central Afghanistan, with major communities present in western Afghanistan, Iran and Pakistan, constitute a large portion of Afghanistan‟s Shia. They make up roughly 9 per cent of Afghanistan‟s population or 2.9 million people. In Ghazni, where Pashtun-majority districts such as Andar were chaotic and cowed on election day, Hazara districts such as Jaghori were calm and orderly, allowing mass voter participation. Pamela Constable, „Afghanistan's Hazaras gain clout in disputed parliamentary elections‟, Washington Post (24 December 2010), http://www.washingtonpost.com/wp-dyn/content/article/2010/12/23/AR 2 010122304577.html. Accessed on 17 August 2011. Laura King, „In western Afghan city, Iran makes itself felt‟, Los Angeles Times (13 November 2010), http://articles.latimes.com/2010/nov/13/world/la-fg-afghanistan-iran-20101114. Accessed on 13 July 2011. „U.S.-Afghan strategic treaty will endanger Iran‟s interests: minister‟, Tehran Times (24 July 2011), http://old.tehrantimes.com/index_View.asp?code=244580. Accessed on 13 August 2011.

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Iran-Pakistan Alliance: An Enemy’s Enemy is a Friend? Apart from initiating its unilateral initiatives within Afghanistan, Iran has been making common cause with Pakistan as well. Both countries suggest the regional powers need to have a stake in the solution to the Afghan problem and a solution imposed by either international military efforts would not produce enduring results. Pakistan too has responded to the gestures from Iran. It has improved relations with Tehran in recent times and has claimed to have helped Tehran with the arrest of Abdolmalek Rigi, leader of the Baloch Sunni rebel group Jundullah. Rigi was captured in February 2010 and was hanged in Iran in June that year. Both countries have tried to overcome the hurdles posed by Pakistan‟s close ties to Iran‟s main rival Saudi Arabia. With the US administration sidelining Pakistan for lack of effective cooperation on counterterrorism, the latter is seen to be making common cause with Iran. The participation by Pakistan President Asif Ali Zardari in the two-day conference on terrorism held at Tehran on 25 June 2011 was invested with political symbolism as a mark of displeasure towards the US. Zardari returned to Tehran within three weeks on a second visit carrying the stamp of Pakistan's strategic defiance of the US. Iranian Supreme Leader Ayatollah Ali Khamenei received Zardari on both occasions, signifying the high importance that Tehran attaches to the nascent signs of shift in Pakistan's regional policies. Tehran and Islamabad have often been at loggerheads regarding their Afghanistan policies in the past. They could assume similar roles if they don‟t reach an agreement on the limits of their genuine interests in the war-affected nation. Till now, Iran and Pakistan have been supporting different Afghan armed groups in the country‟s conflict. Iran primarily backed the Shia factions and the non-Pashtun groups during the Afghan jihad against the Soviets, while Pakistan provided sanctuary to the mostly Sunni and Pashtun-based parties. Pakistan has, however, also strived to be on friendly terms with the Shia groups, and the Hezb-i-Wahdat leader Karim Khalili, now Afghanistan‟s vice-president, shifted to Peshawar during the jihad days to escape Iran‟s suffocating embrace in Tehran.41

Drawdown and Beyond It has become imperative on the part of President Karzai to play a delicate balancing game in the evolving great power relations and prevailing uncertainties arising from the transition process beyond 2014. In rejecting the first draft of the strategic partnership agreement with 41

Rahimullah Yusufzai, „Influencing Afghanistan: Neighbours and Faraway States Jostle for Position‟, Newsline (13 August 2011), http://www.newslinemagazine.com/2011/08/influencing-afghanistanneighbours-and-faraway-states-jostle-for-position/. Accessed on 14 August 2011.

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the US in its entirety, Karzai appeased domestic opposition as well as regional concerns.42 At the same time, Afghan officials see the enduring American presence and broader strategic relationship as essential, in part to protect Afghanistan from the onslaughts of the insurgency as well as meddlesome neighbours. It is in the interest of Afghanistan's security that the US retains its presence there, even with a reduced strength than at present. However, to be effective in its assumed role of protector of Afghanistan's security, the US would have to envision a common platform with Iran to stay beyond 2014. A hostile Iran with an empowering effect on the Taliban insurgency can create more trouble than anticipated. A regional dialogue, in which all the regional powers make a commitment to play a stabilising role in Afghanistan, would be most appropriate way out from the present conundrum. For that to succeed, improved US-Iran relations would remain critical. .....

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Jason Burke, „Secret US and Afghanistan talks could see troops stay for decadesâ€&#x;, The Guardian (13 June 2011), http://www.guardian.co.uk/world/2011/jun/13/us-afghanistan-secret-talks-on-security-partnership. Accessed on 14 June 2011.

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ISAS Insights No. 133 – 6 September 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

China’s ‘Look West’ policy Shahid Javed Burki1 and Iftekhar Ahmed Chowdhury2 Abstract China is moving aggressively to bring development and modernisation to Xinjiang, its western most provinces. The Autonomous Region, as the Chinese call it, covers one-sixth of China's landmass but has only one-eightieth of its population. It borders six Central and South Asian countries. More than one-half of its population of 20 million people is made up of the people Beijing refers to as the ‘minorities’. More than 90 per cent of Xinxiang's minorities are Uyghurs. These are Muslims, speak classical Turkish and have become restive. They have several grievances, among them, the perception that their presence in the region is being diluted by the arrival of Han Chinese who now make up 41 per cent of the population. The region was the scene of a major uprising in 2009 staged by a segment of the Uyghur population. Hundreds of people were killed when Beijing used force to bring the rebels under control. This led the Chinese central government to rethink its strategy by focusing on the opening of the Autonomous Region to the countries in its neighbourhood. One part of this initiative was the China-Eurasia Expo held in Urumqi, Xingjian's capital, for five days from 1 to 5 September 2011. It attracted some 50,000 officials from China and 30 other countries. As China looks west to developing and modernising its own territories, as a natural 1

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Shahid Javed Burki is Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He was former Finance Minister of Pakistan, and former Vice-President of the World Bank. He can be contacted at isassjb@nus.edu.sg. The views expressed are those of the author and do not necessarily reflect those of the institute. Dr Iftekhar Ahmed Chowdhury is Senior Research Fellow at ISAS. He was the (Foreign Advisor) Foreign Minister of Bangladesh from 2007-2009. He can be contacted at isasiac@nus.edu.sg. The views expressed are those of the author and do not necessarily reflect those of the institute.


corollary, it also seeks to create a friendly external environment, particularly its Muslimmajority close neighbours like Pakistan, Afghanistan and Bangladesh to facilitate the achievement of its domestic agenda.

Introduction China has begun a major effort to develop its border areas, the provinces and regions that are home to what the Chinese call the ‘minorities’. They constitute about five per cent of the total population or about 75 million people. Of these about 10 million live in the Autonomous Region of Xinjiang, the western-most part of the country. The region’s population is almost equally divided between the Uyghurs, who make up 45 per cent of the region’s 20 million people and the Han Chinese, who constitute 41 per cent of the population. Slightly more than one million of the region's population are Kazakhs. As a part of the reform process initiated by Deng Xiaoping in 1979, China opened its eastern seaboard to the West and Japan. The result was the rapid industrialisation and modernisation of the east coast – a narrow band that runs from the city of Dalian in the northeast to Shenzhen near Hong Kong in the southeast. However, the border regions did not benefit from this spurt in growth. Resentment built up in these areas and the reaction in Xinjiang took a violent turn in 2009, when hundreds of people died in riots in Urumqi, the Region's capital. The resentment was not only at the slower pace of development in the areas. There was resentment against what the local population believed was a deliberate effort to ‘Hanise’ the area's population by allowing the migration of large number of people of Han origin - the vast majority of the Chinese population. It did not escape Beijing that the explosion on the streets of Urumqi was tinged by Islamic fervour which, in its extremist form, was affecting many parts of the Muslim world. It wanted to prevent its Muslim minorities from moving in that direction. The Chinese leadership concluded that it might be prudent to add a bit of religion to its economic and political approach to solve the problem posed by some of the restive minorities. Looking west meant looking essentially at the Muslim Central Asia. But the practical Chinese added to this approach a glance at the east was well, including in their calculations, improved relations with the predominantly Muslim Bangladesh. Beijing believed that the time had come to act and begin to redress the grievances that had built up over the years. The approach adopted, was part of the effort to get the Autonomous Region's population economically and culturally engaged with its six Central and South Asian neighbours – Kazakhstan, Kyrgyzstan, Turkmenistan, Tajikistan, Afghanistan, Pakistan and India.

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Elements of the New Strategy Given the fact that almost all the provinces, including the autonomous provinces that have large ‘minority’ populations – Xinjiang in the west, Yunnan, in the south and Inner Mongolia in the north, Beijing has had to craft a development approach that is based on using the land rather than the sea to make commercial contacts with the outside world. At this time some 90 per cent of China’s trade is by sea and by 2015, two-thirds of its energy needs will also be met by using the sea. Among the provinces and regions with sizeable minority populations, Xinjiang has an additional problem: It is poorly connected by land with the main population and economic centres of eastern and central China. Between it and the rest of the country lies the Tarim Basin, some of it below sea-level, most of it extremely hot in the summers, and large parts of it desert or mountainous. Opening it to the west is more practical and for that to happen, China must ensure that it has good working relations with Xinjiang's neighbours. Developing communications with the neighbours also makes good sense for several other reasons. China is starved for energy while the Central Asian ‘stans’ have large surpluses of gas and oil. Both can be bought by pipelines, albeit over high mountains. However that is not seen as a serious obstacle by a country that has been able to connect by a high-altitude train the plateau of Tibet with the planes of Sichuan and other parts of central China. The Chinese have built an all weather road, the Karakoram Highway (KKH), that connects Pakistan's northern areas with Xinjiang. Hugging the Pakistani mountains it crosses the Khunjerab Pass at a height of 16,000 feet before entering the Pamir Plateau on the Chinese side. It then descends quickly to Kashghar, an ancient city once celebrated as one of the more important commercial centres of Central Asia. The Pakistanis have announced that they are requesting Chinese assistance to build a railway line that will run, parallel to KKH and at later stage, gas and oil pipelines. China is also concerned about Russia's energy policy and how it might affect its own growing need for all kinds of fuels. Russia has the world’s largest reserves of natural gas which it uses not only to earn foreign exchange but to influence relations with the countries in its neighbourhood, in particular those in Europe and Central Asia. It does this by using what is sometimes called the ‘pipeline diplomacy’. It would like to tie to its gas fields with the major economic centres of Europe. With this end in view it would like to route most of Central Asia’s ample gas reserves if not through its pipelines then at least from those that run through its territory. Such a policy runs, counter to the one the Chinese would like to pursue. They want unhindered access to the energy resources of both Central Asia and the Middle East. This is where countries arrayed along Xinjiang’s border enter the picture. Kazakhstan and Kyrghizstan in Central Asia and Pakistan become important parts of the Chinese solution to its growing energy problem.

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The Kazakh Connection Before any major shift in their policies, the Chinese leadership deliberates, prepares and ponders. The Urumqi conclave was preceded by President Hu Jintao's June 2011 visit to Astana in Kazakhstan to meet with President Nursultan Nazarbayev. A joint declaration issued after the meeting said that two countries discussed issues ‘in the political, economic, energy and transportation sectors…covering all key aspects in bilateral ties thus broadening the scope of cooperation and future development.’ The declaration updated the existing strategic partnership established in 2005. It was decided that the two countries will meet at the heads of state level once every year. During President Hu's June visit the discussions emphasized on relations between the two countries in the fields of energy and trade. China would like to see the trade between the two countries to increase to US$40 billion by 2015. Beijing also tied Kazakhstan closer to itself by signing currency swap agreement amounting to 7.5 billion yuan (US$1.15 billion) thus bringing the Chinese renmenbi one step closer to becoming a reserve currency. The agreement would run for three years but could be extended by mutual consent. It was agreed to speed up the construction of the second phase of the China-Kazakhstan oil pipeline, the second phase of the China-Kazakhstan natural gas pipeline, and the third phase of the China-Central Asia natural gas pipeline.

The China-Eurasian Expo, September 2011 Two years after the riots in Urumqi that shook the officialdom in Beijing, China hosted a major economic event in the city. The China-Eurasian Expo held for five days in the beginning of September 2011, was upgraded from the 19-year old China Urumqi Foreign Economic Relations and Trade Fair into a summit to which the senior leaders from the neighbourhood were invited. A new, 1.3 billion yuan (US$201.5 million) exhibition centre was built near Urumqi. Organisers of the event said that 50,000 officials and businessmen from China and about 30 countries attended the event. Among those who came were Pakistan President Asif Ali Zardari, on his eighth visit to China since taking office in September 2011. He brought his daughter with him who, he told Vice Premier Li Keqiang, was learning Chinese. ‘The China-Eurasian Expo has established a platform for collaboration between China, including western China and Xinjiang Uygur autonomous region, and Asian and European countries’, Li told Zardari when the two met on the sidelines of the trade fair. Zardari told Li that ‘his country wants to strengthen in-depth cooperation with China in political and economic areas as well as on international and regional affairs’.3 Also attending were Kyrgyz President Roza Otunbayeva, Azerbaijan Vice Premier Abid Sarifov and Kazakhstan Deputy Prime Minister Aset Isekeshev. Speaking at the exposition, Chen Deming, China’s Minister of Commerce, said that Xinjiang is at the ‘frontier of China’s 3

‘Urumqi expo offers “platform for cooperation”’, China.org.cn, Xinhua (1 September 2011).

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opening-up policy with regard to neighbouring countries to its west. With a solid industrial base and abundant resources, Xinjiang holds huge business opportunities’.4 He encouraged the visitors to take advantage of the opportunities for investment and trade offered by the region, a theme that was picked up Li Keqiang in his address.

The Plot Thickens If mere visits could cement friendships, that of Pakistan with China would be more than rock solid. In all probability, they already are. However President Zardari is not one to take any chances in this regard. Since he has assumed office, he has undertaken as many as eight journeys to this ‘all-weather’ friend. In terms of sheer number of visits by Heads of State to another country, however friendly, this must surely establish a record of sorts. Not only that. He has spoken of this relationship with such ardour that would be the envy of any Central Asian romantic persona. He has even expressed it in terms of recent dreams. One of these is that borders between the two countries would evaporate, and the citizens of one would be able to travel to the other without passports. The idea appears to be one paling the Schengen Treaty between the States of the European Union. He already has his experts examining the lexicon of diplomacy to look for a jargon that would take the expression ‘all weather friendship’ to a yet higher level of amity. ‘Eternal’, perhaps. So Pakistan must really want and need China. Pakistan is among the many countries that have realised that China may soon eclipse the United States (US) as the most important superpower, a theme recently explored by Arvind Subramaniam, in his Foreign Affairs article. Indeed it does. Time was when China was needed as a countervailing force to address the power imbalance with only India. Now, the US has also entered the calculations. This has been particularly true since the lows that hit in bilateral relations following the US operation that killed Osama bin Laden. The Americans are now seen as a greater threat to Pakistan, both by the Pakistani population and the Army, than India, however incredible this might have seemed even as recently as a year ago. Ironically, this may have actually eased Indo-Pak relations somewhat, leading to a moderately successful visit, at least by historical standards, of Pakistan’s woman Foreign Minister Hina Rabbani Khar, the sartorial snipes and fuss over fashion notwithstanding. Islamabad was severely irked, however, by what it sensed as a Washington-Delhi connivance to drive a wedge between it and Beijing by referring to a possible Sino-Pak chasm over the alleged support from some Pakistani quarters to the extremists in Xinjiang. The slightest hint of any such development was utterly and absolutely unacceptable to Pakistan. To dispel any such possibility with the greatest force, President Zardari spent the holiest Muslim festival of Eid at Urumqi recently, and dispatched Khar posthaste to Beijing to reiterate and renew reassurances.

4

‘1st China-Eurasian Expo opens in Urumqi’, China.org.cn, Xinhua (1 September 2011).

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Khar’s first visit to Beijing was time well spent. This was, however, as is well known not her first foreign trip. It may be noteworthy that it is rare for a Pakistani Foreign Minister to have gone to Delhi before Beijing. It would be somewhat naïve though, to read too much into this detail. Khar held meetings with Premier Wen Jiabao, Foreign Minister Yang Jiechi and other senior officials, in the two days she spent in the Chinese capital. To the delight of her boss, who this time stayed in Urumqi only and left the field in Beijing free for her, to give her a break and free reins perhaps, she extracted high praise from China's leaders for Pakistan's anti-terrorist credentials. She pledged full cooperation to the Chinese for counterterrorism initiatives against the East Turkestan Islamic Movement (ETIM), Xinjiang’s Uighur separatists. While already these were music to Chinese ears, Zardari himself added to the sweetness of the refrain by announcing in Urumqi his other dream of Pakistan being a conduit for China's energy from abroad, much like how once upon a time, in the days of happier relationship with the US, Islamabad was a bridge between Washington and Beijing during the Nixon-Kissinger years. This idea of a conduit was again emphasised in the ‘Eurasian corridor’ concept that Zardari gave a huge boost to immediately thereafter, in the Tajik capital of Dushanbe, where he went straight from Urumqi, without as much as even a detour through Pakistan. This was to attend a quadrilateral meeting of the heads of state of Afghanistan, Pakistan, Tajikistan and Russia. This was the third such meeting, and obviously a new group of four is emerging in Central Asia, signalling an important thrust in Pakistan’s foreign policy. Indeed, Zardari obtained the approval of others that the fourth meeting of the group would be held in Islamabad next year. At Dushanbe, the leaders adopted a joint statement. It focused on strengthening regional trade, improving connectivity and fighting terrorism. Projects are to be implemented in energy, transport, communications and infrastructure development. Two would be of enormous interest to Pakistan. One, a road connecting Dushanbe to Chitral in Pakistan, through Iskatul Gulkhana in Afghanistan, in effect linking the Gwadar port, where the Chinese have a stake, and Karachi to Dushanbe and then to Russia itself. The second would be the expansion of Afghanistan-Pakistan Transit trade agreement to include other countries in the region. China is not a member of this group, but is most certainly an interested party. It appears that Chinese interests would be in good hands. This mechanism is also allowing Pakistan to close past gaps with Russia. In this regard the Chinese could be of considerable assistance to Pakistan. All these actors are most certainly looking to playing a role in Afghanistan after a possible eventual American withdrawal. President Hamed Karzai is also being randomly drawn into this, not necessarily reluctantly it seems. But there are other interested actors that will simply refuse to remain purely on-lookers. India and Iran for instance. It will naturally be critical how they will react to these developments. Diplomats in the region will need to sharpen and hone their skills in the years to come, as the next stages in the ‘Great Central Asian Games’ unfold. 6


Conclusion So, as China ‘looks west’ with a view to develop its own territories, it also seeks to create an enabling friendly external environment by seeking to maintain the best of relations with its neighbours in the region, particularly Muslim majority countries, understandably given Xinjiang's demographic make-up. Apart from Pakistan and Afghanistan, cited above, China has also made huge investments in its relationship with Bangladesh, a large country of 160 million people, overwhelmingly Muslim. Friendship with Bangladesh has also been raised to ‘all weather level’, like that with Pakistan. For Bangladesh, China remains through most of it's past, a close partner in trade and diplomacy. Many mutual visits between the leaderships of the two countries underscore this. With painstaking consistency, therefore, China aims at ‘managing’ its neighbourhood to the west, and creating a positive external regional environment as a matrix to obtain its domestic goals in its western regions. For a long time to come, this is likely to remain the hallmark of Chinese policy in this area. .....

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ISAS Insights No. 134 – 5 September 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

China and Its Aircraft Carrier: The Dragon’s Deft Dealings with a Nervous Neptune Iftekhar Ahmed Chowdhury1 Abstract The latest sea-launch of the Aircraft Carrier by China may be a more cosmetic exercise than substantive. Of more consequence is perhaps the acquisition of a deadly maritime armoury. As the Chinese do everything for a reason and in a calibrated fashion, so such vessels have their uses. However, there will be a tendency to harmonise capabilities with perceptible and palpable needs. Nonetheless there is always the possibility of accidents vis-à-vis neighbours which could have horrendous consequences. The answer to avoid it may lie in a regional BigTent Naval conference like those held in the past among western maritime powers.

Introduction That the People’s Liberation Army Navy (PLAN) of China, as that branch of their military is formally and somewhat oddly designated, should acquire an Aircraft Carrier should not come as a surprise to anyone. The surprise, if any, should be that it has taken that long for the Chinese to do so. That is because in most decisions, time is not necessarily of the essence to them. It is always tempered with pragmatism, perceptions, prestige, patience and posturing. When all these constellations of forces combine, the Chinese take the required policy step. It 1

Dr Iftekhar Ahmed Chowdhury is Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous Institute at the National University of Singapore (NUS). He was the (Foreign Advisor) Foreign Minister of Bangladesh from 2007-2009. He can be contacted at isasiac@nus.edu.sg. The views expressed are those of the author and do not necessarily reflect those of the Institute.


is always intensely measured. This is one element of Marxist thinking that is also ingrained in China’s cultural behaviour pattern. (Indeed there are several, otherwise Marxism would have never found votaries in China). Sometimes, as in the case of the Carrier, the Chinese will bring the decision-making to the point of inevitability. On such occasions, other protagonists, including adversaries, would have no option but to relax and enjoy. The Chinese had a good working relationship with the oceans from times immemorial. It was thousands of years ago that the sea-faring alchemist Xu Fu set out in search of the elixir from the ‘Fusang’ tree that would give humans immortality. That was the closest approximate in the East to Jason of Greek mythology seeking the Golden Fleece across the waters. But unlike Jason, Xu Fu did not succeed in his quest, and did not find the elixir. The lesson the Chinese draw from that fable, as they always wont to do from historical or even mythical examples, is that the recipe of immortality lies only in human endeavour, and does not grow on a tree. The links to the seas developed through the 14th century voyages of Admiral Zheng He, also called Haji Mahmud Shamsuddin in Persia as he was reportedly a Muslim, a boon for Beijing’s current relationship with the Islamic world. Thus it was that a relationship evolved with oceans that in present-day Chinese political jargon would be termed ‘harmonious’. So as we see, the Chinese dragon always dealt deftly with the sea-god Neptune. It will therefore, doubtless and by the same token, ensures that the acquisition of the Carrier will not render him unnecessarily nervous. If Neptune need not be nervous, nor need others, including the West and also the regional neighbours.

Carrier Acquisition The Chinese decision, or the first official expression of it, to acquire an Aircraft Carrier coincided, possibly by design, because calibration is an important element in Chinese policymaking, with a shift in naval doctrine. The time was mid to late 1980s. Till then the doctrine was largely the defence of coast-lines. A new concept then evolved, which involved three missions. The first was to resist invasion from the sea and keep the enemy within limits. The second was to protect national sovereign territory. And the third was to safeguard national unity and maritime rights. Initially the interests to be protected were within the so-called ‘first island chain’. It stretched from the Kuriles, Japan, Ryukyus and Taiwan to Philippines and Borneo. Later the goal seems to have extended to the ‘second island chain’, which ran from the Kuriles and Japan to Bonins, Marianas, Carolines and the Indonesian archipelago. It would now include the territorial waters claimed by China including the South China seas. Protection of Chinese vessels from Somali pirates further west in the Indian Ocean would be an additional goal. It is noteworthy that 90 per cent of China’s trade by volume is transported 2


by sea. Two-thirds of its energy needs will be met from overseas by 2015. There is much therefore that needs to be protected. These requirements obviously demand ‘blue water capabilities’ as a naval policy response. There have been talks of Chinese interest in developing dual-use port facilities in Pakistan, Sri Lanka and Myanmar, though the Chinese deny accusations of a ‘string of pearls’ policy. Unsurprisingly, the PLAN is the fastest growing force in the Chinese military. Since 2000, China has procured around 20 major surface vessels as frigates and destroyers, and at least 31 new submarines. There is chatter in strategic circles around the world that China plans to build around six aircraft carriers. The first of these, acquired some years ago from Ukraine, was deployed for an inaugural sea-trial last month, raising regional and America’s concerns. To mollify those confounded, the Chinese officials were at pains to explain that the vessel would be used only for ‘research, experiment and training’, and nothing else. Though procured from Ukraine, it is not lost on the rivals that on what was just a hull, all the add-on equipment will be Chinese. This is a bit like the East European saying that ‘this is my grandfather’s axe, my father changed the handle and I changed the blade’. Eventually the Chinese would build their own in entirety. In line with the policy of calibrations, the trial was launched to coincide with the visit of the United States (US) Vice President Joseph Biden, just as some months earlier their stealth-fighter was tested when the US Defence Secretary Robert Gates was in Beijing.

Deadly Armoury More significant than carriers, the Chinese have focused on deadly weapons that would reduce the effectiveness of these platforms. One is the DongFeng (East Wind) 21 D, a precise anti-ship killer-missile that supposedly can destroy a US Super-carrier in one strike. It is believed to employ a complex guidance system, a low radar signature and an unpredictable flight path rendered so by its manoeverability. Also, it has the capacity to evade tracking system, with the possibility of travelling at a speed of mach-10, which would allow it to reach a maximum range of 2,000 km in 12 minutes.2 The other is the stealth-fighter mentioned earlier, the J 20, which many American military strategists see as a game-changer. This is equivalent of the American F 22 A Raptors, as well as the F 35 Joint Strike Fighters. It is seen as rendering all air defence systems in the region as obsolete, with no radar arrays having the capability of picking it up.3 It can therefore remain undetected throughout its flight, with potentially devastating consequences for targets, including US and other Aircraft Carriers. Though the present Chinese defence budget at US$ 97.7 million is only a fraction of 2

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‘Report: China Develops Special ‘Kill Weapons’ to Destroy US Aircraft Carrier’, US Naval Institute (31 March 2009), http://wwwusni.org/news-and-features/chinese-kill-weapon. Accessed on 5 September 2011. For details of its capabilities, see Robert Johnson, ‘China Claims Air Superiority with Its New J-20 Stealth Fighter’, Business Insider (10 May 2011).

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that of the US, the Chinese, through perhaps more prudent strategic assessment, in line with the need to secure better goals with more meager resources, opted for most bang for the buck.

Why Carrier? But why acquire Aircraft Carriers at all, when these are incredibly costly, and while not entirely obsolete, are certainly more vulnerable as targets that can be more easily acquired and destroyed? Also, for that very reason each Carrier needs a protective shield of battleships, an expensive proposition to say the least. Enter prestige as a factor in the calculations, a somewhat Asian value, but not necessarily devoid of military significance. This became all the more apparent when in July this year a senior Chinese researcher at the Academy of Military Sciences, General Luo Yuan, said: ‘If we consider our neighbour India will have three Aircraft Carriers by 2014, as also Japan, I think the number for China should not be less than three, so we can defend our rights and our maritime interests effectively’.4 But six, the reportedly planned number, is even better than three. This also goes to show the main purpose of Chinese Aircraft Carriers is not necessarily to tilt the naval balance in their favour. China is doing this through other means, by developing other capabilities, deploying effective weapon systems and procuring more appropriate seavessels. The combination however, is in effect designed to dampen the combative spirit of regional competitors like Vietnam, Australia and even India, the great Asian rival. With the US and its latest Air Sea Battle Concept (ASBC), the Chinese see themselves as having a lot to deal in their hands vis-à-vis their major superpower protagonist.5 The Vietnamese, who have not so long ago announced a decision to purchase six submarines with an eye on China, recently celebrated a victory achieved over a Chinese fleet in the year 1288. But that was a long time ago, and even the Vienamese do not believe this to be a history unlikely to repeat itself. Of their two policies of either ‘confronting’ or ‘enmeshing’(with cooperation) China, Vietnam now appears to have wisely opted for the latter.6 Australia, through a Defence ‘White Paper’ has laid out some ambitious plans that include procurement of 12 submarines, but its political leadership has been prudently asserting they want no part of the rivalry with China. Aaron L. Friedburg, a Professor of Princeton University, has written: ‘Those (Chinese) preparations do not mean that China wants war

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‘China needs at least three aircraft carriers’, Spacewars (30 July 2011), http.//www.spacewar.com/reports/C hina_needs_at_least_three_aircraft_carriers_general_999.html. Accessed on 11 September 2011. Iftekhar Ahmed Chowdhury ,’Power-play of Peers in the Pacific: A ‘Chimerican’ Chess Game?’, ISAS Insight No.124, 10 June 2011. For an elaboration on the concept of ‘enmeshment’, see William Choong , ‘Coping With China’s Rapid Rise’, The Straits Times ( 2 September 2011).

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with the United States. To the contrary, they seem intended mostly to overawe its neighbours while dissuading Washington from coming to their aid if there is ever a clash’.7

Conclusion That leaves out India, and the complex relationship between the Indian elephant and the Chinese dragon. India has let its ‘blue water’ aspirations be widely known. It has presence in the Arabian Sea, the Indian Ocean and even in the South China seas. In six years, India hopes to have three Carriers with battle groups, deployed both near and far. The capabilities will be augmented by MIG-29 K aircraft with a range of 2,300 km, and such sophisticated missiles as the ‘BrahMo’ with its 300 km range and ‘Dhanush’, which can be fired both on and underwater with 350 km range. The danger is that Sino-Indian paths at sea may cross. Indeed recently there was the case of the Indian naval ship ‘Airavat’, cruising close to Vietnam, which was warned off the supposedly ‘Chinese waters’ by China’s navy. Fortunately this did not lead to any further incident, but such possibilities cannot be ruled out in the future. What is obviously required is a ‘Big Tent’ regional naval conference, as between western powers in the past, agreeing on some rules of naval conduct and ‘confidence building measures’. A failure in understandings in this regard could result in accidents, with consequences far more horrendous now, than then.

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‘China’s Challenge at Sea’, International Herald Tribune (5 September 2011).

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ISA S Insights No. 135 – 6 September 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

South Asia’s Diminishing Prospects Shahid Javed Burki1 Abstract According to the latest assessments by two international development banks – the Asian Development Bank and the World Bank – and by the central banks of the three major countries of the South Asian mainland – Bangladesh, India and Pakistan – the region has lost some of the economic momentum built up over the last few years. This is largely the result of political uncertainty in the three countries. This has persisted in Pakistan for three years but some recent political developments in Bangladesh and India have also affected economic decision-making. The three countries, having undertaken with some success the first phase of economic reforms, now have to start focusing on the second phase. This will need consensus building which, in turn, demands the exercise of a considerable amount of political will.

South Asia, a subcontinent of 1.5 billion people and largely spared from the economic ravages caused by the Great Recession of 2008-09, was expected to move forward at a relatively brisk pace. Led by India, the area‟s largest and most dynamic economy, it was supposed to see its economy expand by about 8 per cent a year. That would have meant growth of 6 per cent a year in income per head of the population for the next decade or two. Had that ambition been realised, the region would have cut by one-half the incidence of poverty, from about 500 million people in 2011 to about 250 million by the end of the 1

Mr Shahid Javed Burki is Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He was former Finance Minister of Pakistan, and former Vice-President of the World Bank. He can be contacted at sjburki@yahoo.com. The views expressed are those of the author and do not necessarily reflect those of the institute.


decade. People‟s move towards urban areas would have quickened; by the time the countries in the subcontinent took their population censuses in 2021, more than one-half of the population would be living in towns and cities. With this move there would have been a significant change in the structure of the economy. The share of agriculture in total output would have declined to about 15 per cent of the combined national product while that of industry would have increased to twice the proportion of agriculture or 30 per cent of the combined GDP (gross domestic product). The remaining 55 per cent would have been provided by the service sector and with this sector a significant proportion would have been contributed by such modern services as IT, communication, education, healthcare, entertainment and the retail trade. South Asia seems to be on the move. This picture of the future is based on the reading of a number of studies done by two development banks – the Asian Development Bank and the World Bank2 – and by a number of foreign consulting firms, in particular McKenzie. However, much of the euphoria that marked the environment in which these assessments were made has dissipated. According to the World Bank, „after growing a robust 9.3 per cent during calendar year 2010, activity in South Asia moderated in the first quarter of 2011 – pointing to a projected slowdown in aggregate regional growth to a still buoyant 7.5 per cent in 2011‟3. There is now a much more sombre mood among the analysts viewing South Asia‟s future. One important reason for this change is the simple fact that the future read in good times always seems brighter. The second reason is that the series of successes achieved by developing economies in the early phase of development are based on public policies that are easy to carry out, especially when they seek to release suppressed growth. Continuing them beyond the first and relatively easy phase requires the building of consensus that is not readily obtained in societies as diverse as those in South Asia. That buoyancy can result in the first phase was certainly the case with India in which the rate of economic growth was suppressed below the structural rate of increase for about 40 years from 1947, when the country became independent, to the mid-1980s, when the economy was released from the shackles put on it by the first two generations of leaders. The Indian economy underperformed by 2 percentage points a year for four decades. In the mid-80s when the economy began to be reformed, its GDP should have been twice as large as it was when reforms began to take hold. That was when, in the words of Gurucharan Das, India, awakened by being unbound in the late 80s, sprinted forward.4 But the reform effort, having 2

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See, in particular, three reports by the Asian Development Bank, Key Indicators for Asia and the Pacific, 2011, July 2011; India: A Partnership for Inclusive Growth, May 2011; Reshaping Global Economic Governance and the Role of Asia in the Group of Twenty, April 2011. The World Bank in its annual Global Economic Prospects, June 2011: Maintaining Progress amid Turmoil, has a chapter on South Asia, pp.115127. The World Bank, Global Economic Prospects, June 2011: Maintaining Progress amid Turmoil, Washington DC, 2011, p.115. Gurucharan Das (2002), India Unbound: The Social and Economic Revolution from Independence to the Global Information Age, New York, Anchor.

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done the easier things, got stalled when more difficult areas had to be tackled by the policymakers. According to one Western India-watcher, „many analysts had complained that the government, which has been in power for seven years, was doing little to address India‟s entrenched problems: low agricultural productivity, poor infrastructure, a weak education system that produces graduates with few skills and real estate laws that short change farmers and other landowners‟.5 In 2009, Finance Minister Pranab Mukherjee, while presenting the budget for the 2009-10 financial year, promised that India would reach double-digit rates of economic growth within a couple of years.6 That hope is now gone. On 25 August 2011, the Reserve Bank of India issued a blunt warning: economic growth could soon fall below 8 per cent. The growth rate was 9 per cent and 8.5 per cent respectively in the previous two years. Private investments declined last year as did the once robust car sales. The latter indicated some loss of confidence on the part of the middle classes which, nervous about the future, had begun to hold back expenditure on consumption. Indian stocks began falling in November 2010, declining more than 24 per cent from their high. Perhaps the most troubling development was inflation which hovered at nearly 10 per cent even after the central bank raised interest rates 11 times in less than two years. „In a report published on Friday, 26 August 2011, analysts at Deutsche Bank said India‟s growth rates could even slip below 7 per cent if the United States and Europe fell into a recession‟.7 There is also a growing concern about the health of the banking sector. „Analysts warn that unlike 2008, this time around the economic slowdown comes at a time when banks have already been piling up bad loans, putting extra stress on their balance sheets… A recent report by IDFC Securities suggests that at least 17 per cent of Indian banks‟ outstanding loan assets could be on the verge of default.‟8 Crisil, the Indian rating agency owned by Standard & Poor‟s, expects overall bad loans held by Indian banks to raise from 2.3 per cent in 2011 to 2.6 per cent in the year to March 2012. These worsening economic trends had surfaced before Anna Hazare, an anti-corruption activist, challenged the government to take a number of concrete steps to deal with the problem of corruption. The government initially took a tough stance; Prime Minister Manmohan Singh told Lok Sabha, the lower house of the Indian parliament, that street agitation could not become the basis of legislation in a well-functioning democracy. Hazare was briefly incarcerated but released and allowed to stage a fast in a public square in New 5

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Vikas Bajaj, „Unrest builds as India adds a slowing economy to its corruption woes‟, The New York Times (27 August 2011), p.B3. For an analysis of the 2010-11 budget, see Shahid Javed Burki, „The Indian Budget: A Failure to Confront the Challenges‟, ISAS Brief No.117, 10 July 2009. Vikas Bajaj, „Unrest builds as India adds a slowing economy to its corruption woes‟, The New York Times (27 August 2011), p.B3. James Fontanella-Khan, „Indian banks under strain as bad loans rise‟, Financial Times (24 August 2011), p.15.

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Delhi. „Mr Hazare‟s demands are focused on a few main elements: he wants a Lokpal, an anti-corruption and accountability agency, with investigative powers over the federal government and similar independent organisations to monitor corruption in each state; he wants all public officials up to and including the prime minister to come under its ambit, except only the judiciary; and he wants lawmakers to require that all government departments create Citizens Charters, the equivalent of publicly accessible contracts explaining what services each office provides and how long it takes to deliver them‟.9 Hazare ended his fast on 28 August 2011 after Lok Sabha passed a non-binding resolution accepting most of his demands about the shape of the accountability mechanism he and his followers wanted established. Before the parliament acted, Finance Minister Mukherjee, told the legislators that India was at crossroads. He warned the parliamentarians that the „success of Hazare‟s tactics could encourage similar movements over issues such as land, health, education and nuclear energy‟.10 Hazare promised to do precisely that as he broke his fast, introducing an element of uncertainty into the country‟s political system and the process of economic decision-making. However, the reverse could also happen. If the Singh government was freed from the pressure under which it had come because of the high-profile cases of corruption involving some of the ministers in the cabinet, there was hope that the stalled process of reforms could be given a jump-start. There seems to be hope that the government may move in that direction. „But at last the government is talking up a new round of policy reforms,‟ wrote The Economist in early August. „The country‟s most senior civil servants have just advised the cabinet to let foreign chains operate in India‟s highly regulated retail sector. A goods and services tax is supposed to be rolled out by next year, to help plug the budget deficit. Long-promised financial reforms are being proposed. A new mining levy will claw back some of firms‟ growing profits, supposedly to cover environmental and social costs. Some of these plans will prove to be red dust blowing in the wind. But the government needs to act. It has already frittered away half of its second term since Mr Singh won re-election in 2009‟.11 While the political turmoil in India is relatively new to the country, it has become a fact of life in Pakistan, South Asia‟s second largest economy. The country‟s economy has been the most poorly performing in the subcontinent with rates of GDP growth averaging 3 per cent a year since the return of democracy to the country in 2008. In fact, Pakistan‟s GDP was increasing at a rate one-half that of Bangladesh and one-third that of India before the slowdown in the Indian economy. Pakistan‟s economy was faced with unprecedented stresses, most of them caused by the failure of public policy. There was a serious shortage of 9

10 11

Jim Yardley, „Impasse lingers between Indian hunger striker and government‟, The New York Times (27 August 2011), p.3. James Lamont, „Stunned MPs hand victory to Hazare‟, Financial Times (29 August, 2011), p.2. „India‟s politics: Dust in your eyes‟, The Economist (6 August 2011), p.34.

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resources at the disposal of the government. In spite of the pressure exerted by the International Monetary Fund (IMF) that provided emergency assistance amounting to US$11.4 billion to reform the tax system, the tax-to-GDP ratio continued to decline. It reached 9 per cent in 2011, one of the lowest in the world. In late 2010, the IMF decided to hold back further tranche releases of the amount it had originally pledged, leaving US$4 billion undisbursed. The government‟s financial situation came under additional stress when the deterioration of the country‟s relations with the United States (US) led to the suspension of one part of American assistance – the amount provided to the military for the support it gave to the Americans for their operations in Afghanistan – to Islamabad. In July 2011, Washington held back some US$800 million of promised payments to Islamabad. This was a big blow to the cash-starved country. Relations between the two long-time allies worsened dramatically following the killing of two young men in broad daylight on a busy street in Lahore by Raymond Davis, a CIA operative. Davis was held in a Pakistani jail for several weeks but was released after intense pressure was put on Islamabad by Washington. The Davis affair in January 2011 was followed by a raid on 2 May 2011 by American Special Forces in a compound in Abbottabad deep inside Pakistani territory. The raid was aimed at killing Osama bin Laden, the longsought terrorist leader who had managed to live in a city that also is also home to the Pakistan Military Academy. Bin Laden died in the raid. The American operation came without the knowledge of the Pakistani army, plunging the relations between the two countries to an alltime low. A series of aggravations have followed, including the possibility reported by some Western newspapers that „US spy agencies have concluded that it is likely the Chinese engineers – at the invitation of Pakistani intelligence operatives – took detailed photographs of the severed tail of the Black Hawk helicopter equipped with classified technology designed to elude radar… The members of the Navy Seals who conducted the raid had tried to destroy the helicopter after it crashed at Bin Laden‟s compound in Abbottabad but the tail section of the aircraft remained largely intact‟.12 Before the deterioration in relations, Pakistan was rewarded handsomely for coming to the aid of America after 9/11. The total amount of assistance that flowed into the country was estimated at US$21 billion. The bulk of this was for the Pakistani military. American policymakers consider this to be generous compensation for Islamabad‟s help. Pakistan, on the other hand, maintains that the economic losses from the spread of terrorism in the country are a multiple of the amount the United States has provided. The government has calculated that up to 5 per cent of the gross domestic product is being lost because of terrorism. This translates into US$9 to US$10 billion a year, or four to five times the amount of yearly American assistance to Pakistan.

12

Mark Mazzetti, „U.S. suspects Pakistan let China see crashed copter‟, The New York Times (16 August 2011), p.A3.

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In addition to the shortage of resources to finance the government‟s day-to-day activities, Pakistan has very little available for investments to develop the economy. Recognising the resource constraint, the country‟s Planning Commission has prepared a strategy that will produce growth from improving the economy‟s efficiency.13 This may sound like a reasonable path to take, but efficiency improvements can come only if trained manpower is at hand and institutions that are essential for achieving this goal are in place. Neither is the case in Pakistan at this time. The State Bank of Pakistan, the country‟s central bank, seems reconciled to seeing the economy underperform in the immediate future. It estimated GDP growth in 2010-11 to be no more than 2.4 per cent, much lower than even the low growth in the previous year estimated at 3.8 per cent. No pick-up was in sight since the government needed to move simultaneously on a number of fronts and does not seem to have the political will to do so. „In our view, the growth outlook will be shaped by policy responses to several key domestic challenges: (1) energy shortages, which are restricting growth; (2) high fiscal deficit whose financing has become difficult – partly owing to the backlog arising from the non-recognition of power subsidies of earlier years as reflected in the „circular debt‟; (3) build-up of domestic debt raising concerns for macro-stability; and (4) inflationary pressures which are not receding steadily‟, wrote the bank in its quarterly report for April-June 2011 on the state of the economy.14 Weighing heavily on the economy was the continuing acts of domestic terrorism, not all of which could be attributed to the activities of Islamic extremists who had gained a foothold in the country. In July 2011, the city of Karachi erupted into violence because of the rivalry between several ethnic groups which were vying for political power.15 „Like no other city, Karachi distils a mix of gun politics, ethnic tensions, sectarian strife, state weakness, militancy and organised crime that makes the whole country so fragile. It is these trends that will determine whether Pakistan‟s hesitance from military rule to a semblance of democracy will deliver greater stability or deeper fragmentation‟, wrote Mathew Green for the Financial Times special report on Karachi.16 An estimated one thousand people were killed in the summer of 2011 as a result of the violence in the city. There was some fear among policy circles in the US that some of the terrorist groups based in Pakistan, including Lashkar-e-Taiba (LeT) and the Haqqani group, could be planning 9/11 type of attacks on the US. The group is operating out of North Waziristan in the Pakistani tribal belt bordering Afghanistan. LeT has its headquarters near Lahore, the country‟s second largest city. A report prepared for the Council of Foreign Relations speculated that were such an attack to take place, the Obama administration would be forced to act decisively. Domestic 13

14 15

16

Government of Pakistan, Planning Commission, Pakistan: New Growth Framework, Islamabad, January 2011. State Bank of Pakistan, The State of the Economy, Quarterly Report, for April-June 2011. For an analysis of the ethnic basis of violence in Karachi see Shahid Javed Burki, ISAS Brief No.211, August 2011. Mathew Green, „The killers of Karachi‟, Financial Times (17 August 2011), p.5.

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politics in the US would demand such a response. But the result would be the possible disintegration of the Pakistani state with unimaginable consequences for South Asia and the rest of the world.17 Bangladesh, the third large country in the South Asian mainland, was also in the grip of political upheaval that began to adversely affect its economy. The country has done well in the last several years. Its economy, with an annual output of US$100 billion when converted at the official exchange rate, has been growing by nearly 6 per cent a year. The healthy rate of growth has been fuelled by the world‟s third-largest garment industry (inappropriate, suggest exporter/producer) and by large inflows of remittances from its citizens working abroad. Aid is also plentiful and there are serious efforts – more serious than in the other large countries of South Asia – to help the poor. The incidence of poverty has been declining. But the Prime Minister, Sheikh Hasina, instead of building her electoral prospects on the basis of the performance of the economy, has turned on her political rival, Khaleda Zia. According to the „Banyan‟ column in The Economist, „sadly, judging by her recent behaviour, she seems to seek instead to crush the opposition and provoke an election boycott, silencing pesky critics as she goes… More surprising was [her] attack on Muhammad Yunus, thrown out of the Grameen Bank he founded. His most obvious mistake came in 2007, during the two-year interregnum, when he flirted for a while with launching a political party – a „third force‟ to break the old duopoly. Rumours swirl in Dhaka, however, that Mr Yunus‟s other sins included his accepting the Nobel Peace prize that Sheikh Hasina felt should have been hers…‟18 Table 1: South Asia’s Economic Performance and Prospects Bangladesh

India

Pakistan

Population (million), 2010

162

1,156

170

GNI (current US$ billion), 2009

94

1,406

170

Growth (%), 2000-09

5.9

7.9

5.2

Growth (%), 2010

5.8

9.7

4.4

GNI (current US$ billion, 2010)

104

1567

183

Growth (%), potential, 2011-15

7.0

8.5

6.0

Growth (%, likely), 2011-15

6.0

7.0

3.0

GNI (US$ billion) potential, 2011-15

146

2,356

244

GNI (US$ billion ), likely, 2011-15

139

2,198

212

Difference (potential-likely), US$ billion

7

158

32

Source: Author’s calculations based on World Development Indicators, 2011, The World Bank, Washington DC, 2011.

17

18

Stephen Tankel, A Pakistan-based terrorist attack on the U.S. homeland, Council for Preventive Action Contingency Planning, Memorandum #13, Council on Foreign Relations, New York, August 2011. Banyan, „In the name of the father, The Economist (13 August 2011), p.34.

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It would appear, therefore, that the loss of economic momentum in South Asia was largely the consequence of various kinds of political problems that affected, in different ways, the large countries of the region. Data in the accompanying table provide some illustrative quantification on the likely performance of the South Asian economies and their potential from 2011 to 2015. If the numbers presented hold, the three economies could underperform by an aggregate amount of US$200 billion in the next four years. This would be equivalent to a loss of US$150 per capita in income during this period. That is a sizeable loss, about 15 per cent of average income. That said, there have been some positive developments of note. These are related to the easing of tensions among the area‟s countries. On 27 July 2011, Hina Rabbani Khar, the newly appointed foreign minister of Pakistan, visited New Delhi to meet her Indian counterpart, S.M. Krishna. The two sides decided to resume the comprehensive dialogue on various issues that was begun in 2004 following agreement between Prime Minister Atal Bihari Vajpayee, then prime minister of India, and Pervez Musharraf, Pakistan‟s former president. The talks were suspended after the terrorist attack on Mumbai in November 2008 that took 168 lives and was traced back to Lashkar-e-Taiba, a terrorist organisation based in Pakistan. The Indians demanded (inappropriate, insisted?) that the talks between the two countries could only resume after the authorities in Pakistan had moved against the people who had engineered the attack. Persuaded that such a move would possibly further destabilise Pakistan, New Delhi dropped that condition. According to Rajshree Jetly, writing for the Institute of South Asian Studies, „this time terrorism was not allowed to become a stumbling block. New Delhi and Islamabad remained committed to carry on with the talk, which came just two weeks after the triple bomb blasts in Mumbai on 13 July 2011. India resisted from jumping to conclusions or indulging in a blame game until investigations of the July 2011 attacks were completed. In a similar vein, Pakistan also resisted from making any remarks on India‟s alleged role in aiding the insurgency in Baluchistan‟.19 There have also been palpable improvements in Bangladesh‟s relations with its large neighbour, India. These relations have been always tricky ones, according to Iftekhar Ahmed Chowdhury who served as Bangladesh‟s foreign minister for two years, from 2007 to 2009. „[They are] often fraught with petulance and pitfalls. Despite the Indian support at independence, when Bangladesh found itself geographically „India locked‟, it recognised its main foreign challenge was to live in “concord with” but “distinct” from its powerful neighbours‟. Chowdhury expects that a raft of documents would be signed during Prime Minister Manmohan Singh‟s visit to Bangladesh in September 2011.20

19

20

For an analysis of the Khar visit to New Delhi, see Rajshree Jetly, „India and Pakistan Foreign Ministers‟ Meeting: New Hopes and Expectations‟, ISAS Brief No.209, 1 August 2011. Iftekhar Ahmed Chowdhury, „Come September, Manmohan Comes to Dhaka‟, ISAS Brief No.214, 15 August 2011.

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If the South Asian nations can cast off the burdens of history accumulated over many decades, they can significantly improve their economic prospects. Intra-regional trade in that case could become one of the drivers of economic growth and help the region to overcome its present difficulties and realise its large potential.21 It may also help in the political stabilisation of the region. .....

21

This argument was developed in Shahid Javed Burki, South Asia in the New World Order: London, Routledge, 2011.

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ISAS Insights No. 136 – 15 September 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Afghanistan in Transition: Will ‘Bonn II’ be a Game Changer? Shanthie Mariet D’Souza1 Abstract All hopes and attention are yet again riveted on another international conference in Bonn, Germany, later this year. Taking place, almost a decade after the last conference in Bonn, the forthcoming conference (Bonn II)2 is seen as a window of opportunity for the Afghans and the international community to address the past shortcomings and set the parameters for the long term stabilisation of the country beginning with the effective transition (Inteqal) from international to Afghan hands by 2014.

Road from ‘Bonn I’: Politics of Exclusion & Regional Power Politics The first Bonn conference or „Bonn I‟ on 5 December 2001 laid the foundations of the present political system in Afghanistan. To address the chaos and uncertainty prevailing in Afghanistan following the dislodging of the Taliban from Kabul necessitated and even 1

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Dr Shanthie Mariet D‟Souza is Visiting Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous institute at the National University of Singapore (NUS). She can be reached at isassmd@nus.edu.sg. The views expressed are those of the author and do not necessarily reflect those of the institute. The labelling of upcoming conference in Bonn as „Bonn II‟ has varied interpretations. While many from the international community argue that this is not a successor conference to the first Bonn conference,„Bonn I‟, falling on its 10th anniversary, Afghans view this as a major event that would bring in much needed changes in the present political system, as it also chalks out a strategy of sustaining international support beyond 2014. The international community, particularly the Europeans, have warned against raising such expectations and are trying to narrowly restrict the agenda to a stocktaking exercise of transition that needs to be completed by 2014. The author‟s interactions and discussion with members of parliament, government officials, academia, media, women‟s groups, civil society and non-governmental organisations during field visits to Afghanistan in May and June 2011. Also see Wazhma Frogh, „Bonn II Paper Series One: Who is setting the agenda for another international Conference on Afghanistan in Bonn?‟ Tolo News (5 August 2011), http://tolonews.com/en/wazhma-frogh/3579-bonn-ii-paper-series-one-who-is-setting-the-agenda-foranother-international-conference-on-afgh anistan-in-bonn. Accessed on 7 August 2011. Dr Hussain Yasa, „2nd Bonn Conference- A Probable Last Chance to Rescue Afghanistan‟, Daily Outlook Afghanistan (24 August 2011), http://outlookafghanistan .net/topics.php?post_id=1649. Accessed on 1 September 2011.


justified a need for a powerful centralised executive form of government. 3 „Bonn I‟, aimed at unifying, albeit superficially, a diverse war-ravaged society fragmented by ethno-tribal, religious and ideological cleavages, which have been repeatedly exploited by neighbouring countries. In the hope of maintaining a unitary state, the international community installed the present political framework envisaging the reinstitution of the 1964 Constitution minus the restoration of monarchy4 and put in-charge a western educated moderate Pushtun as the head of the interim government as bulwark against the centrifugal forces breaking the country apart. In his speech to the closing session of the Loya Jirga (Grand Council) in 2004, President Hamid Karzai justified the basis of the new constitution – „which mandated a presidential system with a bicameral parliament, a highly centralised administration with unprecedented rights for minority languages, and an Islamic legal system safeguarded by a Supreme Court with powers of judicial review – would meet the needs of a desperately indigent but proud country searching for a period of stability in which to rebuild‟.5 Over the past decade, the centralised executive form of political system has been constantly challenged and discredited by the country‟s fraudulent 2009 presidential election and 2010 parliamentary elections, the constant bickering between the President and Parliament,6 deteriorating security, poor governance and near absence of rule of law, thus, sparking a vibrant debate inside and outside Afghanistan for a need of course correction. The magnitude of the problem and simmering discontent is such that long time Afghan observers warn: „If in 2001 the West was afraid that the absence of a strong centralised government in Kabul would prompt Afghanistan‟s dissolution, by 2011 the West has come to fear that a dysfunctional centralised government could cause this same outcome‟.7 „Bonn I‟ was successful in stitching together an impressive coalition of major regional powers (including Iran)8 and leaders across ethnic lines. But it made a conscious decision to keep the Taliban out, sidelining even those who had surrendered and were ready for 3

4

5

6

7

8

„Agreement on Provisional Arrangements in Afghanistan Pending the Re-Establishment of Permanent Government Institutions‟, http://www.afghangovernment.com/AfghanAgreementBonn.htm. Accessed on 1 July 2011. The Bonn agreement, concluded on 22 December 2001 by major Afghan factions through an UN-brokered conference in Bonn, envisaged the reinstitution of the 1964 Constitution minus the restoration of monarchy. „Interim government restores 1964 Afghan Constitution‟, Afghanistan News Centre (5 February 2002), http://www.afghanistannewscenter.com/news/2002/february/feb5p2002.html. Accessed on 10 September 2011. Rubin, Barnett R., „Crafting a Constitution for Afghanistan‟, Journal of Democracy, Volume 15, Number 3, July 2004, pp. 5-19. Kenneth Katzman, Afghanistan: Politics, Elections, and Government Performance, Congressional Research Service (CRS) Report, RS21922 (13 July 2011), http://www.fas.org/sgp/crs/row/RS21922.pdf. Accessed on 23 July 2011. Thomas Barfield, „Afghanistan‟s Ethnic Puzzle: Decentralizing Power before the U.S. Withdrawal‟, Foreign Affairs (September/ October 2011). Shanthie Mariet D‟Souza, ISAS Insights, No.132: „Iran, US and the Afghan Conundrum‟ (1 September 2011), http://www.isas.nus.edu.sg/Attachments/PublisherAttachment/ISAS_Insights_132_-_Email_-_Iran, _US_and_the_Afgan_Conundrum_06092011162910.pdf. Accessed on 5 September 2011.

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negotiations, defining them as the defeated power. It was seen as a victor‟s peace attended by Washington's Afghan allies, who carved up the post-war status quo between them9, almost amounting to dividing the post-war spoils. Moreover, in spite of the hopes it generated for Afghanistan, one of the major shortcomings of „Bonn I‟ was the failure to elicit a strong regional commitment from neighbouring countries to curb their interference in Afghanistan. This resulted in a continuing practice by the Afghan's neighbours, notably Pakistan to provide sanctuaries, support and training to their proxies to carry out destabilising activities inside the war-torn country.

Setting the Agenda for ‘Bonn II’: Need for Course Correction? These deficiencies of „Bonn I‟ make „Bonn II‟ perhaps the last and yet, the best chance for the international community to effect a course correction in Afghanistan as the drawdown of international forces continue. The three issues that will be debated upon – the civil aspects of the process of transferring responsibility to the Government of Afghanistan by 2014; the long-term involvement of the international community in Afghanistan after 2014; and the political process that should lead to a long-term stabilisation of the country10 – are critical in chalking out future trajectory for a stable Afghanistan. The conference, which will convene about 1,000 delegates from 90 nations in Bonn, will debate these issues in the hope of actualising the goal of transition (Inteqal) by 2014. While there is a cautious optimism among the Afghans, the European diplomats have warned against drawing any conclusions from the coincidence of it falling on the 10th anniversary of „Bonn I‟ or even raising expectations, „This would not be Bonn 2.0… it would instead just be a stocktaking on the road to 2014 and the transition to Afghan-run security and NATO withdrawal‟.11 But events on the ground and the raised level of expectations among the Afghans indicate a disconnect between the hopes and aspirations of the Afghans and international community on the prospects for long-term stabilisation of Afghanistan. Many Afghans perceive the conference as a venue to hurriedly transfer authority to complete the transition process by 2014, not taking cognizance of the fragile conditions on the ground.

9

10

11

Julian Borger, „Bonn conference could mark formal start of Afghan peace process‟, The Guardian (20 June 2011), http://www.guardian.co.uk/world/julian-borger-global-security-blog/2011/jun/20/afghanistan-talibantalks-bonn. Accessed on 10 September 2011. „The International Afghanistan Conference in Bonn to set the course for Afghanistan‟s future‟, Auswaertiges-amt (5 May 2011), http://www.auswaertiges-amt.de/EN/Aussenpolitik/RegionaleSchwerpunk te/AfghanistanZentralasien/Bonn_Konferenz_2011/Bonn-Konferenz-Einstieg-node.html. Accessed on 10 September 2011. Julian Borger, „Bonn conference could mark formal start of Afghan peace process‟, The Guardian (20 June 2011), http://www.guardian.co.uk/world/julian-borger-global-security-blog/2011/jun/20/afghanistan-talibantalks-bonn. Accessed on 10 September 2011.

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While the West would like to be cautious, there is an element of skepticism in Afghanistan and outside as well. It is pointed out that another international conference alone would not be a „game changer‟ in Afghanistan, especially when the participants would be handpicked delegates of Karzai, providing the opposition and civil society groups only token representation. Such fears have been confounded since Karzai has opted for a traditional Loya Jirga instead of a constitutional Loya Jirga that would ensure pre-eminence of his supporters in the conference and therefore, a continuation of the present political system. The recent announcement by Karzai that he would not run for Presidency again beyond the present term12 has not helped ease concerns of the President using extra constitutional measure or even amending the constitution to stay in power beyond his second term. Karzai's announcement has thus been interpreted as a tactic to defuse pressures and expectations from him at a time of political impasse, transition and weakening support base in the southern part of the country.

The Present ‘Political Stalemate’: Gathering Storm? The relations between the highly centralised presidential system and the Parliament have been rocky impeding the functioning of the government for almost a year. On 21 August, Afghanistan's election commission ordered the unseating of nine of the parliament's 249 lawmakers for electoral fraud. The decision was meant to defuse a feud between Karzai and the Parliament stretching back to the September 2010's fraud-riddled legislative elections.13 Karzai had tried using a special elections court, filled with judges appointed by him, to unseat 62 parliament members, but was prevented from doing so as a result of international pressure.14 The victory of the opposition camp in this episode notwithstanding, there is an overwhelming consensus that the highly centralised form of government that „Bonn I‟ facilitated is responsible for the state of affairs today – a „predatory state‟ more known for its indulgence in rampant corruption, inefficiency, patronage and cronyism rather than a form of democracy the Afghans had euphorically welcomed and hoped would transform their lives, state and society. Discussions with the Afghans this summer clearly illustrates their disillusionment and frustration with the present form of government and are talking of the need for greater 12

13

14

Ben Arnoldy, „Afghanistan's future murkier as Karzai disavows third term‟, The Christian Science Monitor (12 August 2011), http://www.csmonitor.com/World/Asia-South-Central/2011/0812/Afghanistan-s-futuremurkier-as-Karzai-disavows-third-term. Accessed on 13 August 2011. Dion Nissenbaum, „Afghan Election Panel Seeks to Expel Nine Legislators on Electoral Fraud‟, The Wall Street Journal (22 August 2011), http://online.wsj.com/article/SB1000142405311190332790457 6522612987886134.html. Accessed on 23 August 2011. Kenneth Katzman, Afghanistan: Politics, Elections, and Government Performance, Congressional Research Service (CRS) Report, RS21922 (13 July 2011), http://www.fas.org/sgp/crs/row/RS21922.pdf. Accessed on 23 July 2011.

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decentralisation of power including federalism. They feel that the international community has failed to understand the nature of the Afghan state in its historical and traditional sense and has imposed an alien system in the name of democracy. This does not amount to an outright rejection of democracy but a yearning for a form of government in sync with local needs and aspirations which include greater decentralisation, federal polity, political party system, room for opposition, electoral processes, accountability, transparency, rule of law and efforts towards consensus building on issues of critical importance.15 The recent political impasse and demonstrations in Kabul indicate some sort of opposition activity but Afghanistan needs better opportunities to stir up a vibrant and inclusive political system. The Northern groups have had, since „Bonn I‟, indeed for decades prior to Bonn, a desire for a more federal state with a Prime Minister and a weaker President or probably the King. The strong centralised Presidential system has been constantly challenged not only internally but also by the continuing Taliban violence, even as the drawdown of American forces has commenced. The systematic targeting and elimination of power brokers, government officials and police chiefs is increasingly isolating Karzai from his own support base among the Pushtuns in the southern part of the country, thereby adding new complexities.16 Even after a decade-long international military effort and raising of a large Army, the Taliban remains a potent force, leading to a conclusion that the military defeat of the extremists is a near impossibility. On the other hand, the insurgents have been able to effectively use the deficiencies of the present political system, lack of governance, ineffective administration, corruption and ills of the present government to their advantage. Moreover, the Afghan population has shown that Afghans are true to their historic tendency to resist attempts by Kabul at over-centralisation of authority. A „fence sitting‟ mentality pervades as they tend to identify themselves with those perceived to be winning. At the moment, neither the government nor the Taliban are seen to be winning, though in the south the Taliban violence will have a demonstrative effect.

In Search of a ‘Political Solution’: Talks, Reconciliation, Power Sharing with the Taliban? In the face of the rising onslaught of the Taliban insurgency, the Afghan government and the international community have arrived to a conclusion on the need for a political solution to 15

16

Author‟s interactions and discussions with government officials, academia, media personnel, nongovernmental organisations, civil society and women groups during field visits to Afghanistan in May and June 2011 and Dushanbe in July, 2011. Shanthie Mariet D‟Souza, „Afghanistan‟s killing fields: Will it lead to crisis of confidence for the “transition”?‟, Al Arabiya (19 July 2011), http://www.alarabiya.net/articles/2011/07/19/158250.html. Accessed on 11 September 2011.

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end the war. Despite such public pronouncements and establishment of a High Peace Council (HPC), the reconciliation process with the Taliban is another area where the Afghan government has made little effort of evolving a national consensus. The HPC, which has been established by the Afghan government, has provided the official address for the reconciliation process. It sends a right signal that all process of reconciliation should occur with Afghans in the lead and working in a participatory, transparent and inclusive manner. However, the workings of the HPC suggest that it has ended up as a talk shop of handpicked delegates. Worse still, to most Afghans, HPC is a money-generating scheme17 rather than a genuine process of reconciliation. It fails to reflect the genuine concerns of civil society groups.18 As the preparations for „Bonn II‟ are underway, there is also a realignment of forces that could pose a significant opposition to the reconciliation process at the Conference and otherwise. While there has been outright rejection of reconciliation with the Taliban by most northern groups, their emphasis has been on intra-Afghan reconciliation. They have been increasingly questioning the very nature of Pushtun dominated polity in the country. In addition they have been critical of Karzai, unsure of the reconciliation process and frequently raised the issue of sanctuary the Taliban has received in Pakistan. Ahead of the Bonn conference, there have been several meetings among the opposition forces including former Vice President Ahmad Zia Masoud, Haji Muhaqiq, Abdullah Abdullah, General Abdul Rashid Dostum, Amrullah Saleh, Ismail Khan, Ata Muhammad Noor and others in Kabul and Mazar in a bid to put up a united front. There is no formal unanimity yet, but a „grand alliance‟ is said to be in the making19, not only to oppose the present political dispensation but also to provide an alternate voice at Bonn. One option of co-opting the Taliban that is being advocated is „opening up provincial and district governorships to competition‟ that would provide the safest form of power sharing with the Taliban. Allowing the Taliban to serve in a democratic government would likely lead to beneficial fissures within the Taliban, since those who come to hold positions in local government would have less reason to remain loyal to the Taliban leadership based in Pakistan. The stated goal of the Taliban‟s central command – seizing power nationwide – would immediately clash with the interests of these local commanders turned politicians. This would drive a wedge between the ideologically hardened leaders and the local commanders, thus depriving the leadership of the support base‟.20 17

18

19

20

Dr Hussain Yasa, „2nd Bonn Conference- A Probable Last Chance to Rescue Afghanistan‟, Daily Outlook Afghanistan (24 August 2011), http://outlookafghanistan.net/topics.php?post_id=1649. Accessed on 1 September 2011. Patricia Gossman, Afghan High Peace Council Fails to Reflect Afghan Civil Society, Peace Brief, No.74, United States Institute of Peace (USIP), Washington DC, (10 January 2011), http://www.usip.org/files/res ources/PB74-Afghan_High_Peace_Council_Fails_to_Reflect_Afghan_Civil_Society.pdf. Accessed on 1 September 2011. Hussain Yasa „The Dark Clouds‟, Daily Outlook Afghanistan (9 June 2011), http://outlookafghanistan.n et/topics.php?post_id=845. Accessed on 11 September 2011. Whereas non-Pashtun Afghans oppose granting the Taliban a role in the national government, they have few objections to former (or even current) Taliban members serving in districts or provinces where they have

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There have been conflicting views on the United States (US) and NATO intent to use „Bonn II‟ as a platform for a political settlement by including the Taliban in the conference. While the previous attempts and process of reconciliation have remained problematic as the contours of the political settlement are not clearly laid out, there are reports on direct talks with insurgents and contacts established between the US and some Taliban representatives from the Quetta Shura (QST). Pakistan has been shoring up support for inclusion of the Haqqani Network. Yet the US Ambassador to Kabul has categorically stated that the Taliban are not to be included in „Bonn II‟.21 The Taliban has used every opportunity to publicly reject the idea of peace negotiations, saying all foreign forces must leave Afghanistan before any such talks begin. However, what generates hope among the parties hoping for the success of the reconciliation, is the odd statements by its top leadership, which can be loosely interpreted as acceding to a process of peaceful dialogue. August provided one such occasion. Taliban chief Mullah Omar admitted for the first time that some contacts have already taken place. In a 28 August message for the Eid al-Fitr holiday, he said „every legitimate option can be considered‟ in order to reach the Taliban's goal of establishing „an independent Islamic regime‟ in Afghanistan. He added, however, that „the contacts which have been made with some parties for the release of prisoners can‟t be called a comprehensive negotiation for the solution of the current imbroglio of the country.‟22 Quite naturally, this statement, which promised to establish a „peace-loving and responsible regime‟ encompassing all Afghan ethnicities elicited cautious optimism among some US and Afghan officials. Such uncoordinated attempts of reconciliation and dialogue would result in dissipated efforts and further suspicion inside and outside Afghanistan. Likewise the yet to be inked USAfghan strategic partnership that envisions US troop presence beyond 2014 as a „security guarantee‟ for the Afghans is creating considerable disquiet inside and outside Afghanistan. Fears of a permanent American presence have been articulated by neighbouring countries like Iran, Pakistan, Russia and China. While Iran and Pakistan are seen to be moving closer, China is watching developments with some concern which could lead to regional reconfiguration of forces.

21

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local support. Thomas Barfield, „Afghanistan‟s Ethnic Puzzle: Decentralising Power Before the U.S. Withdrawal‟, Foreign Affairs (September/ October 2011). „No Space for Taliban in Bonn Conference: Crocker‟, Tolo News, (04 August 2011), http://www.afgh anistannewscenter.com/news/2011/august/aug42011.html#1. Accessed on 30 August 2011. Yaroslav Trofimov And Maria Abi-Habib, „Taliban Need 'Pain' to Talk, Envoy Says‟, Wall Street Journal (9 September 2011), http://online.wsj.com/article/SB10001424053111904103404576558431089318822.html. Accessed on 1 September 2011.

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Is There a Way Out of the Present Quagmire? Amid such internal and external uncertainties surrounding the discourse on the future of Afghanistan, it is highly doubtful as to how much a single conference can provide in terms of solutions to the country's problems, especially when it does not provide a platform to all important stakeholders. Another international conference is scheduled to be held in Istanbul in November to shape the agenda and points of discussion and agreement between Afghan government and international community. However, it will be prudent to set the agenda now, rather than depend on the collective as well as fiercely competitive wisdom of an international conference with competing agendas, narrow goals and lack of clear coordinated strategy. Though there are no magic bullets to solve all of Afghanistan‟s problems, a good beginning could be made by initiating serious dialogue on political, security, constitutional and governance reforms. As expressed by the Afghans, decentralisation of power and a federal form of government could be an alternative to the present system. Decentralisation might result in a weaker central government, but that does not necessarily lead to a weaker nation. A federal parliamentary system where territorial administrative regions are restructured as autonomous units could pave way for the surrendered reintegrated insurgents to contest elections and come to power peacefully in the areas they have popular support. The present system has no mechanism for such coexistence.23 Along with structural changes such as political devolution and the allowance of political parties, the opening up of the political field in advance of 2014 offers the best possibility of creating a more stable and legitimate Afghan government. If Washington leaves the question of executive power unaddressed until 2014, then the much-heralded transition of responsibility to the Afghan government may flounder over disputes about the government‟s legitimacy.24 The international community has been provided yet another opportune moment. It needs to seize the opportunity by ensuring that all factions of Afghan society, including all political groups, civil society, women groups, non-governmental organisations and, media are included in a truly representative and participatory nation-building process. If „Bonn II‟ is to be a platform of developing a functional political system, the agenda and participation have to be broad-based and representative. There is also a need to arrive at a regional peace agreement and establish mechanisms of guarantees in restoring Afghanistan‟s neutrality to curb neighbour‟s interference.

23

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Dr Hussain Yasa, „2nd Bonn Conference - A Probable Last Chance to Rescue Afghanistan‟, Daily Outlook Afghanistan (24 August 2011), http://outlookafghanistan.net/topics.php?post_id=1649. Accessed on 1 September 2011. Thomas Barfield, „Afghanistan‟s Ethnic Puzzle: Decentralizing Power Before the U.S. Withdrawal‟, Foreign Affairs (September/ October 2011).

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„Bonn II‟ will have to adopt a multi-pronged, participatory and inclusive approach of getting all the parties on board, if this conference has to be a „game changer‟. The international community cannot afford to miss out on another such window of opportunity by taking a ringside view of events that could shape the future of Afghanistan and the region for times to come. .....

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ISAS Insights No. 137 – 27 September 2011

469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

A Working America is Good for Asia Shahid Javed Burki1

Abstract America may be declining – in a relative sense, not in an absolute sense – but it still matters how it handles its stumbling economy. All the signs in the middle of September 2011 point towards a slowdown that could result in a double dip recession. Or the economy may just stay in a slump it went in early 2008. It matters for the world, including the countries in South Asia, as to how the American economy performs in the next few months. This Insight examines the current trends in the American economy and how they might influence Asia including South Asia. The main conclusion reached here is that the policymakers in Asia need to be exceptionally vigilant in following the developments taking place in the West.

Introduction Confidence plays an important part in the health of an economy. When people are optimistic they spend more and save less. This increases the demand for goods and services. That leads businesses to hire more in order to meet the greater demand. Increase in employment increases spending even more and that leads to another investment-employment-spending cycle. The reverse happens when people lose confidence which is the case now in both the developed and the developing parts of the global economy. According to John Williams, 1

Shahid Javed Burki is Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He was former Finance Minister of Pakistan, and former Vice-President of the World Bank. He can be contacted at isassjb@nus.edu.sg. The views expressed are those of the author and do not necessarily reflect those of the institute.


President of the Federal Reserve Bank of San Francisco, ‘the latest consumer sentiment readings are near the all-time lows recorded in late 2008 during the most terrifying months of the financial crisis’. He noted that 62 per cent of households expected their incomes to stay the same or decline over the next year, the bleakest outlook in the last three decades. ‘It’s hard to have a robust recovery,’ Williams continued, ‘when Americans are so dispirited.’2 Slow growth in job creation was an important reason for the loss of confidence by the consumers. Employment is not increasing in most parts of the world economy. In the United States, it is stuck at a bit more than nine per cent of the work force. Experts now believe that there is a 50-50 per cent chance of another dip in economic activity. How should policymakers respond to this developing situation? But slow job creation in the United States was not the only reason for the loss of confidence. Europe’s inability to handle the crisis of ‘sovereign debt’ – the large amounts of money owed by the weaker economies of the continent to the continent’s commercial banks on which some of them may default – was another cause of worry. The G7 met in Marseilles, France a day after the American president addressed the country’s Congress but came short in terms of finding a solution. The International Monetary Fund (IMF) Director General Christine Lagarde said on her way to the meeting that world is ‘collectively suffering from crisis of confidence in the face of a deteriorising outlook. Countries must act now and act boldly to steer their economies through this dangerous phase of the recovery’.3

Tools for Managing an Ailing Economy4 One important legacy of the Great Depression of the 1930s was the development of policy tools that could be used to take care of economic downturns. Such downturns are inevitable. They are part of the way capitalist economies function and develop. These business cycles could be tamed by the use of monetary and fiscal instruments. Which of these two was actually used depended upon the taste and ideologies of the policymakers. Those of Keynesian disposition were inclined to use the budget to reduce the adverse consequences of the cycle. The government could pump money into the economy and create jobs for the unemployed which would increase aggregate demand and provide incentives to the private sector to start investing again. The monetarists – or Friedmanites, after the 2

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Binyamin Appelbaum, ‘Fed Chief describes consumers as too bleak’, The New York Times (9 September, 2011), p. B1 and B7. Liz Alderman, ‘Calls for bolder action as Europe enters a dangerous phase’, The New York Times (10 September, 2011), pp. B1 and B3. This section draws upon Shahid Javed Burki, ‘Not a V, nor a W, but a flat-bottomed U’, The Business Times (9 September, 2011), p. 11.

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economist Milton Friedman – preferred to use money supply to tune the economy. The central bank lowered interest rates by printing money and money’s lower cost provided the needed incentive for private entrepreneurs. Those in favour of this approach argued that the use of monetary instruments acted quickly whereas increasing public expenditure had longer time lag between policy action and desired results. In either event, the cycles were short, mostly of ‘V’ type. In most of the cases after the Second World War, the downturns were sharp but so was the recovery. Plotted on a chart, economic activity had a ‘V’ shape. The economies quickly returned to the level of activity they were at before the downturn. This has not happened with what was called the Great Recession of 2008-09. It was great because of the severity of the collapse of economic activity in all industrial countries. The sharpest decline in real GDP occurred in Japan with a fall of 10 per cent from the first quarter of 2008 to first quarter of the following year. The gentlest fall was in France with a decline of four per cent. The United States with five per cent and Germany with seven per cent came in between these two extremes. Policy response to this event was a mixture of fiscal and monetary instruments. The governments acted together to provide fiscal stimulus to the economies. The central banks brought interest rates to near zero. The result was mild recovery in all Western economies. However, none of the economies regained the levels achieved before the downturn began. The United States was at the nearest point in the first quarter of the current calendar year while Japan, having recovered to four per cent below the start of the recession, dipped again to about six per cent decline. The GDP growth estimates for the US in the second quarter of 2011 indicated a slowdown in recovery. This led some to talk about a ‘W’ shaped recession – a drop in activity followed by a mild rise, followed again by a decline, followed once again by mild recovery. However, some economists believe that it was premature to declare that the Great Recession had ended in the first quarter of 2009. A more accurate way of describing it would be to call it a ‘U’ shaped recession, with a long and flat bottom. If this is the correct interpretation, what are the options available to those who make policy? This is where politics enters the picture. With interest rates set near zero and with the Federal Reserve, the US Central Bank, having declared that they will stay there for at least a couple of years, the only monetary instrument left is something called ‘quantitative easing’. The Fed has undertaken two of these – QE1 and QE2 – but there is political pressure on it not to go that route a third time. In fact, Texas Governor Rick Perry, now the leading Republican contender for President Barack Obama’s job in the elections of 2012, has warned that he would regard QE3 as a treasonous activity. While toning down his rhetoric a bit in the first Republican candidates’ debate on 7 September at the Ronald Regan Center, he stuck to his basic position. The ugly wrangling over the decision to raise the level of public debt in the US means that another large fiscal stimulation is not an option either. 3


The Europeans have severe problems of their own with a number of weaker economies in the Union close to bankruptcy. Greece has been rescued twice from defaulting on its foreign obligations. It is by no means certain that the second package will be any more successful than the first one. This helplessness in the West has turned the attention of some analysts towards emerging markets. The European banks are under great stress having acquired significant amount of government debt issued by weak economies. Much of this debt has been classified as ‘junk’ by the rating agencies.

Emerging Markets to the Rescue? Since the downturn began, but especially after the weak recovery from it, the shift in economic power from the developed to the developing world is quite apparent. This was expected but the recession has quickened the pace of change. The International Monetary Fund has estimated that the output of developing Asia – which means all of Asia not including Japan – was seven per cent higher in the first half of 2011 compared to the level at the beginning of the recession. The estimate for Latin America is two per cent higher. This has obvious implication for the share of developing countries in world output. The emerging markets are expected to account for 38 per cent of global output by 2016 compared with just 25 per cent in 2007. This means that these economies are likely to increase their share in world product by 13 percentage points within one decade. Could they be relied upon to stimulate global economic activity? The answer is not for the simple reason that together emerging markets have a current account surplus with the rest of the world. For them to stimulate global economy they need to run deficits. This is not likely to happen especially with China in the lead. A major appreciation in the Chinese exchange rate would act as a major stimulant for the global economy. If that were to happen, China will buy more from the West rather than run large trade surpluses with it. But the Chinese have resisted the pressure on them – which was intense at times – to increase the value of their currency. The IMF’s projection is that China will go in the opposite direction with the current account surplus rising from 5.7 per cent in 2011 to 7.8 per cent in 2016. South Asia is also weakening because of the palpable decline in economic activity in India which makes up 80 per cent of the region’s output. The Pakistani economy, the second largest in South Asia, remains weak mostly because of security concerns and unsettled politics. For the moment, therefore, the global economy will continue to depend on what actions the Americans take and on what the Asians might do. But in Washington bold action is constrained by politics. To paraphrase James Carville, an adviser to President Bill Clinton: ‘It is politics stupid rather than economics.’

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Possibility of Currency Wars One of the lessons learned from the Great Depression of the 1930s was that competitive devaluations in order to promote exports ultimately harm everybody in the global system. It is this recognition that led to the creation of the fixed exchange rate system at the international conference held at Bretton Woods as the Second World War was coming to an end. The IMF was established to monitor the rates of exchanges among the member countries. The new system was centered on the linking of the currencies of all the countries admitted as members of IMF to the American dollar while the Americans pledged to convert their dollar at a fixed rate – US $35 to an ounce of gold – if demanded by those who held liquid American assets. That system lasted for 25 years and was abandoned on 15 August, 1971 by President Richard Nixon when the Americans ran up large deficits with Germany and France. By abandoning the dollar-gold link, Washington ushered in an era of floating exchange rates with the IMF continuing to oversee the operation of the new system. This system is now threatened and the threat has come from an unlikely source – Switzerland. ‘When even eternally neutral Switzerland enters a war, you know things have turned bad. On Tuesday [6 September, 2011], the Swiss National Bank stunned financial markets by drawing a defensive line at the an exchange rate 1.2 Swiss francs to the euro and promising unlimited firepower to prevent strengthening beyond that point’, wrote Alan Beattie for the Financial Times.5 The Swiss acted in their interest not in the interest of international financial markets. They became concerned as the value of their currency continued to increase when large amounts of capital flowed into the country looking for safe havens to park extremely mobile assets. The Swiss, depended on exports more than most European countries, were concerned that the rising franc will make them less competitive in the global market place. Exporting high technology products they were particularly fearful of competition from Germany. The Swiss will maintain the new fixed exchange rate by buying all the foreign capital that flows into the country at the specified rate. This can only be done by printing more Swiss francs. The result of this will be some increase in domestic inflation. Facing this barrier, those in search of new havens will move on to other places. The Swiss action was followed immediately by the flow of large amounts of foot-lose capital to the Scandinavian countries. If they also act defensively as the Swiss have done, capital flows will be directed at places such as Singapore. This has probably already begun to happen since the value of the Singapore dollar has been appreciating of late. This may move the authorities in Singapore to fix their dollar in terms of the US currency. In other words, the Swiss action may have set a chain reaction in motion which may reach Singapore.

5

Alan Beattie, ‘Global economy: Desperate measures’, Financial Times (10 September, 2011), p. 5.

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Economists call this ‘action and reaction’ cycle of public policymaking ‘beggar thy neighbour’ approach. This was precisely the approach that deepened the Great Depression of the 1930s. One of the ways to arrest these moves would be to hold an international monetary conference of the type that was held at Bretton Woods in 1944. However, the Americans are resisting this move since they too are benefitting from the weakening of the dollar. Some experts believe that this ‘tit-for-tat’ weakening of currencies may have a positive impact. For instance, Professor Barry Eichengreen, once a staff member of the IMF and now at the University of California at Berkeley, has long argued that competitive devaluations helped pull economies out of depression in the 1930s. This is a contrarian view to accepted wisdom. He admits that while it is true that the countries following this approach could not all export their way out of depression, they loosened domestic monetary policy and thus unleashed demand6. In spite of all the experience gathered in dealing with recessions, economic theory has still not developed an unassailable position on how they should be dealt with.

President Obama’s Second Stimulus Package In an address to the joint sitting of the US Congress on 8 September 2011, President Barack Obama presented to the country’s legislature another package aimed at stimulating the economy. It was much smaller than the first stimulation measure adopted in 2009 soon after Obama was sworn in as president. The new package is estimated at a bit less than US$450 billion and is built around the proposals developed by both the Democrats and the Republicans over the last several months. In presenting his programme, the President combined politics with economics. ‘The question is whether, in the face of an ongoing national crisis, we can stop the political circus and actually do something to help the economy,’ he asked7. Obama’s liberal supporters, who were on the verge of giving up hope in the man who had won the 2008 election on the basis of a slogan ‘yes, we can’, were encouraged by the President’s speech. ‘With more than 14 million people out of work and all Americans fearing double digit recession, President Obama stood face to face Thursday night with a Congress that has perversely resisted lifting a finger to help. Some Republicans refused to even sit and listen. But those Americans who did, heard him unveil an ambitious proposal more robust and far-reaching than they expected – that may be the first crucial step in reigniting the economy’, wrote The New York Times in an editorial a day after the President’s speech. ‘Perhaps as important they heard a President who was lately passive but now newly energised, who passionately contrasted his vision of government that plays its part in tough 6

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Barry J. Eichengreen, Global Imbalances and the Lessons of the Bretton Woods, Cambridge, MA, The MIT Press, 2010. The White House, ‘Address by the President to a Joint Session of Congress’, (8 September, 2011), www.whitehouse.gov/the-press-office/2011. Accessed on 11 September, 2011.

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times with the Republicans’ vision of a government starved of the means to do,’ continued the newspaper.8 That the move towards redefining the role of the government in the US – an objective pursued with exceptional vigour by the American political right, in particular by the Tea Party movement – would have some profound implications for the Asian economies was a theme explored by the author in an earlier ISAS ‘Insight’. 9 It was suggested in that article that if the American state does in fact withdraw from supporting such critical activities as research and development, innovation, and increasing the levels of the skills of the workforce, the country may no longer be in a position to produce the goods and services an ageing population will require in a modern economy. The populous countries of the Asian mainland could step in to fill the supply gap that would inevitably arise if such a policy posture were to be adopted. This may not happen if the programme advanced by President Obama gets to be implemented in its entirety. The signal was clear from Obama in his 8 September speech. He would not allow the US to become a second-rate power. Some commentators saw in Obama’s proposals a chance for America’s revival. According to Thomas L. Friedman, ‘I’ve been arguing that the only antidote to this debilitating situation is a Grand Bargain between the two parties – one that cuts long-term entitlement spending and raises additional tax revenues to get our fiscal house in order, while making short-term investments in the sources of our strength (particularly new schools and community colleges, scientific research and roads, bandwidth, mass transit and roads) that can also cushion this recession. While President Obama has talked generally about such a Grand Bargain, he has never put a detailed offer before the American people and his own party faithful. It was a failure of leadership. Thursday night in his speech before Congress, President Obama finally rose to that challenge in a thoughtful, credible and substantive fashion.’10

The American Economy and Its Impact on Asia It matters for the world what happens to the American economy. It matters, in particular, for Asia. It matters to China since America remains the largest market for the country’s exports. America is also the most important source of technology imports for China and the largest depository of the large surpluses it produces by exporting so much more than what it imports. In spite of China’s misgivings for the future of the American dollar, Beijing continues to add to its holdings of America’s government paper. It matters for India for which America accounts for most of its earnings from the sale of IT products and services. While China is 8

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‘The jobs speech: An aggressive president, at last challenges the defeat-everything Congress’, The New York Times (9 September, 2011), p. A24. Shahid Javed Burki, ‘Opportunities for South Asia in the Revolutions in the West’, ISAS Insight No. 213, 15 August 2011. Thomas L. Friedman, ‘Getting back to a Grand Bargain’, The New York Times, Week in Review (11 September 2011), p. 11.

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now India’s largest market, Beijing imports mostly industrial raw materials from New Delhi. This earns India large amounts of foreign exchange but industrial raw material exports won’t bring it economic and social modernisation. Exports of modern services to America will. It matters for Bangladesh for which America is a large market for garments, the country’s most important export. It is only for Pakistan in South Asia that America now matters less since it is succeeding in reorienting its economy towards the East – towards China in particular – rather than towards the West.11 Lastly, America matters a great deal for the small city states of Asia – for Hong Kong and Singapore – who have been successful in tying their modern service economy with that of the US. This is the reason why the dip in Singapore’s gross domestic product was the sharpest of all economies in Asia at the time of the slowdown associated with the Great Recession of 2008-09. There are many scholars and analysts in Asia who rejoice in America’s decline while their own continent rises.12 This is a good patriotic position to take but such a change would only help if it comes slowly giving the fast growing economies of Asia the time needed to make adjustments taking place in the structure of the global economy. Given the linkages that exist with the American economy, it won’t help if American goes down fast. In fact to use an American sporting metaphor, Asia – China in particular –may have to step up to the plate to help the economically ailing West. According to one assessment, ‘China has already apparently poured tens of billions of dollars worth of foreign reserves into euro dominated investments this year. But Chinese officials are still cautious about taking big risks with the country’s US $3.2 trillion nest egg. When considered in the context of China’s 1.3 billion people, the nest egg is not necessarily an infinite treasure’.13

Conclusion Tim Geithner, the US Treasury Secretary, summed up well the situation America and the world faces in an article contributed to the Financial Times. ‘With interest rates very low in the main economies, budget deficits swollen by the crisis and the financial imbalances of the crisis only party resolved, there are limits on what policy can do to help strengthen growth. But the biggest constraints on action in the large developed economies now have less to do with those economic realities and more to do with political paralysis, misplaced fears about

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See Shahid Javed Burki and Iftekhar Ahmed Chowdhury, ‘China’s ‘Look West’ policy’, ISAS Insights No. 134, 6 September, 2011. Singapore’s Kishore Mahbubani is prominent among the scholars who have pursued this line of analysis. See his The New Asian Hemisphere: The Irresistible Shift of Global Power to the East, New York, Public Affairs, 2009. Liz Alderman, ‘Calls for bolder action as Europe enters a dangerous phase’, Op. Cit., p. B3.

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inflation and moral hazard, and unwarranted disaffection with the efficacy of the traditional fiscal tools of tax cuts and investment to encourage growth’.14 It is not entirely sure that the managers of the large economies are anywhere near finding a consensus on how to deal with the deepening economic crises they face. Lack of appropriate actions will have serious consequences for the rest of the world. This will be the case in particular if the countries act independently and defensively in protecting their narrow economic interests by resorting to measures such as competitive devaluation of their currencies. In happier economic times, Asia’s policymakers may have concluded that they had developed an internal dynamics which would have given them the freedom to act in their own interest. At one point this was called ‘decoupling’ of Asia from rest of the world. But that has not happened. Asia remains linked with the older and still richer economies of the West and Japan to the extent that the continent will be badly hurt if the latter finds itself in great economic stress. Asia will be hurt by economic chaos in Europe and North America. It may have to help by using its vast reserves of cash accumulated over the last two decades to provide liquidity the resource-strapped countries of the West desperately require. If that happens it would mean a sharp reversal of the roles played by these two parts of the world in the past – especially since the Asian Financial crisis of 1996-97 – with Asia becoming the creditor to a group of nations on whose financial largesse it had once been dependent for so much and for so long.

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14

Tim Geithner, ‘What the world must do to boost growth’, Financial Times (9 September, 2011), p. 9.

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ISAS Insights No. 138 – 3 October 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

The Haqqanis as the Pivot in the Deteriorating US-Pakistan Relations Shahid Javed Burki1

Abstract As the end game came to be played in so far as America’s involvement in Afghanistan was concerned, the country’s senior leaders decided to focus a great deal of their attention on the work of the Haqqani network that had strong bases in several Afghan provinces neighbouring Pakistan – in particular the provinces of Khost, Pakti and Paktika – as well as in the North Waziristan Agency of Pakistan. The network was implicated in a number of high profile acts of terrorism in and around Kabul including the attack on the US Embassy in the Afghan capital. Given the dynamics that was unleashed as a consequence of the announcement by President Barack Obama that the pullout from Afghanistan had already started and the American forces will leave to country by the end 2014, positioning and repositioning of the various forces operating in Afghanistan began in serious earnest. In the meantime a large Afghan security force will be trained to look after the interests of the Afghan state and the nation. There was considerable political pressure on Obama to abide by the timetable. The drain caused by the war on the US Treasury had become untenable. This led to the question as to what kind of Afghanistan Washington should leave behind. Ideally this would mean a country at peace with itself and its neighbours. But for this unlikely outcome to be realised, a number of things needed to happen. One of the more important of these is to have the powerful Haqqani network in the country’s south and with a sanctuary in 1

Shahid Javed Burki is Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He was former Finance Minister of Pakistan, and former Vice-President of the World Bank. He can be contacted at isassjb@nus.edu.sg. The views expressed are those of the author and do not necessarily reflect those of the institute.


Pakistan to align itself with Washington’s broad objectives. Would the use of force bring this about or would negotiations among different interest parties produce the desired result?

Of the many insurgent groups operating in various parts of Afghanistan and Pakistan, the Haqqanis are not a shadowy network that acts in utter secrecy. They have worked mostly in the open. More is known about them than about many other groups and organisations that operate in what is sometimes called the “no man” tribal land that straddles the border between Afghanistan and Pakistan. The Haqqanis are Pakhtuns, members of the Zadran tribe which was cut into two by the Durand Line drawn by Sir Henry Mortimer Durand in 1893 as the border between British India and Afghanistan. The border was forced on then King Amir Abdur Rahman Khan but was never formally accepted by the subsequent rulers of the country. This is one reason why Afghanistan was the only country in 1949 to vote against Pakistan‟s application to enter the United Nations as a member of the organisation. Kabul was of the view that it could not accept a geographic entity as a country with which it had such a large undefined border. The dispute over the demarcation of the border was to sour relations between the two countries for decades. At one point Kabul wanted the creation of an autonomous unit of „Pakhtunistan‟ that would unite all members of the large Pakhtun ethnic group that lived in both countries – about 25 million in Pakistan and 15 million in Afghanistan – within the borders of one political entity. The eastern border of this entity would have extended to the right bank of the Indus River and would have thus incorporated all of the North West Frontier Province, NWFP, of Pakistan. Kabul never made clear whether this political entity would become an independent state, remains a part of Pakistan or be merged with Afghanistan. This conflict over the exact demarcation of the border between Afghanistan and Pakistan is one reason why it has remained a porous frontier with people from the same tribe or clan crossing it almost at will. Haqqanis‟ Zadran tribe is one such group that comes and goes between the two countries more or less unhindered. That said, Miram Shah, the main town of North Waziristan, is regarded as the clan‟s capital. This is where the senior leaders mostly live within the sight of the Pakistan army‟s installations that have existed for decades. There was a comfortable relationship between the Zadrans and other tribal groups and the state. The area was governed by an official called the Political Agent who did not interfere with the lives of the people. They followed their own tribal customs; regulated their inter-personal relations including the settlement of disputes; and managed their own relatively primitive economy.2 It is only if there was a serious breach of relations with the state that the 2

A rich literature exists on the ways of the Pathans, some of it written by Political Agents, British and Pakistani, who worked in the various areas where the many tribes live. Most notable of these works are Olaf Caroe, The Pathans: 550 BC- Ad 1957, New York, Oxford University Press, 1984. Akbar S. Ahmad, Millenium and Charisma among Pathans, London, Routledge and Kegan Paul, 1976.

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authorities, in the person of the Political Agent, used the Frontier Crimes Regulation, FCR, to reassert the state‟s role. The FCR, a draconian but not very frequently used law, was put on the books by the British. Its principal purpose was not to regulate the lives of the people but to maintain the authority of the state. The law remained in place until very recently. When applied, the FCR could make life very uncomfortable for the offending tribes. However, the Political Agent would settle the matter without using too much force. This relationship between the tribes and the state essentially broke down with the invasion of Afghanistan by the Soviet Union in 1979. When the United States, working with Pakistan and Saudi Arabia, decided to fight a proxy war against the Soviets, the Zadrans were one of the several groups of tribesmen who were encouraged to take the battle to the Soviets. Jalaluddin Haqqani, a tribal leader at that time, became one of the commanders of the seven Mujahideen groups who were trained by Pakistan‟s ISI and equipped by the CIA with lethal weapons, including the „stinger missile‟, that could bring down the dreaded Hind Soviet helicopters. Saudi Arabia provided finance and indoctrination in the madrassas that were set up in Pakistani territory for Afghan refugees to wage the jihad in the Soviet Union-occupied Afghanistan. The Soviets were bled and decided to pull their troops out of the country; the last Soviet soldier left in early 1989. However, with the Soviets gone, the mujahideen groups could not agree among themselves on the form of government that should be established in Kabul and how should power be shared among the seven groups. The result was a civil war that lasted for half a dozen years and was ended by the entry of another group, the Taliban (meaning students), based in the southern city of Kandahar. The group drew its name from the fact that its foot soldiers were the graduates of the madrassas that were set up in the Afghan refugee camps. While the Taliban were opposed by the northern commanders who merged their forces to form the Northern Alliance, they had the support of the Haqqanis. The Haqqanis were included in the government that ruled from Kabul for half a dozen years. When the Taliban regime was destroyed by the American forces who worked in association with the Northern Alliance, the Haqqanis slipped into Pakistan, setting up their operational headquarter in the North Waziristan town of Miram Shah. From this sanctuary, they began to launch attacks on the United States and NATO troops operating in the neighbouring provinces of Afghanistan. In an effort to have their presence felt as the post-conflict Afghanistan began to slowly emerge, the Haqqanis extended their operations to the areas in and around Kabul. It was the wellorchestrated attack on the US Embassy in Kabul on 23 September that drew a sharp response from Washington to Islamabad in the form of an ultimatum. The United States would like Pakistan to move militarily against the Haqqanis which the latter says it does not have the military strength to do or which would go against its strategic interests in the post-conflict Afghanistan. In the last three decades when the Haqqanis took up arms to fight the Soviets in Afghanistan, the clan has put together a formidable organization that covers many fields. According to a 3


detailed investigative report done by The New York Times, the Haqqanis „are the Sopranos of the Afghan war, a ruthless crime family that built an empire out of kidnapping, extortion, smuggling, even trucking. They have trafficked in precious gems, stolen lumber and demanded protection money from businesses building roads, and schools with American construction funds…They secretly run a network of companies throughout Pakistan selling cars and real estate, and have been tied to at least two factories churning out the ammonium nitrate used to build roadside bombs in Afghanistan‟.3 They also have economic operations in the provinces of Khost, Paktia and Paktika in eastern Afghanistan. The groups‟ organisational structure is built around the members of the Haqqani family. Jalaluddin Haqqani, was once called by the flamboyant Charlie Wilson, the late Texan Congressman who sponsored the case of the mujahidden in Washington and was responsible for having the shoulder-fired Stinger missiles delivered to them, a fighter who was „goodness personified.‟ In one of several conversations with the author of Charlie Wilson’s War, Jalaluddin Haqqani talks glowingly about the assistance provided by the United States: „We stood alone at first against the invader with bare hands. It is the bravery of the Afghan people that has attracted the foreigner to help‟ 4. Now sick, the old mullah has handed over the command of his band of soldiers to his oldest son, Sirajuddin Haqqani, while another son Badruddin Haqqani, is the operational commander. The group has operators in the UAE as well where they collect donations from sympathisers for their activities. Several analysts are of the view that in spite of the ultimatum given to Pakistan to move against the Haqqani network or face the consequences, the United States may end up talking to them. This is one reason why Washington has not moved to declare the network a „terrorist organization‟. According to newspaper report, a „former American intelligence official who worked with the Haqqani family during the Soviet occupation in the 1980s, said he would not be surprised if the United States again found itself relying on the clan. “You always said about them, best friend, worst enemy.”‟5 The ultimatum delivered to Pakistan on 25 September 2011 about its alleged support of the Haqqanis is one of the few moves on the chess board that Afghanistan has become – especially since 9/11 but even more so after 1 December 2009 when President Obama first indicated that the surge of troops he was ordering would be a temporary one and the pull out of American forces will begin in July 2011. That scaling down of American troops has begun and will last until 2014 when America promises to be fully out of the Central Asian country. Many more moves will be made between now and then. ..... 3

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Mark Mazzetti, Scott Shane, and Alissa J. Rubin,‟A brutal Afghan clan bedevils the U.S.: Haqqani crime empire, an Islamist force, is seen as Pakistan‟s proxy‟, The New York Times (25 September 2011), pp.1 & 11. George Crile, Charlie Wilson’s War: The Extraordinary Story if the Largest Covert Operation in History, New York, Atlantic Monthly Press, 2003, p. 474. Mark Mazetti et al. Op. Cit.

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ISAS Insights No. 139 – 3 October 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

The Crisis in United States-Pakistan Relations: An Alliance Unstuck? Iftekhar Ahmed Chowdhury1 ‘I gave her cakes, I gave her wine, I gave her sugar candy, But oh, the little naughty girl, She asked me for some brandy.’ -

Mary Shelley

The United States (US)-Pakistan relations have had a long history of closeness and warmth. For a variety of reasons their traditional understandings now run the risk of becoming unstuck. Each side feels the other is making unreasonable demands. Their alliance must be mended prior to the resolution of the Afghanistan imbroglio. For this to happen, certain initiatives will need to be undertaken. The US is better placed to lead the way. This essay examines the lead-up to the current impasse and makes some recommendations designed to cut the Gordian knot.

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Dr Iftekhar Ahmed Chowdhury is Senior Research Fellow at ISAS. He was the (Foreign Advisor) Foreign Minister of Bangladesh from 2007-2009. He can be contacted at isasiac@nus.edu.sg. The views expressed are those of the author and do not necessarily reflect those of the institute.


Introduction Recently the US Embassy in Pakistan, as a part of a cultural offensive staged the Neil Simon’s play, ‘The Odd Couple’. In many ways the title is an apt description of their current bilateral relationship. Almost since the beginning of the Cold War, the US and Pakistan have been formal allies and close friends. The two have been partners in defence pacts such as CENTO (Central Treaty Organization) and SEATO (Southeast Asia Treaty Organization). It was from Pakistani soil that the U-2 US spy aircraft, flown by Gary Powers took off, that was shot down over the Soviet Union causing Nikita Krushchev to threaten Pakistan with possible nuclear strike. Indeed, Pakistan was the conduit that linked the US with China during the Richard Nixon era. Later Pakistan was the key US ally in driving out the Soviets from Afghanistan. Alas, all that now is history and the halcyon days of ardour are over. The treaties that bind them still exist, but may not be worth much more than the paper they are written on. Can it be good for either? This essay will argue that it is clearly not.

The Alliance Now The current politico-economic situation in the US does convey an impression that any political gains accruing to President Barack Obama was awfully short lived. For starters, the Arab spring had already rendered Osama bin Laden passé, and he was already been seen by those he sought to woo as not having delivered.2 But once his hideout was identified by the US inaction would have also had a huge negative political impact. But the manner in which it was carried out, unbeknownst to the Pakistanis, ignited the flames of white hot anger in Pakistan. To be fair to Obama, he may have acted as deemed appropriate at that time, but the fall-outs of such decisions are often unpredictable, though even if he had foreseen it, circumstances would not have allowed him to act any differently. What could have been different, and at least in Pakistani eyes, preventable, though was the decision to allow Admiral Mike Mullen, an uniformed official, to launch a series of attacks through statements on Pakistan, its all-powerful army, and its intelligence services, the ISI (Inter-Services Intelligence). Particularly his statement before the Congressional Committee that the ISI is an arm of the Haqqani network, a ‘terrorist organisation that is killing Americans in Afghanistan’ was seen in Pakistan as an ‘extraordinary declaration of intent to wage war’.3 As things stand now, according to a Pew research centre poll, only 12 per cent of

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Gilles Kepel, ‘Bin Laden was dead already’, International Herald Tribune (9 May 2011). Najam Sethi, ‘US-Pak Relations: Roadblocks ahead’, Friday Times (30 September - 6 October 2011), Vol. xxiii, No.33. http://www.thefridaytimes.com/beta2/tft/article.php?issue=20110930&page=1. Accessed on 1 Oct 2011.

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Pakistanis have a favourable view of the US, and 69 per cent see that country as an ‘enemy’, a far-cry from the salad days of camaraderie.4 The Pakistanis are reacting with a flurry of activity that is almost leading to a consolidation of the Pakistani position against the US. Indeed anti-Americanism seems to be the glue that ties the government, the opposition, the army and swathes of public opinion in an otherwise deeply divided society. The US gripe has been that Pakistan is not acting sufficiently against the Haqqani network sitting in North Waziristan, allowing it to carry out raids against western forces in Afghanistan. Pakistan, which needs the Haqqanis for a post-US withdrawal Afghanistan fights shy of such action, arguing that its forces are far too stretched. Yet Pakistan will not allow US hot pursuit into its territory, and now with public ire so high, is unable to do so. Even the earlier ‘nudge and a wink’ consent to US drone strikes against the extremists in Pakistani territory is likely to be withdrawn, though it might not put an end to it entirely. The great danger is what is now yet unthinkable, the possibility of an open armed conflict between Pakistan and the US. Already the Pakistan government is engaged in a series of actions designed to marshal local and foreign support. After a recent visit by the Chinese Vice Premier Meng Jianzhu, The Pakistani Prime Minister Yousuf Raza Gilani (though not Meng) declared that ‘China categorically supports Pakistan’s efforts to uphold its sovereignty, independence and territorial integrity’, at the same time severely warning the US against any further crossborder raids.5

US-Pakistan Need Each Other This burgeoning conflict is not heading anywhere that will be to the advantage of either. 6 The truth is that the US and Pakistan both need each other. The problem is once a trend obtains momentum in international relations and a flow of negative events are allowed to continue, they run the risk of becoming an unstoppable torrent. This is the simple explanation of many an avoidable war in history. Pakistan will perhaps seek to create a crescent of cooperation, that might link three Muslim countries, Pakistan, Iran and Turkey - old allies who despite some contemporary differences (such as Iran being Shia, and Pakistan and Turkey, Sunni) might see greater benefits in forging closer, even in a loose alliance that ties them with China.7 It would surely not be in Washington’s interest to leave open such a possibility on the

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Khaleej Times (30 September 2011). ‘Pakistan-US tensions spiraling into crisis’, Straits Times (29 September 2011). See, Iftekhar Ahmed Chowdhury, ‘The US-Pak Relationship : A Complex but Categorical Imperative’, ISAS Brief No. 205, 23 June 2011. At this time there is concern in the West with Iran’s nuclear programme. The West is also somewhat wary of Turkey’s assertive policies in the Middle East.

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eve of its withdrawal from Afghanistan. Also the US will become focused on the Presidential elections next year which could leave in insufficient time or energy for additional worries in this region. This is not the time for the US to target Pakistan with punitive legislations, as in that country the relevant pressure and power groups may not be any a position for some time yet to formulate and implement complex policies in a coordinated and calibrated fashion. Perceived desperate situations could advertently or inadvertently lead to desperate reactions. It is also a country of nearly 700,000 strong conventional army and possibly 105 or so, and counting, nuclear warheads. This would call for extreme circumspection. To the extent possible, Pakistan should not be driven to a situation where it may feel compelled or obliged to react in a destabilising mode. It would be important for the West in general and the US in particular to devise policies addressing the key constituencies within Pakistan, even if necessary, separately. This would require a high degree of skill and sophistication, but one that the world’s only superpower should be capable of. All elements within Pakistan should also realise that a break with the US, or the West in the way it appears to be headed, cannot be to their advantage. Obviously Pakistan would need to put its house in order and will require the West’s support to do so. Pakistan needs to rebuild itself from the current state of chaos and will require the billions of dollars that it receives from the US, which China would not be in a position to provide. The intellectual and ideological linkages with the West for the key categories within the Pakistani community is too intricate to be eliminated without tumultuous and destabilising social upheavals. Pakistan in the 1960s was one of the most rapidly progressing developing countries in the world, and has the potentials to return to that status. That country will need to marshal all its resources, internal and external, to battle the scourge of extremism at present before it can poise itself to achieve other goals. Indeed, its closest friend, China, would also want that. Pakistan would do China no favour by forcing it to make choices between it and the US, for which China may not be ready. Having to make such choices may not be in consonance with its interests as perceived at this point by Beijing. The relations between President Hamid Karzai of Afghanistan and Pakistan has also reached its nadir, particularly following the slaying in Kabul last month of former Afghan President Burhanuddin Rabbani, who was to have led the negotiations with the Taliban on behalf of Karzai. Afghan officials pointed fingers at Pakistan, but Islamabad rejected the accusations in the strongest terms, calling them ‘baseless’.8 Karzai has already cancelled a scheduled 8

Alex Roderiguez and Aimal Yaqubi, ‘Pakistan rejects claim of ISI role in Afghan’s assassination’, Los Angeles Times (2 October 2011).

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trilateral meeting with the US and Pakistan this month, called off any talks with the Taliban, and decided to go on a trip to India, ‘Pakistan’s nemesis’.9 It is certain, therefore, there is rough time ahead for all concerned with regard to the future of Afghanistan.

What is to be Done But right now, however, the priority should be the mending of fences between the US and Pakistan, even before the future of Afghanistan is contemplated. Unless there is progress on the first, none can logically be expected on the second. First and foremost there must be calm between Washington and Islamabad, and all mutual ‘name-calling’ must cease. It is absolutely essential that the temperature be lowered. The US, as the larger and more powerful partner, may need to take the lead in this. Second, a mechanism must immediately be set up to take the initiative in establishing some ‘confidence-building measures’. It might be useful for Washington to designate someone outside the Administration, yet senior enough to wield influence over it, and non-controversial and respected in Pakistan, to initiate a series of contacts. Former President Jimmy Carter could be a possibility.

Conclusion The age-old US-Pakistan alliance is in tatters. It requires to be mended, for neither protagonist can afford to allow it to become unstuck totally. The resolution of the Afghan imbroglio is dependent on it and also the stability of the broader region. The current bilateral travails between them will not disappear without focused and sustained efforts. As the Talmud says, just because there is a problem does not mean there is a solution. Nor does it imply endeavours should not be made towards that goal either. .....

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Dion Nassenbaum and Maria Abi-Habib, ‘Pakistan blamed for envoy’s killing’, Wall Street Journal (3 October 2011).

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ISAS Insights No. 140 – 11 October 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

The Turbulent South-China Sea Waters: India, Vietnam and China S.D.Muni1

The troubled waters of South-China Sea have started spilling over on India’s relations with its East Asian neighbours. Two recent incidents underline this spill-over. One was on 22 July 2011, when India’s war ship INS Airavat was cautioned by China when it was about 45 nautical miles off the Vietnam coast after paying a friendship visit. The second has been in September 2011, when oil exploration by India’s public sector company Oil and Natural Gas Commission Videsh (OVL) in Vietnam’s territorial waters was taken objection to by China. Both the incidents have been played out with caution by the Chinese and Indian official circles. The INS Airavat incident involved a radio message to the Indian ship that it was in Chinese territorial waters which was claimed later to have not been reported to the respective foreign offices. The Chinese foreign office left the incident by reiterating its claims in the South China Sea but saying that it is looking for information on the incident through ‘competent authorities’.2 The Indian side underlined that there was no confrontation involved, while making it clear that India ‘supports freedom of navigation in international waters including South China Sea…in accordance with the accepted international law…to be respected by all’.3 The issue had actually been triggered by reports in the western media, The Financial Times of London (1 September, 2011).

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Professor S.D. Muni is Visiting Research Professor at the Institute of South Asian Studies, an autonomous research institute at the National University of Singapore. He can be contacted at isassdm@nus.edu.sg. The views expressed are those of the authors and do not necessarily reflect those of the institute. For details, see my ISAS blog S.D. Muni, „India-China Spat in South China Sea‟, http://blog.nus.edu.sg/so uthasiansoundings/category/authors-s-d-muni/ (16 September 2011). Accessed on 3 October, 2011. Statement by MEA Spokesman, as quoted in Muni, ibid.


China and India’s Oil Exploration The second incident of oil exploration invoked comparatively greater notice in the respective official circles. China‟s objections were raised at two levels; milder by officials and harsher by the officially patronised media. The Chinese Foreign Ministry spokesperson, in response to a pointed media query on the ONGC oil exploration said: „Our consistent position is that we are opposed to any country engaging in oil and gas exploration and development activities under Chinese jurisdiction.‟ Claiming its „indisputable sovereignty over the South China Sea and its Islands‟, the spokesperson stressed: „We hope foreign countries will not get involved in the dispute‟. For the countries outside the region, we hope they will respect and support countries in the region to solve this dispute through bilateral channels.‟4 It may, however, be noted that China did not name India in its statement and feigned ignorance if India was involved in the oil exploration project. At the media level, officially sponsored Global Times (16 September, 2011) came out with strong comments describing India‟s deal with Vietnam for oil exploration as a „serious political provocation‟, asking the Chinese government to use „every means possible‟ to stop this. A day earlier, its editorial projected India‟s deal with Vietnam for oil exploration as reflecting India‟s rising ambitions and a move to „counter China‟s behaviour in the Indian Ocean‟. It further added: „We should not leave the world with the impression that China is only focused on economic development, nor should we pursue the reputation of being a peaceful power which would cost us dearly‟.5 Another article in People‟s Daily cautioned saying: „It‟s not worthwhile for Vietnam and India to damage the greater interests of peace, stability and economic development between China and Vietnam, China and India, and in the whole region, for the sake of these small interests in the South China Sea‟. 6 In yet another commentary by Li Hongman, Xinhua on 26 September, 2011, quoting the same People‟s Daily commentary of 20 September, 2011, described India‟s oil exploration cooperation as „a blunt trampling upon China‟s sovereignty‟. India‟s such actions, in collaboration with countries like Japan, were seen as retaliation to the Chinese infrastructure projects in Pakistan-held Kashmir and the Chinese so-called „String of Pearls‟ strategy of „venturing into India‟s neighbourhood‟. All this, the commentator said will „strain the testy Sino-Indian ties and will eventually bode ill for its own interests‟.7

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As quoted in M.K. Bhadrakumar, Asia Times (17 September, 2011), http://www.asiatimes.com/atime s/China/M117Ad01.html. As reported by Ananth Krishnan, “South China Sea project a „serious political provocation,‟ Chinese paper warns India”, The Hindu online edition, Published 16 September, 2011 20:58 IST/Updated: 17 September, 2011 15:30 IST. As quoted in a Wall Street Journal commentary by Jeremy page (in Beijing) and Tom Wright (in New Delhi) on „India faces Standoff with China on Sea Oil‟ (23 September, 2011). Li Hongmei, „”Bundling Strategy” over South China Sea will be disillusioned‟, Xinhua (26 September, 2011).

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The mismatch between China‟s official position and the media assertions perhaps reflected a tension between the hardliners and the pragmatists within the Chinese establishment. The Global Times in another commentary by Long Tao posted on 29 September, 2011 again took a hard position on the South China Sea issue. Viewing the dispute as being provoked by the outside powers, the commentary said: No South China Sea issue existed before 1970s. The problem only occurred after North and South Vietnam were reunified in 1976 and China‟s Nansha and Xisha Islands then became the new country‟s target. Unfortunately, though hammered by China in the 1974 Xisha Island battle and later the Sino-Vietnamese war in 1979, Vietnam‟s insults in South China Sea remained unpunished. Today…it seems all the countries around the area are preparing for an arms race. Singapore brings home highend stealth aircraft while Australia, India, and Japan are all stockpiling arms for a possible ‘world class’ battle. (Italics added). The US provoking regional conflict itself did not hesitate to meet the demands of all the above. It is very amusing to see some of the countries vow to threaten or even confront China with force just because the US announced that it has „returned to Asia‟…Everything will be burned to the ground should a military conflict break out. Who will suffer most when western oil giants withdraw? But out there could be an ideal place to punish them. Such punishment should be restricted only to Philippines and Vietnam who have been acting extremely aggressive these days.8 The notable aspect of this commentary was that it also published comments from readers which were extremely critical of this article. One comment said: „I don‟t know why this article was given the green signal to be published. The thoughts of the author are reckless, fuelled by extreme hatred and radicalism‟. Another comment said: „This is written proof that China‟s insistence that its rise is peaceful is farcical.‟ Yet another added: „I wonder if somebody is in charge in China? Cannot be, because China diplomats say one thing and China military persons say another. This raises fear because China supposed to be great power. I think military will overthrow party‟.9 Such comments could not have been allowed without someone in the establishment of the newspaper and linked with the party or the government winked at them. Thus there are clearly two positions on the issue. The possibility of one position to camouflage the other also cannot be ruled out. Like that of China‟s, India‟s official reaction was also guarded. The External Affairs spokesperson said: „Our cooperation with Vietnam or any other country is always as per international laws, norms and conventions…cooperation with Vietnam in the area of energy and to secure India‟s energy security is very important. There are a number of Indian 8

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„Time to teach those around South China Sea a lesson‟, http://www.globaltimes.cn/DesktopModules/DnnFor ge%20-%20NewsArticles/Print.as. Ibid.

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companies already operational and we are looking at further enhancing the cooperation in the years ahead.‟ The spokesperson described the China-Vietnam dispute in South China Sea as strictly bilateral which needed to be addressed within the framework of International Law and added that „in the meanwhile, it is in public knowledge that we are going ahead with expanding our ties with Vietnam‟.10 India‟s Foreign Minister S.M. Krishna, who happened to be in Vietnam attending the 14th India-Vietnam Joint Commission Meeting reiterated that India‟s public sector company, the OVL (ONGC Videsh Limited), will go ahead with oil and gas exploration in Vietnam‟s off shore blocks being disputed by China as part of its Exclusive Economic Zone (EEZ). Indian newspaper reports on Krishna‟s talks in Vietnam quoting the „official sources‟ said that „the two sides (India and Vietnam) agreed during the discussions that there is no question of violating any International Law in going ahead with the exploratory work. The meetings on Friday (16 September) have paved the way for expansion of the ONGC Videsh’s oil and gas exploration work‟.11 Foreign Minister Krishna‟s statement and the Indian official reaction underline that India has ascertained that the involved exploration Blocks were well within Vietnam‟s EEZ, according to the 1982 UN Convention on the Law of the Sea or UNCLOS. (See Annexure for a map of South China Sea disputes). The Indian media also whipped up the issue but its difference with the Chinese media is that it does not enjoy official sponsorship. A very highly placed officer in India‟s foreign policy establishment confided to this author that the current debate on the issue was triggered by the Chinese official comments on the OVL oil exploration issue which were in turn only in reaction to the quires from Indian media persons.12 Another senior government officer was reported to have said: „It does not help India when media needlessly bashes China…it does not make any sense to demonise China‟.13 On the basis of various commentaries and articles published in Indian media on the subject, the Indian strategic community seems to be divided on the wisdom of India going ahead on the oil exploration in the region where China is asserting its claims. There are those who support it,14 and there are those, like former Navy chief Arun Prakash and former intelligence officer (RAW, Research and Analysis Wing) B. Raman who caution because India may not have the military capabilities to protect OVL‟s exploration activity if China were to take any disruptive action. Admiral Arun Prakash wrote on 2 October, 2011; „Even if India were to take a long overdue stand on principles, or adopt an assertive posture vis-à-vis China, a distant location like South China Sea is hardly an ideal setting to demonstrate India‟s maritime and other strengths…At this juncture it would be

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As quoted in Bhadrakumar, op.cit The Times Of India, New Delhi, (17 September, 2011). In personal discussion with the author in New Delhi on 29 September, 2011. Sheela Bhatta, „India-China Relations are very complex and very sensitive‟, http://www.rediff.com/news/report/india-ch ina-relations-are-verycomplex-and-very-sensitive/2o111005.htm See for instance, Binod Singh, „About supremacy, not sea‟, Sunday Times of India, New Delhi, 25 September, 2011. Also Harsh V. Pant, „India‟s „Look East‟ Policy: It can help counter Chinese assertiveness‟, The Tribune (24 September, 2011).

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imprudent to contemplate sustaining a naval presence, some 2,500 nautical miles from home to bolster OVL‟s stakes in South China Sea hydrocarbons.15 It may be recalled that on 26 May, China „damaged the cables of a Vietnamese oil and gas survey ship off the coast of Phu Yen province‟.16

Strategic Dimensions of India-Vietnam Relations As alleged in the Chinese media commentaries, India‟s oil exploration in South China Sea is not in reaction either to the Chinese projects in Pakistan Occupied Kashmir (POK) or China‟s so-called „strategy of string of pearls‟ in the Indian Ocean. To understand India‟s position on the South China Sea dispute, its relations with Vietnam have to be seen in perspective. These relations predate any conflict between India and China as also between China and Vietnam. The Indian leader Jawaharlal Nehru and Vietnamese leader Ho Chi Minh first came in contact with each other way back in 1927, when both of them were struggling for the independence of their respective countries respectively from the British and the French colonial rules. Nehru visited Vietnam in 1954 to congratulate the Vietnamese leaders and people for their victory against the French at Dien Bien Phu. The context was anti-colonial and at that time, India was also developing constructive and cooperative relations with China on the basis of „Panch-Sheel‟ principles of peaceful coexistence. There were indeed many issues related to colonialism and the Cold War on which India and China worked together to the dislike of the West. Following the 1954 visit, India joined the International Supervisory and Control Commission for Peace in Indo-China region and earned considerable goodwill of the countries like Vietnam, Laos and Cambodia. In 1958 the Vietnamese leader Ho Chi Minh visited India. Full diplomatic relations between India and Vietnam were established in January 1972 and India celebrated Vietnam victory in 1975 in the war against the US. Soon after its victory against the US, Vietnam sought India‟s help in the reconstruction of its war-torn economy.17 An Indian military delegation visited Vietnam to assess the ways in which India could help. In the following years, Indo-Vietnamese relations witnessed moves towards greater strategic understanding and cooperation. In February 1979, the then-Foreign Minister of India, Atal Behari Vajpayee cut short his China visit in reaction to the Chinese „punitive‟ action against Vietnam. Vajpayee‟s non-Congress coalition government hesitated in recognising the Vietnamese-installed Heng Samrin government in Cambodia but within six months of the return of the Congress government, under Indira Gandhi, in January 1980, India extended this recognition (in July 1980). This was done to the much displeasure of not 15

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Arun Prakash, „Where are our ships bound‟, The Indian Express, New Delhi, 2 October, 2011. Also B. Raman, „South China Sea: India Should Avoid Rushing in Where Even US Exercises Caution‟, South Asia Analysis Group, paper No. 4702, 17 September 2011. Rohit Singh, „Over troubled waters‟, The Hindustan Times (2 October, 2011). Vietnam‟s Prime Minister Pham Van Dong signed an agreement to this effect with India during his official visit in 1978.

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only China and the US but also at the cost of India‟s participation in ASEAN (Association of Southeast Asian Nations) as a dialogue partner.18 ASEAN was strongly opposed to the Vietnamese intervention in Cambodia in 1978-79 that replaced the Khmer Rouge government with a puppet regime headed by Heng Samrin. In 1985 and 1988, Prime Minister Rajiv Gandhi visited Vietnam twice to strengthen relations with Vietnam and in January 1989, the General Secretary of the Vietnamese Communist party Nguyen Van Linh was invited as the chief guest for India‟s Republic Day celebrations. The strategic dimensions of Indo-Vietnamese relations, initiated during the 1980s, started unfolding in the form of structured and institutional arrangements during the 1990s. A Memorandum of Understanding on Defence cooperation was signed between the two countries in September 1994 under which India not only offered training slots to Vietnamese defence personnel but also agreed to service their MIG-21 fighter aircrafts.19 The promise of the MOU however, did not take off in implementation. There were various factors behind this, including widening of Vietnam‟s economic and strategic relations with other powers, like the US, Japan and also China. During 1991-99, Vietnam was deeply engaged in resolving its boundary issue with China to ensure that in future China had no excuse of militarily intervening in Vietnam under the pretext of disputed boundary as was the case in 1979.20 This is what India is trying these days to persuade China to resolve the bilateral territorial dispute in the Himalayas. India made a serious attempt to activate defence cooperation with Vietnam in 2000 when then-Defence Minister George Fernandes visited Vietnam in March and signed a comprehensive agreement for defence cooperation. This agreement had following important features: 1. Repair and overhaul of Vietnam‟s MIG-21 fighter aircrafts. 2. Help in the capacity building of Vietnam in the production of small and medium weapons and certain ordinance items. 3. Supply India‟s multi-role advanced light helicopter and fast petrol boats to Vietnam. 4. India‟s Defence Research and Development Organisation (DRDO) to help Vietnam in treating its chemical warfare („agent orange defoliant‟) victims. 5. Indian Navy to help in ship building and upgrading by Vietnam Navy. 6. India to train Vietnam‟s defence Information Technology officers. 7. Vietnam to train Indian soldiers in jungle warfare. 8. Bilateral cooperation in combating sea piracy.21 18

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The Dialogue partner status was granted by ASEAN to India in May 1980, but India‟s recognition of the Heng Samarin government disrupted this as ASEAN was intensely opposed to Vietnam‟s military intervention in Cambodia which helped install the Samarin regime there in January 1979. Storey, Ian and Thayer, Carlyle A, „Cam Ranh Bay: Past Imperfect, Future Conditional‟, Contemporary Southeast Asia, Vol. 23, No.3, December 2001. Author‟s interviews with senior Vietnamese officials and Generals in July 2001 in Hanoi. The Times of India (29 March, 2000).

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There was also a long-pending Vietnamese demand for cooperation in the field of nuclear energy. The first bilateral agreement on the peaceful uses of nuclear energy was signed in 1986 and ratified in 1987.22 It was taken forward by India in 1999 and expanded in the years 2000 and 2001 when India‟s Department of Atomic Energy and the Vietnamese Ministry of Science Technology and Environment signed a Memorandum Of Understanding in Hanoi in January 2001, in the presence of India‟s visiting Prime Minister Atal Behari Vajpayee and his counterpart Phao Van Khai. This involved setting up of a research reactor and training of scientists.23 The Indo-Vietnamese cooperation in the field of nuclear energy has not worked successfully all these years, so far in view of pressure both on India and Vietnam from the US as also availability of more options subsequently to Vietnam. However, the cooperation in this field has been revived and may, hopefully, see some concrete results by 2015 or 2020.24 Two landmark developments uplifted the strategic profile of India-Vietnam relations. In May 2003, during the visit of Nong Due Manh, the General Secretary of the Communist Party of Vietnam to India, the two countries signed a Joint Declaration on the Framework of Comprehensive Cooperation. In July 2007, the two countries issued another Joint Declaration on the Strategic Partnership between them to mark the occasion of the Vietnamese Prime Minister Nguyen Tan Dung‟s visit to India. Under this Declaration, a regular „Strategic Dialogue‟ was established between the two countries. Strengthening of bilateral cooperation in „defence supplies, joint projects, training cooperation and intelligence exchanges‟ was promised. They also agreed to work closely in the areas of „ensuring security of the sea lanes, including combating piracy, preventing pollution and conducting search and rescue‟ as well as in „combating terrorism‟.25 Within the framework of these two joint declarations, frequency and significance of high level political and defence exchanges between the two countries have increased rapidly. These visits have ranged from the Prime Ministers and senior Ministers to high-ranking defence personnel, members of their respective Parliaments and representative of ethnic and cultural groups. India‟s Defence Minister A.K. Antony and Prime Minister Manmohan Singh visited Vietnam in October 2010. Economically, the trade between the two countries was expected to exceed U$3 billion by the end of 2011. This would be 10 times more than what it was in 2000.

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Tridib Chakraborty, „Strategic Convergence between India and Vietnam in the Twenty First Century: Look east as a parameter’, Indian Foreign Affairs Journal, Vol.3, No.4, October-December 2008. p.47. On Nuclear cooperation see, Annual Report 1999-2000; and 2000-2001; Ministry Of External Affairs, Government of India, New Delhi, pp. 23 and 25-26 respectively. Also Storey and Thayer, „Cam Rahn Bay…‟ op.cit. Tridib Chakraborty, „Strategic Convergence…‟, op.cit Text of the Joint Declaration, http://english.vietnamnet.vn/politics/2007/07/715169/. Accessed on 8 October, 2011.

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India’s oil and gas exploration in Vietnam India‟s oil exploration in Vietnam started as early as 1988 in association with the then-Soviet Union. With the discovery of attractive potential of hydrocarbon deposits in Vietnam‟s territorial waters and EEZ, Vietnam opened its oil and gas sector widely to the foreign companies in 1990 and in 1992, India‟s ONGC joined a joint venture with Petro-Vietnam, the Burma Petroleum of the UK and DNSO (Stat Oil) of Norway. In 2001, India‟s oil fields in Vietnam were its largest overseas possession in the energy sector. The ONGC held 45 per cent shares in its joint venture with Petro-Vietnam and the United Kingdom‟s BP (British Petroleum) group. In November 2002, gas started flowing from the ONGC‟s joint venture at the Nam Con Son basin in Vietnam.26 Due to lack of facility in India to refine the crude oil received from Vietnam because of its technical specifications („high pour point‟), India used to sell off this oil in international market.27 It is believed that refining facilities to process this oil have now been developed in India. OVL of India signed another production sharing contract with Petro-Vietnam in May 2006 for Blocks 127 and 128, off shore Vietnam in the Phu Khanh Basin.28 This energy cooperation between the two countries has also been strengthened gradually. China has been periodically taking exception to any international oil and gas exploration in Vietnam‟s EEZ in South China Sea, including by India since 1988. But these protests have never attracted much media attention, nor were they turned into big diplomatic events. India‟s activities in this field must be understood in the context of long standing and strategically evolving cooperation between India and Vietnam. The visits of Indian naval ships to Vietnam also go back to 2001, following Indian Defence Minister George Fernandes‟s visit. An idea of the regularity of such ship visits can be seen from the following table29: ______________________________________________________________ Dates of the Visit 1. 9-13 June, 2005 2. 8-11 June, 2006 3. 7-11 May, 2007 4. April, 2008 5. 7-11 April, 2009 6. May 30, 2010 7. 10-13 May, 2011 8. 17-19 July, 2011

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Names of the Ships INS Magar INS Rajput; INS Kulish; INS Kirpan INS Maysore; INS Ranjit INS Kora; INS Kirpan INS Mumbai; INS Ranvir INS Ranjit; INS Kulish INS Delhi; INS Kirch INS Airavat

Annual Report 2002-2003, Ministry of External Affairs, New Delhi, 2007, p. 34. „India-Vietnam Relations‟, A Note prepared by the Ministry of External Affairs, Government of India, March 2002, as quoted in Muni, S.D. and Pant, Girijesh, India‟s Energy security: Prospects of Cooperation with Extended Neighbourhood, Rupa & Co. New Delhi 2005, (see Chapter 3, section 4). Annual Report 2006-2007, Ministry of External Affairs, Government of India, New Delhi, 2007, p. 29. For the location of these Blocks in Vietnam‟s EEZ see, Muni & Pant, India‟s Energy Security, op.cit, p. 182. Compiled from Annual Reports (2005-2009), Ministry of External Affairs, New Delhi and newspaper reports.

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Discounting the role of media in inflating such events, it must be kept in mind that they are reflective of China‟s growing assertiveness and inflated claims in South China Sea.30 China has raised the seriousness of these claims by putting South China Sea as its „core national interest‟, at par with its sovereign possessions like Taiwan, Tibet and Xinjiang.31 Its drive for access to energy and sea-bed sources all over the world has also not hesitated from applying all available means in this respect. It was recently announced by China‟s Ocean Mineral Resources Research and Development Association that the International Seabed Authority (ISA) has permitted it to explore the south-western Indian Ocean ridge for polymer sulphide nodules.32 With regard to oil and gas, China has been luring and pressurising Vietnam to enter into joint development of the resources in the disputed South China Sea islands, but Vietnam has been reluctant. It has preferred engagement with international companies as collaboration with China would be on the Chinese terms and will also help China strengthen and legitimise its extensive claims once it is present in these areas even if for developmental purposes. As early as in 1994, the then-Vietnamese Vice Foreign Minister, Vu Khoan reacting to the Chinese demands for joint development said: The problem is which sea area we are going to develop jointly…China‟s intention in proposing the joint development of the Spartly Islands is an attempt to justify its presence in Vietnam‟s territorial waters under the name of joint development. Would you accept an invitation to dinner from a person who was trying to steal a US$100 bill from your pocket…33 This is an additional reason for China being irritated on the issue as Vietnam has denied it the access to energy resources and allowed foreign companies to get involved. To deter Vietnam in this respect, China has not hesitated in taking resort to the threat and use of force in asserting these claims. Four incidents of armed confrontation of China at sea with Vietnam and eight incidents, including gun fire between Chinese and Philippines warships have been recorded in international media during the past couple of years. The harsh language used by the sponsored Chinese media like the Global Times against smaller South China Sea countries has already been noted earlier. South China Sea may look far off from the Indian mainland but it is not really so when India‟s territorial foot prints in the western Indian Ocean, in the form of Andaman and Nicobar Islands, are kept in view. India‟s sea-bound trade that passes through Indian Ocean constitutes 92-95 per cent of its total trade and, there are estimates that nearly 25 per cent (and growing) of this sea-bound trade passes through South China Sea. India, like China, is 30 31

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Koh, Tommy, „Mapping out Rival Claims in South China Sea‟, The Straits Times (13 September, 2011). Rajan, D.S. “China: Assessing „Core Interests‟ driven Foreign Policy”, South Asia Analysis Group, Paper No. 3968, 5 August, 2010. China‟s State Councilor Dai Bingguo was quoted in this respect. Jha, Saurav „India-China for race for bottom in Indian Ocean‟, World Politics Review (5 October, 2011). As quoted in Muni, S.D. China’s Strategic Engagement with the New ASEAN, IDSS Monograph No.2, Institute of Defence and Strategic Studies, Nanyang Technological University, Singapore, 2002, p.68.

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also an energy deficit country and is stretching its resources all over the world to access hydrocarbons in whatever form and quantity available. Indiaâ€&#x;s oil and gas explorations and extractions in Myanmar and Vietnam need to be understood in this respect. Therefore, there is no way that India would retreat from South China Sea just because China or any other country has taken an exception to its economic and naval activities in this region. India would surely have augmented its capabilities to defend its strategic interests in the region once the upgrading of a tri-service base in Andaman and Nicobar Islands is completed and made fully operational, as expected by 2015-20. India cannot afford to have any conflict with any of its East Asian neighbours, least with China which is emerging into a formidable economic and military power. Nor perhaps can China afford to cause any setback to its economic growth by engaging any of its neighbours into a conflict. The best course for India and China is to coexist in South China Sea as also in Indian Ocean peacefully. This is in the overall interests of not only India and China individually and bilaterally but also of peace and stability in the wider region. And for this, China owes it to its South China Sea neighbours to moderate its claims and its tempers in the region.

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Annexure: Map of South China Sea

Source: China Tourist Maps: http://www.chinatouristmaps.com/china-maps/china-sea-maps/south-chinasea-map.html.

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ISAS Insights No. 142 – 24 October 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

India-Afghanistan Strategic Partnership: Beyond 2014? Shanthie Mariet D’Souza1

Abstract The formalisation of the Agreement on Strategic Partnership (ASP) between India and Afghanistan on 4 October 2011 caught instant and worldwide media attention. Coming ahead of the much convoluted US-Afghan strategic partnership, this agreement is seen to be a new twist in the great game. For the Afghans, it is a reaffirmation of the positive role India has played in the reconstruction of their country and future commitment at a time when other countries are talking of downsizing or even complete withdrawal. The partnership agreement, being first of its kind in post-Taliban Afghanistan, is designed to address the challenges of transition as much as prepare ground for preventing the reversal of gains beyond 2014. In highlighting the utility in India’s soft power approach, the paper argues that India’s decade-long aid-only policy has been successful in consolidating its gains through such institutional processes. However, it would be useful to see if India and Afghanistan could navigate through the difficult contours of regional security environment as they are poised to jointly address the challenges of transition and beyond.

Locating the ASP: India’s Aid-Only Policy in Afghanistan India returned to post-Taliban Afghanistan to revive its earlier historical, cultural and civilisational relationship. Even as countries joined hands behind the United States (US)-led 1

Dr Shanthie Mariet D’Souza is Visiting Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous institute at the National University of Singapore (NUS). She can be reached at isassmd@nus.edu.sg. The views expressed are those of the author and do not necessarily reflect those of the institute.


military offensive against the Taliban, New Delhi adopted an ideational role and soft power approach of providing developmental assistance for the reconstruction of the war-ravaged country. India’s primary national security interests in Afghanistan, since then, have centred on supporting the nascent democratic regime, thereby denying space for the return of the Taliban. From a security paradigm, India’s concerns of terror emanating from the extremely volatile Pakistan-Afghanistan border spilling into its territory are real and imminent. A strong, stable and democratic Afghanistan would act as a bulwark to reduce the dangers of extremist violence and terrorism destabilising the region.2 As a major economic and regional power, India has worked towards reviving the role of Afghanistan as a land bridge, thereby connecting South Asia with Central Asia to tap on energy resources. With the prospects of linking stability with greater regional economic integration, India has actively promoted greater trade and economic integration of Afghanistan with South Asia.3 While India’s involvement in Afghanistan has accrued huge costs, it has generated tremendous goodwill among the local Afghans.4 With pledged aid close to US$2 billion, India today is the fifth largest bilateral donor in the country. India’s development and reconstruction activities including infrastructure development, power generation, capacity building, health and education are in sync with the local needs. Unlike aid provided by other international donors who rely on alternate delivery mechanisms, India’s aid mostly delivered through the Afghans, has hinged on local ownership and participation. Whether it is the high visibility infrastructure projects in the north and west of Afghanistan or the small scale low visibility projects in the south and east, the emphasis has been on local participation and capacity building. In difficult and insurgency prone areas of the south and east, India has invested in small development projects (SDPs) with greater local participation 2

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Even after a decade of international military intervention, the Taliban insurgency has spread to relatively peaceful and stable north and west Afghanistan, in addition to further intensification of linkages with Pakistan-based anti-India groups. A worrisome development has been expansion of Lashkar-e-Toiba’s activities beyond Kunar and Nooristan provinces to other parts of Afghanistan. Observations are based on author’s discussions with officials and locals from Nuristan province during field visit to Afghanistan in October 2010. These views and perceptions were gathered from interactions and discussions with senior Indian government officials in New Delhi and Kabul in October 2010 and October 2011. For an excellent and detailed exposition of Indo-Afghan relations, see Gautam Mukhopadhaya, ‘India’ in Ashley J. Tellis & Aroop Mukharji (eds), 'Is A Regional Strategy Viable in Afghanistan?' (Washington, DC: Carnegie Endowment for International Peace, 2010). http://carnegieendowment.org/files/regional_approach.pdf. Accessed on 23 July 2010. Also see C. Christine Fair, 'India in Afghanistan and Beyond: Opportunities and Constraints', A Century Foundation Report, Washington, D.C.(2010), http://tcf.org/publications/2010/9/india-inafghanistan-and-beyond-opportunities-and-constraints/pdf . Accessed on 23 September 2011. Author’s interviews and discussions with Afghan government officials, political leaders, academia, security personnel, women’s groups and locals in various Afghan provinces (May-June 2007, October 2010, March 2011, May-June 2011, October 2011) indicated an appreciation of India’s role in rebuilding their country. Also see Tom A. Peter, 'India outdoes US aid efforts in Afghanistan', Global Post (9 September 2010), http://www.globalpost.com/dispatch/afghanistan/100908/india-outdoes-us-aid-efforts-afghanistan. Accessed on 12 September 2010. Also see Shanthie Mariet D’Souza, ‘India's Aid to Afghanistan: Challenges and Prospects’, Strategic Analysis, Vol.31, No.5 (September 2007).

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and in tandem with the local needs. India’s assistance has broad cultural acceptance given the way aid is delivered within the socio-cultural milieu having shared history, culture and tradition. A decade later, while the international community’s decade-long involvement has come under renewed scrutiny, the prudence of India’s method of engagement has become increasingly understood and even emulated.5 What is striking is a constant demand by the Afghans’ across broad spectrum for India to do more in that country, even in the Pushtun heartland.6 There is demand for adding to the lone cold storage facility India has built in Kandahar. Afghan goods otherwise are sold cheap to Pakistani buyers, who store them in their cold storages and sell these back at a much higher price to the Afghans. In an interview with Shah Wali Karzai, political leader in the south, he was emphatic that India should do more in South Afghanistan.7 There is demand for setting up cement factories, irrigation and power projects, road building, health facilities, increasing the number of scholarships for Afghan students to study in India.8 Visa application lines mainly for medical tourism are expanding. Similar requests are made across the broad spectrum of Afghanistan’s diverse geographical and ethnic grouping whether in Mazar-eSharif in the north, Herat in west or Jalalabad in the east. To that extent, the formalisation of the ASP of 4 October 2011 is a natural corollary of India’s constructive role in the stabilisation of Afghanistan, played thus far.

A Shift in India’s Neighbourhood Policy? A survey of India’s relations with Afghanistan indicates that peace and stability in Afghanistan have remained important foreign policy objectives for India. Being members of the Non-Aligned Movement (NAM), both countries maintained neutrality in the Cold War atmospherics. The signing of a Friendship Treaty in 1950 paved the way for development of New Delhi's friendly relations with King Zahir Shah’s regime, which continued till the brief interregnum caused by the march of the Taliban to the seats of power in Kabul.9 Building on 5

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Shanthie Mariet D’Souza, 'India’s Stake in Afghanistan', The Journal of International Security Affairs, No. 20, (Spring/Summer 2011). On the day of the signing of the agreement, the author travelled from Kabul to Kandahar, getting a rare glimpse of the Afghan perception on India’s aid and development activities. Author’s discussions with political leaders like Shah Wali Karzai, Qayoom Karzai and Mehmood Karzai in Kandahar on 5 October 2011 while indicating an appreciation for India’s assistance also put forward demands for India to initiate high visibility projects like cement factories, road construction and build more cold storages. In discussion with airport manager, Mr Ahmedullah Faizi, the need for more cargo flights to export pomegranates and dry fruits was highlighted. Author's discussions with women groups in Kandahar brought out the need for smallscale income generation activities and health facilities. Shanthie Mariet D’Souza, Indian-Afghan strategic partnership: perceptions from the ground, The Af-Pak Channel, Foreign Policy, Washington DC, (26 October 2011), http://afpak.foreignpolicy.com/posts/2011/10/26/ indian_afghan_strategic_partnership _perceptions_from_the_ground. Accessed on 27 October 2011. Author’s interview with Shah Wali Karzai, Kandahar, 5 October, 2011. Author’s interviews with political leaders, government official, non-governmental organisations and women groups in Kandahar, 5 October 2011. For a detailed survey of Indo-Afghan relations, see Shanthie Mariet D’Souza, India, Afghanistan and the ‘End Game’?, ISAS Working Paper No.124, Singapore (14 March 2011), http://www.isas.nus.edu.sg/A

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the Treaty of 1950, the ASP is a recognition of the need to restore and take forward the historical, traditional and civilisation relationship. In a statement to the media during the visit of the Afghan President Karzai, the Indian Prime Minister Dr Manmohan Singh explicitly stated, ‘Our cooperation with Afghanistan is an open book. We have civilisation links, and we are both here to stay’.10 Formalisation of the ASP, though seen by many as a new twist in the great game, has made a tremendous impact in terms of strategic communication. It has sent a strong message to the Afghans, region and international community. Being the first to sign such an agreement, India has demonstrated its independence and commitment to rebuilding Afghanistan.11 Coming ahead of the US-Afghan strategic partnership deal, which is embroiled in differences and conditionalities12, the India-Afghan agreement was a demonstration of India’s willingness to help a neighbour in need. Given that the agreement was based on requests and conditions set by the Afghans through a series of consultative meetings and deliberations, there were little hiccups in finalising the deal.13 For those who warned against India being caught in a reputation trap of being overstretched in a distant country of negative security interests, or even piggy backing on international military efforts, the ASP is a much needed demonstration of India’s risk-taking ability. To that extent, it can be seen as a sign of the maturing of India’s foreign policy. As India builds its relationship in the neighbourhood and moves ahead with several path-breaking initiatives in Sri Lanka, Bangladesh and Myanmar, the first strategic partnership with distant Afghanistan has signalled India is ready to partner with countries even in adverse and difficult conditions. Thus, Afghanistan’s ‘Support for the reform and expansion of the United Nations Security Council, including a permanent seat for India in the Council’14 as stated in the ASP, is thus more than symbolic.

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ttachments/PublisherAttachment/ISAS_Working_Paper_124_-_Email_-_India,_Afghanistan_and_the_'E nd_Game'_23032011185007.pdf. Accessed on 12 October 2011. Statement to the media by PM Manmohan Singh during visit of President Karzai, Speeches/Statements, Ministry of External Affairs, New Delhi, (4 October 201), http://mea.gov.in/mystart.php?id=530118346. Accessed on 11 October 2011. Coming ahead of the Partnership agreements with US, UK, EU, France and others, India is the first to lead rather than being part of an orchestra thereby avoiding implications associated with such perceptions. Author’s discussions with senior diplomats in New Delhi and Kabul, October 2011. Shanthie Mariet D’Souza, ‘The Emerging Faultlines of the US-Afghan Strategic Partnership’, ISAS Brief No. 210 (10 August 2011), http://www.isas.nus.edu.sg/Attachments/PublisherAttachment/ISAS_Brief_210__Email_-_The_Emerging_Faultlines_15082011115335.pdf. Accessed on 20 October 2011. US seeks IndiaAfghan strategic partnership document like deal, Indian Express, New Delhi (13 October 2011). During author’s discussions with Afghan government officials at the Foreign Ministry in Kabul in March and May 2011, it was brought to notice that Afghans were asking for such an agreement for a considerable time. Most of the requests by the Afghans or ‘menu of options’ were put forward during the Indian National Security Adviser’s visit to Kabul in March 2011 were acceded to. 'Text of Agreement on Strategic Partnership between the Republic of India and the Islamic Republic of Afghanistan', Ministry of External Affairs, Government of India (4 October 2011), http://www.mea.go v.in/mystart.php?id=100018343&pid=2339. Accessed on 5 October 2011.

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Engaging or Isolating Pakistan? The timing of the strategic partnership, coming at the heel of the killing of former President Burhanuddin Rabbani and the suspension of peace process with the Taliban thereafter and an all-time low in Afghan-Pakistan relations and the worsening of the US-Pakistan relations following the attack on the US embassy in Kabul, led many to conclude that the emerging India-Afghan alliance was directed at isolating Pakistan.15 Mounting criticisms against Karzai government’s inefficiency and corruption combined with the failure of reconciliation process led many to believe that by ‘reaching out to India was about more than balancing against a relentlessly hostile Pakistan - it was also a safety valve for domestic pressure’.16 President Karzai’s visit to New Delhi and the signing of the ASP was seen as an ‘act of desperation’ by some, while others view it as his ‘classic balancing act using a divide and rule tactic’ be in domestic politics or regional power play.17 Karzai’s attempt to soft pedal his new strategic embrace with India by referring to India as ‘a friend’ to Afghanistan, Pakistan a ‘twin brother’18 led some to conclude that ‘after signing the strategic agreement, Karzai was having second thoughts’.19 Notwithstanding such mixed signals, President Karzai’s blowing hot and cold with Pakistan, including his recent statement in ‘supporting Pakistan if it ever went to war with the United States’20, can be best construed as Karzai’s hedging strategy of accruing benefits of such defiance of the west and at the same time keeping an window of opportunity open for negotiations.

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Jack Healy and Alissa j. Rubin, Afghanistan Favors India and Denigrates Pakistan, The New York Times, (4 October 2011), http://www.nytimes.com/2011/10/05/world/asia/afghanistan-curries-favor-with-india-anddenigrates-pakistan.html?_r=1. Accessed on 6 October 2011. Shashank Joshi, 'India's Strategic Calculus in Afghanistan', The Af-Pak Channel, Foreign Policy (6 October 2011), http://afpak.foreignpolicy.com/posts/2011/10/06/indias_strategic_calculus_in_afghanistan. Accessed on 10 October 2011. Some even foresee Karzai using the agreement as a pressure tactic to accrue similar benefits from Pakistan. Author’s discussions with government officials, political leaders, intelligentsia and policymakers in Kabul and Kandahar in October 2011 demonstrated mixed reactions in terms of Karzai’s motives. However, there was broad based support and expansion of India’s continued role in the reconstruction of Afghanistan. Following the signing of the agreement, Afghan President Hamid Karzai said in a conference: ‘The signing of the strategic partnership with India is not directed against any country. It is not directed against any other entity. This is for Afghanistan to benefit from the strength of India.’ The Afghan President said, delivering the third R.K. Mishra memorial lecture organised by the Observer Research Foundation. Karzai salve on ‘twin brother’ Pak, The Telegraph, Calcutta, 6 October 2011, http://www.telegraphindia.com /1111006/jsp/nation/story_14592975.jsp. Accessed on 7 October 2011. President Karzai, added, however, at engagement with Islamabad had ‘unfortunately not yet received the result that we want’.‘Pakistan out twin brother, India a friend’, Hindustan Times (5 October 2011). http://www.hindustantimes.com/Pakistan-ourtwin-brother-India-a-friend-Karzai/Article1-753826.aspx. Accessed on 6 October 2011. Seema Mustafa: Afghanistan hates Pakistan today only to love it tomorrow, Daily News and Analyises, New Delhi, (10 October 2011), http://www.dnaindia.com/analysis/column_seema-mustafa-afghanistan-hatespakistan-today-only-to-love-it-tomorrow_1596900. Accessed on 11 October 2011. Though this was Karzai’s rhetorical response to a hypothetical question, it has been seen as hedging, without little or no support from his domestic constituency. Ray Rivera And Sangar Rahimi, ‘Afghan President Says His Country Would Back Pakistan in a Clash With the U.S.’, The New York Times, (23 October 2011), http://www.nytimes.com/2011/10/24/world/asia/karzai-says-afghanistan-would-back-pakistan-in-a-conflictwith-us.html. Accessed on 23 October 2011.

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While it is convenient to link the timing of the signing of the agreement with that of the worsening US-Pakistan and Afghanistan-Pakistan relations, what has missed the eye is that the agreement was long in the making to address the demands of the Afghans. The idea of such partnership was mooted following President Barack Obama’s announcement of drawdown in December 2009. A series of high profile visits and deliberations since the visit of the Indian External Affairs Minister S.M. Krishna in January 2011 had culminated in Prime Minister Manmohan Singh’s May 2011 visit to Kabul where he had emphasised on India’s commitment of engaging Afghanistan through a partnership agreement.21 At the joint declaration between India and Afghanistan on that occasion, Prime Minister Singh had specifically mentioned, ‘India and Afghanistan decided to establish a strategic partnership covering all areas of mutual interest. Based on mutual understanding and long-term trust in each other, this partnership envisages the elevation of their multi-faceted ties to a higher level, both in the bilateral field and international arena. The two sides decided to hold follow up discussions in the near future towards preparation of a strategic partnership document between the two countries.22 In an interview with Pakistan’s Geo TV, Karzai categorically stated, ‘Our relations with India, our signing of the strategic partnership with India, it did not happen at the spur of the moment. This is something that we have been working on for years now.’23 Likewise, potential presidential contender and former minister Ali Jalali, ‘recognises the agreement as a document officialising the close ties that already exist between the two countries. It’s good as a long overdue recognition of the strengthening of India-Afghan relations which if extended would be to the advantage of Pakistan.’ He added that ‘although the timing of the agreement could spark off perceptions that the pact was a reaction to the rising tension between Kabul and Islamabad following the assassination of the head of the Afghan High Peace Council, former President Burhanuddin Rabbani, by a Pakistani-linked Taliban suicide attacker, the strategic partnership document in fact was initialised months before the incident’.24 During an October 2011 interview in Kabul, Shah Mahmood Miakhel, Afghan’s former Deputy Minister of Interior, strongly supported the agreement as ‘useful for reconstruction and stability of Afghanistan to prevent civil war or proxy war in Afghanistan’.25

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Shanthie Mariet D'Souza, 'The message from Kabul', Business Standard (14 May 2011), http://www.business-standard.com/india/news/shanthie-mariet-dsouzamessagekabul/435511/. Accessed on 15 May 2011. Joint Declaration between India and Afghanistan on the occasion of the visit of Prime Minister of India', Ministry of External Affairs, Government of India (12 May 2011), http://www.mea.gov.in/mystart .php?id=100517624. Accessed on 10 October 2011. Also see Shanthie Mariet D'Souza, 'The message from Kabul', Business Standard (14 May 2011), http://www.business-standard.com/india/news/shanthie-marietdsouzamessagekabul/435511/. Accessed on 12 October 2011. Would stand by Pakistan if it is attacked by India or US: Karzai, Pakistan News 24, http://www.paki stannews24.com/2011/10/22/would-stand-by-pakistan-if-it-is-attacked-by-india-or-us-karzai/. Accessed on 23 October 2011. Interview with Prof. Ali Jalali, Former Minister of Interior, Kabul, 6 October 2011. Interview with Shah Mahmood Miakhel, former Deputy Minister of Interior, Kabul, 3 October 2011.

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In stark contrast, Pakistan’s strategy of the use of proxies in regaining its ‘strategic depth’ and negotiating a favourable post-withdrawal in Kabul has met with a dead end. The systematic destabilising activities carried out from their sanctuaries have cost Pakistan the goodwill of the Afghans. Even in the traditional Pushtun heartland such anti-Pakistan sentiments have risen. Talks of direct military action to destroy sanctuaries and safe havens, repeated border incursions and shelling have raised the anger among the Afghans. 26 It would be important to note that compared to India’s US$2billion aid, Pakistan has invested US$300million towards reconstruction and development of its war-ravaged neighbour.27 Further, it is misleading to construe that the agreement is directed at sidelining or isolating Pakistan. The talks of emergence of India-US-Afghan alliance directed against Pakistan, does not hold ground. Though India’s development assistance has complemented the civilian component of international military’s counter insurgency effort and Americans of late have sought India’s help of working together on joint projects, India has refrained from such association for dangers of over identification, maintaining its independence as well as heeding to the sensitivities of neighbouring countries.28 With the announcement of drawdown and withdrawal of international troops by 2014, many perceive India to step in to fill in the vacuum. It has led some to construe the agreement as a ‘groundbreaking extension of the Kabul-New Delhi relations to defence seems to have received an approving nod from the White House. It is quietly pleased to see India step forward to fill the critical gaps that would arise in the wake of the pullback of the US-led Nato troops from Afghanistan in about three

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Discussions with the locals in Kabul and Kandahar in October 2011 indicated anger with the Pakistani establishment for carrying out destabilising activities in their country. In addition to gathering opposition to President Karzai and his attempts at reconciliation, there is anger against the neighbouring country for the sanctuaries provided to the Taliban insurgency which have been able to carry out systematic elimination of key leaders. Any tilt by President Karzai towards Pakistan would not be viewed favourably even in the south, where many feel is the time for direct military action to eliminate the sanctuary. Also see, Tom A. Peter, Plot to assassinate Afghan President Karzai foiled, The Christian Science Monitor, (5 October 2011), http://www.csmonitor.com/World/Asia-South-Central/2011/1005/Plot-to-assassinate-Afghan-PresidentKarzai-foiled. Accessed on 6 October 2011. 'Donor Financial Review, Report 1388', Ministry of Finance, Islamic Republic of Afghanistan, (November 2009), http://www.undp.org.af/Publications/KeyDocuments/Donor'sFinancialReview%20ReportNov2009.pd f. Accessed on 25 September 2010. The possibility of joint projects in the area of agriculture, education and women's empowerment has been explored since President Obama’s visit to India in 2010, but nothing has materialised thus far. While USAID (United States Agency for International Development) wants to partner in the widely popular scholarship programme and work with women’s groups, there are apprehensions among Indians regarding such association, which could lead to the projects being targeted or coming under suspicion in some regions. Women groups like SEWA (Self-Employed Women’s Organisation) have preferred to work alone or in the framework of SAARC (South Asian Association for Regional Cooperation). There are some individual and sect oral initiatives that have been taken by USAID organisations with Indian institutions on their own, without the involvement of the Indian government, like sending students to Indian agricultural universities at their own expenses. Author’s interview with senior government officials and policymakers in Washington DC in May 2011 and New Delhi, October 2011. Shanthie Mariet D'Souza, Why Afghanistan could dominate talks with Obama, Rediff (4 November, 2010), http://www.rediff.com/news/column/obama-visit-whyafghanistan-could-dominate-india-us-talks/20101103.htm. Accessed on 5 November 2010. Shanthie Mariet D'Souza, India-US Strategic Dialogue: Can India and US be partners in Afghanistan?, Al Arabiya (19 July 2011), http://www.alarabiya.net/articles/2011/07/19/158285.html. Accessed on 20 July 2011.

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years’29. Despite talks of partnering and outsourcing, Indian policymakers have avoided the pitfall of such associations. India’s deliberate decision of not to put boots on ground indicates a different view in New Delhi. With Afghanistan emerging as a potential theatre of rivalry, India signalled that it was ready to discuss the larger Afghan situation with Islamabad during foreign secretary-level talks. During the 1980s, the two sides discussed Afghanistan regularly. On umpteen forums it has been clarified that both India and Afghanistan are willing to accommodate Pakistan’s genuine interests. The ASP itself notes that it is not directed against any country and group of countries. In spite of the criticisms the Pakistani Ministry of Foreign Affairs has issued of the strategic pact, it remains to be seen if the country will see reason in adopting a mature and rational Afghan policy.30 As succinctly put by an Afghan political leader in Kandahar: ‘If Pakistan has to compete with India in gaining the goodwill among the Afghans, it has to be on the plank of reconstruction and development, and not acts of subversion and selective assassinations or providing sanctuaries.’31 The ASP by emphasising on regional economic cooperation has provided the platform for such constructive regional cooperation.

Engagement Beyond 2014? While India’s aid-only policy in Afghanistan has been criticised as piggy backing on the international military efforts, it has generated intense domestic debate; given the vulnerabilities its projects and personnel face in Afghanistan. The ASP, thus, silences the critics as it marks the consolidation of gains made by India through its soft power approach and in a way can be seen as an expansion of India’s role to secure its primary national security interests. It’s a classic case whereby gains accrued through soft power approach have translated into long-term gains. A strong, stable and democratic Afghanistan would reduce the dangers of the return of extremist forces to the seats of power and the consequent violence and terrorism destabilising the region.32 The ASP is an attempt to extend and expand on the institutional framework for future cooperation in the fields of political and security cooperation, trade and economic cooperation, capacity building and education, social, cultural, civil society and people-to-people relations even beyond 2014.

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Dilip Hiro, Slippery road ahead, The Times of India, New Delhi, (14 Oct 2011), http://articles.tim esofindia.indiatimes.com/2011-10-14/edit-page/30275812_1_afghanistan-and-pakistan-taliban-hamid-karzai. Accessed on 16 October 2011. Sajjad Ashraf, India-Afghanistan Strategic Agreement: Opportunity for Peace and for Pakistan, ISAS Brief, No.218 (18 October 2011). Interview with senior Minister and political leader (on the condition of anonymity), Kandahar, 5 October 2011. Contrary to views that New Delhi opposes the return of the Taliban, an interesting caveat is New Delhi’s supports the reintegration and reconciliation of Taliban commanders and fighters in an Afghan led process.

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Security Sector India’s decision to expand the training of Afghan National Security Forces (ANSFs), particularly Afghan National Police (ANP) is significant in building local capacities in providing security to the country. Even with an inflated Afghan army, by all means an economically unsustainable project, a capable police force is essential to protecting local communities and building confidence. Afghanistan has repeatedly requested for trainers, equipment and capacity building among its police force.33 In the south, there are requests for India’s assistance in training Special Forces, techniques of community policing, developing field kits and police sensitisation programmes.34 The ASP, which paves way for the training of Afghan National Security Force (ANSF) will yield long-term institutional benefits and influence in terms of information sharing, capacity building and support functions.35 Political Sector India is indeed looking beyond merely engaging the present political dispensation or indulging one ethnic or political grouping. The ASP, thus, would ensure continuity of India’s initiatives by making them free from personal choices, orientations, whims and fancies of future leaders or prevailing regional security environment. Continued engagement in Afghanistan is bound to develop a range of stakeholders in that country, preventing a complete reversal of gains made by India. Moreover, the agreement has provided a much needed institutional mechanism in terms of ‘regular foreign office consultations and strategic dialogue’36 to sustain the process beyond 2014. Trade and Economic Development Through the ASP, India and Afghanistan have committed ‘to deepening and diversifying cooperation in sectors such as agriculture, rural development, mining, industry, energy, information technology, communications, transport, including civil aviation.’ The agreement is a reiteration of India’s commitment to Afghanistan’s economic progress and its development as a land bridge between South Asia and Central Asia. Significantly, two MoUs (Memorandums of Understanding) were also signed for the development of minerals and 33

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Discussion with Sediq Sediqqi, Spokesman, Director of Communication, Ministry of Interior Affairs, Islamic Republic of Afghanistan, Kabul, 8 October 2011. Interview with General Abdul Raziq Achikzai, chief of police in Kandahar province, Kandhar, 5 October 2011. The training would be incremental depending on the needs on the ground. Indian Air Force will increase the numbers and trainings would be focused towards support services, leadership, aviation medicine and visit by some senior Afghan officers to expose them to aviation culture, which was almost non-existent here for last 20 to 30 years. Supply of non-lethal equipment is likely to continue along with defensive and support equipment. In the past, India gifted aircraft refuelling bowsers - similarly gifting of some more vehicle, clothing are in the pipeline. 'Text of Agreement on Strategic Partnership between the Republic of India and the Islamic Republic of Afghanistan', Ministry of External Affairs, Government of India (4 October 2011), http://www.mea.gov. in/mystart.php?id=100018343&pid=2339. Accessed on 5 October 2011.

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natural gas in Afghanistan, which is said to hold mineral deposits worth US$1 trillion. A consortium led by state-run Steel Authority of India (SAIL) could invest up to US$6 billion in Hajigak mines in Bamiyan province, potentially being the single biggest foreign investment.37 The interest in gas and mineral exploitation as indicated by the neo-liberal thinking in India far surpasses the narrow realist interpretation of a zero sum game with Pakistan. India is working towards building Afghanistan as a transit country, in terms of economic integration of South Asia and Central Asia. One way out of the present conundrum is to involve Pakistan in a regional cooperative framework, prodding it to give up its restrictive trade and transit agreements by highlighting the benefits that will flow into its economy. The existing mechanisms under SAARC would be useful in this context. The TurkmenistanAfghanistan-Pakistan-India (TAPI) pipeline could be another such useful cooperative venture. The emphasis on ‘regional economic cooperation’ in the ASP indicates India’s vision of binding the countries in the region through a mutually beneficial cooperative framework which would be a win-win situation for the countries of the region. Capacity Building and Education The capacity building and educational initiatives included in the agreement are signs of India’s commitment to invest in the future leadership of the country, which is in sync with India’s long-term vision of helping to build a stable democratic Afghanistan. The agreement reads: ‘In response to Afghanistan's need to strengthen its administration and governance at national and sub-national levels, India offers its experience of governance at the national, state, district and local body levels, and technical assistance in setting up a permanent, careerbased civil service suitable for Afghan realities.’38 India’s efforts to accommodate Afghans in its educational institutions, facilitating entry, financial and local support, language training, and good mentoring services could enable a whole generation of Afghans to acquire skills and professional qualifications in Indian institutions, thereby building lasting bonds and intellectual connectivity between the people of the two countries. Social, Cultural, Civil Society & People-To-People Relations As a part of cultural diplomacy, Indian musicians have been training young Afghans in musical instruments like tabla and sitar. Such joint musical performances have been occurring both in Kabul and places like Jalalabad, cementing the cultural ties and historical

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Sanjeev Miglani, 'Indian firms eye huge mining investment in Afghanistan', Reuters (14 September 2011), http://www.reuters.com/article/2011/09/14/afghanistan-india-idUSL3E7KB02A20110914?feedType=RSS &feedName=everything&virtualBrandChannel=11563. Accessed on 11 October 2011. 'Text of Agreement on Strategic Partnership between the Republic of India and the Islamic Republic of Afghanistan', Ministry of External Affairs, Government of India (4 October 2011), http://www.mea.gov.in/m ystart.php?id=100018343&pid=2339. Accessed on 5 October 2011.

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traditions of the region.39 India has actively provided assistance to women’s groups through self-employment schemes, health and capacity building, not only in Kabul, but also in the western province in Herat. Being long-term stakeholders in the rebuilding of the social and economic fabric of the war-ravaged society, this mode of aid delivery has proved to be effective in sustaining and even expanding such programmes. Training and exchanges in Islamic studies, particularly Islamic jurisprudence, would be vital in the task of fortifying Afghanistan with its Hanafi tradition from being overwhelmed by Wahhabism.40 Sports like cricket and football are likely to get an upward push with India sending teams for the Subroto Cup Football Tournament in November 2011. The ASP by no means is a routine friendship agreement. For the slim page document, it has set the roadmap for future engagement in crucial sectors not only for Afghanistan but also for the region. The ASP has provided a much needed institutional mechanism to sustain the process beyond the cut-off year for the drawdown of international forces, without being subjected by the vagaries of political dispensation in Kabul or the prevailing regional security environment. More importantly, the agreement has set the stage for other neighbouring countries to benefit from greater regional economic integration, investment, trade and transit. It is upon the neighbouring countries to seize this opportune moment, which would help South Asia move from narrow zero sum game and unending cycle of conflict to a win-win situation for the entire region. .....

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Author’s interview with Gul Agha Sherzai, Governor of Nangarhar province, and interactions with locals at the India-Afghan musical concert, (Jalalabad, 12 October 2010). Interview with Rangina Hamidi, women entrepreneur and daughter of the slain mayor of Kandahar, Hamidi, Kandahar, 4 October 2011.

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ISAS Insights No. 143 – 11 November 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

India-Pakistan Detente: Its Significance is More Than for Restoring Bilateral Relations Shahid Javed Burki1

Abstract On 2 November 2011, Pakistan’s cabinet decided to grant India the Most Favoured Nation (MFN) status, which it should have done soon after the two countries joined the World Trade Organization (WTO). That was 15 years ago. India gave Pakistan the MFN status; Pakistan held it back until now in the hope that it could leverage the MFN issue to get concessions out of New Delhi on Kashmir. This, of course, did not happen. The grant of MFN to India should begin to normalise economic and trade relations between the two countries. That notwithstanding, this paper suggests that the significance of this move goes much beyond bilateral relations between the two countries. It could – perhaps would – influence Pakistan’s tattered relations with the United States (US) and to help bring peace to the South Asian subcontinent.

Introduction Pakistan and India had close economic and trade relations when the two countries were carved out of British India to become independent states. In 1947, India was Pakistan’s largest trading partner accounting for two-thirds to three-fourths of its imports and exports. This relationship changed suddenly two years later, when in 1949, India severed trading 1

Shahid Javed Burki is Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He was former Finance Minister of Pakistan and former Vice-President of the World Bank. He can be contacted at isassjb@nus.edu.sg. The views expressed are those of the author and do not necessarily reflect those of the institute.


relations with Pakistan. The reason was Pakistan’s refusal to devalue its currency with respect to the American dollar as was done by all other members of what was then known as the Sterling Area, and is now the Commonwealth. Pakistan’s decision not to readjust the value of its currency meant that the rate of exchange between its rupee and that of India’s changed from parity to 144:100. India, not prepared to accept such a steep devaluation of its currency, stopped all trade with its neighbour. This is where the situation has remained for the last 62 years. China and the US are now the largest trading partners respectively for India and Pakistan. This is a tenable situation for India since the ‘gravity model of trade’ postulates that the direction of trade should be determined by the size and distance between two trading partners. It makes sense for India to have neighbouring China as its largest trading partner. For Pakistan, India and China should be in that role not the US.

Grant of MFN Status by Pakistan to India There has been rapid warming of relations between the two countries. This is the result of the recognition by India that unless it has peace on its north-western borders – the border with Pakistan – its claim to the status of an emerging superpower would not be credible. As discussed below in the case of Pakistan – in particular its powerful military – there is a growing appreciation that with deteriorating relations with the US, it would be prudent to arrive at an understanding with India. In July, the foreign ministers of India and Pakistan met in New Delhi and agreed to move forward on a number of fronts. Special efforts were to be made to restore trade to ‘normal’ levels – the level expected by the application of the gravity model to trade between these two neighbours. This meeting was followed in September by that between the commerce minsters. At this meeting, Pakistan pledged to work towards the grant of MFN status to India. This pledge was fulfilled on 2 November 2011. The Washington Post noted while commenting on the decision by Pakistan to grant the ‘most favoured nation’ status to India in matters pertaining to trade, ‘in recent weeks, India backed Pakistan’s bid for a non-permanent seat on the United Nations (UN) Security Council, and Pakistan backed India’s nominee for the Commonwealth secretary general’s role. When an Indian helicopter was forced to land in Pakistani territory because of bad weather last month, the crew was freed almost immediately – something that might not have happened in the past.’2 It appears that the easing of relations would not be restricted to trade. The decision on 2 November by the Pakistani cabinet to award India the MFN status is a tectonic shift in the country’s relations with its large neighbour. India took that step in 1996 soon after joining the WTO. Pakistan was also obliged to give to all members of WTO – and that included India – the same status. But Islamabad refused to act in the mistaken belief that 2

Shaiq Hussain and Simon Denyer, ‘Pakistan normalises trade ties with India, signals new warmth’, The Washington Post, 3 November 2011, p.A9.

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it could use it as a lever to get concessions from New Delhi on Kashmir. As most economists have argued, improving trade and economic relations with India would bring greater benefits to Pakistan, the smaller of the two economies, than to India. If trade were to be used as a lever, India has greater power than Pakistan. The Pakistani decision concerning the grant of MFN status was received with enthusiasm by the Indian leadership. Anand Sharma, India’s Commerce Minister, hailed it as part of a ‘paradigm shift’ and said that New Delhi ‘deeply appreciated’ the move. It will be beneficial for both countries, he said. Pakistan’s initiative had the support of its powerful military which had continued to look at India with suspicion.3 The military’s approval was implied by Firdous Ashiq Awan, Pakistan’s Information Minister in announcing the cabinet’s decision. ‘This was a decision taken in the national interest and all stakeholders, including our defense institutions, were on board,’ she told the press.4 The business community on both sides of the border applauded the move. Many believed that there will be almost immediate benefits in terms of reducing the transaction costs of doing business between the two countries. The Federation of Indian Export Organisations (FIEO) estimated that trade between the two nations could double from current levels of about $2.7 billion a year simply by the rerouting of goods currently sent via Dubai as well as through some other channels, including Singapore. But according to one newspaper report, ‘the Confederation of Indian Industry cautioned that road blocks such as stringent visa rules, nontariff barriers and communication problems still need to be dismantled and more trade routes opened up’ for full benefits to be realised.5

Larger Consequences of the MFN Move by Pakistan But the real significance in this breakthrough will go much beyond increasing India-Pakistan trade. It will provide foreign policymaking in Pakistan with a new base, moving the country away from total preoccupation with the US. At this time, relations with America have become highly strained. Improving relations with India will certainly help to place the dealings with Washington in a new context. Although the ground on which Pakistan has sought to structure its relations with the US over the past six decades has continuously moved, it always included concerns about India. This should cease to be the case as relations between the two nations continue to improve. Pakistan got close to America as a part of its effort to build its defences to protect itself from the threat it then perceived was posed by India. That was essentially the reason why Ayub 3

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Mathew Green and James Lamont, ‘Pakistan boosts links with India’, Financial Times, 3 November 2011, p.5. Shaiq Hussain and Simon Denyer, ‘Pakistan normalises trade ties with India, signals new warmth’, The Washington Post, 3 November 2011, p.A9. Ibid.

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Khan, first as Defence Minister and later as the country’s President, negotiated a series of defence agreements with the US. Pakistan bound itself in arrangements that covered a wide geographic front, stretching from the Mediterranean to the Pacific. Good relations with Washington also brought economic help to the country at the time Pakistan was attempting to speed up the rate of economic growth. That was a by-product not the real motivation behind the effort to get close to Washington. Later, during the presidency of General Zia ul Haq, while economic assistance from the US became the main motive for association with Washington, concern with India remained at the back of policymakers’ mind. Both economic considerations and the need to strengthen its defences against India were the reason why Zia famously turned down the offer of help by US President Jimmy Carter in return for Islamabad’s assistance to throw the Soviet Union out of Afghanistan. He famously called the American offer ‘peanuts’. Islamabad wanted more from the US than Carter’s America was prepared to give. Carter’s defeat in the elections of 1979 brought Ronald Reagan to power as President. The new head of the American state was prepared to do much more than his predecessor to destroy what he called the ‘evil empire’, referring to the Soviet Union. Pakistan’s willingness to align itself with America to achieve this objective was welcome news in Washington. In return for Islamabad’s support to expel the Soviet Union from Afghanistan, America was prepared to provide copious amount of military and economic help. By becoming a member of the American alliances in the 1950s and 1960s, Pakistan was making a hypothetical commitment. It would support the US in any activity directed to stop the advance of Communism in Asia and the Middle East. However, in the 1980s, association with the US meant providing active support in a military campaign – the one fought by the US in Afghanistan with the help of a number of proxies. This change produced new dynamics in Pakistan’s situation. It shifted focus to Afghanistan in the making of policy and, at the same time, the country had to contend with many unanticipated consequences being an active player in a battlefield close at hand. Among the latter were the rise of Islamic extremism in the country, weaponisation of the Pakistani society and culture, and ethnic conflict between some of the communities in the country. The large-scale migration of Afghans to Pakistan was to increase the Pashtun population in Karachi. The consequence of this particular development is still being felt in Pakistan’s largest city. While the persisting concern with India was at the base of Pakistan’s Afghan policy, the entry of Afghanistan as a variable in the making of policy was to acquire increasing significance after the terrorist attacks on the US. Under General Pervez Musharraf and, after his departure, under the successor civilian government, curbing the rise of Islamic extremism and international terrorism associated with it became the basis of relations with the US. However, Islamabad has been reluctant to move against one particular group of Islamic extremists that has given enormous headache to the US as Washington begins the process of pulling out of Afghanistan. The group is known by the name of its leader, Jalaluddin Haqqani. The Haqqanis have had a long and close relationship with Pakistan’s main intelligence agency, the Inter-Services Intelligence (ISI). 4


The ISI has supported the Haqqanis to safeguard Pakistan’s interests in Afghanistan and to counter India’s growing influence in that country. Once again the fear of India complicated Pakistan’s position in external affairs.

Conclusion However, with the easing of tensions with India, relations with the larger neighbour will become less of a factor in the crafting of foreign policy. A different kind of relationship with India would introduce a new variable in the way Pakistan looks at the world outside its borders. This will affect the country’s relations with the US as well and should place all of South Asia on a trajectory of sustainable peace. .....

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ISA S Insights No. 144 – 22 November 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Obama’s Asia-Pacific Doctrine: India’s options S.D. Muni1

President Barack Obama‟s address to the Australian parliament followed by his active and energetic participation in East Asia Summit (EAS) and Association of South-east Asian Nations (ASEAN) meetings in Bali on 18-19 November, 2011, gives a clear and bold message that the United States (US) is gearing for an assertive management of the unfolding strategic balance in the Asia-Pacific region. In order to prepare ground for such a message, Hillary Clinton, the US Secretary of State, has been describing the Asia-Pacific region as the new „pivot‟ of US global strategy. Obama‟s address in Australia defines this strategy in detail, almost in the form of a doctrine. It is not yet clear how New Delhi would respond to this new Obama doctrine. Dispelling doubts about the US role in Asia, and defining his new strategic doctrine for the region, Obama said in his Australian address2: As the world‟s fastest-growing region – and home to more than half the global economy – the Asia-Pacific is critical to achieving my highest priority and that is creating jobs and opportunity for the American people. With most of the world‟s nuclear powers and some half of humanity, Asia will largely define whether the century ahead will be marked by conflict or cooperation, needless suffering or human progress. As President, I have, therefore, made a deliberate and strategic decision – as

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Professor S. D. Muni is Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He can be contacted at isassdm@nus.edu.sg. The views expressed are those of the author and do not necessarily reflect those of the institute. All references to Obama‟s speech here are from „Full text of Barack Obama‟s speech to Australian parliament‟ in http://www.couriermail.com.au/news/national/full-text-of-barack-obamas-speech-to-... Accessed on 19 November, 2011.


a Pacific nation, the United States will play a larger and long-term role in shaping this region and its future by upholding core principles and in close partnership with allies and friends. In this reassertion of its role in Asia, the US is driven both by security and economic considerations. President Obama said: „First we seek security, which is the foundation of peace and prosperity.‟ And for this, he assured, „reduction in US defence spending will not – I repeat, will not – come at the expense of the Asia-Pacific. As we plan and budget for the future, we will allocate the resources necessary to maintain our strong military presence in the region. We will preserve our unique ability to project power and deter threats to peace. We will constantly strengthen our capabilities to meet the needs of the 21st century. Our enduring interests in the region demand our enduring presence in this region‟. The seriousness of these words was marked by the upgrading of US-Australian alliance that will enhance US military presence in northern Australia. US has also reinforced, during the past year, its traditional alliances with Japan, Republic of Korea, Philippines and Thailand. In his address to the Australian parliament, President Obama did not forget to mention China. He talked of „efforts to build a cooperative relationship with China‟, the overall thrust of his speech, however, left no one in doubt that concerns arising out of a rising and assertive China in the Asia-Pacific will remain the main focus of US strategic role in the region. Throughout the speech, the virtues of human rights and freedoms (especially of „the Chinese people‟), democracy, free markets and freedom of navigation, upholding of international norms and maritime security, including in „the South-China Sea‟ were highlighted. Without referring to China by name, Obama drew attention to the incidents where „men of peace in saffron robes faced beatings and bullets‟…where as small acts of courage „a student posts a blog; citizen signs a charter, an activist remains unbowed, imprisoned in his home, just to have same rights we cherish here today‟. Reference to China‟s oppression in Tibet‟s control of freedom in the mainland could not be concealed. He surely had China in mind while hailing the democratic systems and saying „other models have been tried and they have failed – fascism and communism, rule by one man and rule by committee‟. It is of interest to note here that just before his parliamentary address and visit to Darwin to launch the upgrading of military alliance with Australia, Secretary Clinton visited Philippines to reinforce US alliance. Standing on the deck of an American warship in Manila Bay, she said: „We are making sure that our collective defence capabilities and communications infrastructure are operationally and materially capable of deterring provocations from the full spectrum of state and non-state actors.‟ Back home in Connecticut, US Secretary of Defence Leon Panetta at the same time was describing the threat that the US faces from „rising powers like China…‟.3

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In making this statement, Panetta made a slip by including India along with China as a threat. Pentagon however soon made amends to say that mention of India was a mistake, Times of India, 19 November, 2011.

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India’s Place in the Doctrine: While counting the US allies and friends in its projected role in the Asia-Pacific, Obama welcomed „India as it “looks east” and plays a larger role as an Asian power‟, especially in the context of „America‟s enhanced presence across South-east Asia‟. This echoes what Obama had said in Indian parliament a year earlier during his visit in November, 2010. Then addressing the Indian parliament, Obama had said: „Like your neighbours in South-east Asia, we want India to not only “look East”, we want India to “engage East” because it will increase the security and prosperity of all our nations‟.4 Reiterating the same theme, Secretary Clinton said in Chennai on 22 July, 2011; „India‟s leadership will help to shape positively the future of the Asia-Pacific. That‟s why the United States supports India‟s Look East Policy and we encourage India not just to look east but to engage east and act east as well.‟ 5 India welcomes US support for its Asian policies, but the strategic community in India has not been too comfortable with the way these US directives have been articulated. The Indian contention is that it has already for long, been engaging and acting east under its Look East policy. The second phase of this policy that was formally announced by the then-Foreign Minister Yashwant Sinha in 2003 clearly projected India‟s enhanced role in the whole of Asia Pacific region and included not just economic but also defence and security cooperation. 6 India has significantly expanded its economic engagement and even maritime reach with the countries of the Asia-Pacific region in the following years. India has not yet officially responded to the new Obama doctrine. There is a remote chance that India will formally endorse the US strategy. If an endorsement comes at all, it would be indirect and with caveats. Two of the core components of Obama doctrine do not seem to be compatible, in principle as also for practical reasons of real-politic, with India‟s broader strategic view in relation to the Asia-Pacific region. These are, first, the clear thrust on military alliance and, second, the strong undercurrent of China targeting. However, within the constraints of these two points, to which we shall come back later, India is not averse to cooperating with the US in shaping the strategic dynamics of the Asia-Pacific region. While rejecting the rationale of military blocks and alliances, India has traditionally leaned towards the weaker side (then, the Soviet Union), so as to contain the assertive and aggressive stance of the rising power (then the US) in its non-aligned policy during the Cold War years. Obama doctrine has the required elements in it to trigger a subtle and sophisticated new Cold War in Asia between the US and China. China is perceived in India as a rising and assertive power

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For the text of the speech, see http://ibnlive.in.com/news/full-text-of-obamas-parliament-address/1346493.html . Accessed on 19 November, 2011. For the full text of the speech, see http://abcnews.go.com/blogs/politics/2011/07/hillary-clinton-urges-indiato-lead-in-china‟s-neighbourhood. Accessed on 19 November, 2011. For an analysis of India‟s Look East policy, see S.D. Muni, „India‟s Look-East Policy: The Strategic Dimension‟, ISAS Working Paper No. 121, 1 February, 2011.

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while the US decline, not absolute but in relative terms, is widely debated. 7 Strategic cooperation with the US is seen by India‟s strategic community in the interest of stable Asian balance.

Areas of Convergence The US reassertion and enhanced engagement with the Asia-Pacific region suits India‟s interests in some respects amicably. Within the framework of „strategic partnership‟ India has always been willing to work with the US in this respect for the past nearly a decade. The experience of the Indian naval escort for US ships sailing through the Malacca Strait in 2002 may be recalled here. India‟s then-Foreign Secretary Shyam Saran, speaking at Economic Forum in New Delhi, on 28 November, 2005 said „India and the US can contribute to much better balance in the region‟. This was further stressed by the then-Defence Minister Pranab Mukherjee to the Shangri-La Dialogue community in Singapore in June 2006: „In the AsiaPacific region, India‟s growing ties with the United States and other countries in North and South America bring with it a commensurate role in the region…India‟s role is crucial for ensuring and maintaining long-term peace, stable balance of power, economic growth and security in Asia‟.8 At the same forum in June 2010, Shivshankar Menon, India‟s National Security Adviser, said that „the security situation in the Straits of Malacca offers a striking example of the success that results from like-minded countries working together, and most important, we need to build the habits and experience of cooperation that will enable us to deal with the unpredictable challenges that will certainly confront us‟. India‟s Prime Minister Dr Manmohan Singh had discussions with President Obama in Bali after the latter‟s address to the Australian parliament. He is reported to have told the US president that „there are today no irritants whatsoever in our working together in a multiplicity of areas…bilateral, regional and global issues‟.9 The strategic communities in India and the US are increasingly reverting to the use of a new phrase „the Indo-Pacific‟ in their analyses and discourses covering Indian Ocean and the Asia-Pacific regions. Even the Secretary Clinton used this phrase in October 2011, because according to her, „the Asia-Pacific has become a key driver of global politics, stretching from the Indian subcontinent to the western shores of the Americas. The region spans two oceans – the Pacific and the Indian – that are increasingly linked by shipping and 7

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India‟s Prime Minister had pointed out China‟s assertiveness as not being understandable, during his state visit to US. See CNN IBN You Tube clip on 23 November, 2009, http://www.youtube.com/watchv=OWEO9 eQaus4&noredirect=1. Accessed on 21 November, 2011. This was reported in the Wikileaks cables also, Times of India, 4 September, 2011. In another Wikileaks documents, India‟s Ambassador Dr S. Jaishankar was quoted to have sought US help in dealing with an assertive and aggressive China. Indian Express, 5 December, 2010. As quoted in Muni, ibid. The Tribune, Chandigarh, 19 November, 2011.

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strategy‟.10 Herein lies the geo-strategic rationale for growing cooperation between India and the US, especially in security matters. An assertive and expanded US presence in the Asia-Pacific region may be harnessed by India in three specific ways. One, this presence ensures that China will not be able to dominate East Asia and there may be no emergence of G2 (US-China duopoly) in Asia. There is a view shared by many that it was the US retreat from Asia that emboldened a rising China to be assertive. Therefore the US re-engagement in the Asia-Pacific will moderate China in its dealings with the Asian countries. In coping with the US assertive and active engagement in the region, China will have less time, effort, and energy to spare, but more caution to observe in its own assertion in the region. China, on its part, suspects that through its renewed activism, US is pursuing a strategy of containing China in the region and India is gradually being enlisted as a partner in this strategy. To a certain extent, this Chinese concern, whether real or perceived, provides India with a „US card‟ in its relations with China. The fear of Indo-US collaboration, that is frequently voiced in the officially sponsored Chinese media, may keep China soft and, hopefully accommodative, towards India on some of the critical and sensitive bilateral issues so as to avoid creating any reason that could drive India closer to the US. Both the US and India are careful in saying or doing anything to suggest that their mutual cooperation is directed against China or any other country, but the two together decisively tilt the Asian balance in their favour, to the detriment of China. Secondly, repeated US references endorsing India‟s aspirations for playing its larger and legitimate role in Asian and world affairs has been taken note of in New Delhi for the past decade. India would carefully assess as to what extent the new Obama doctrine will provide a concrete boost to India‟s aspirations in the region. On its own, India has been increasing its economic and strategic engagement with various countries of the region. India looks towards cooperation with the US in the Asia-Pacific region as a facilitating factor in expanding and consolidating this engagement with the key regional players like Japan, Australia, the Republic of Korea and members of ASEAN. This will give India greater confidence and initiative in extending its strategic reach to and strengthening its trade and investment regimes with the countries of the region. India‟s growing strategic partnership in the recent years with the strong US allies like Japan, Australia and South Korea could not have been possible without strategic synergy between India and the US. One wonders if there is any invisible US factor in instances like Australia‟s latest decision to favourably review and revise its policy of uranium exports to India.11 Following on the coordinated tsunami relief operations in the Indian Ocean in December 2004 with the US, Japan and Australia, India has

10 11

See, Shyam Saran, „Mapping the Indo-Pacific‟, The Indian Express, 29 October, 2011. Disapproving of the Australian Prime Minister Julia Gillard announcement on the review of uranium export policy to India, Gavin Marshall wrote „Blindly following bad US policy is neither in our best interest nor the world‟s‟. The Sydney Morning Herald, Sydney, 21 November, 2011.

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been willing to undertake more of such coordinated actions for peace and stability in the region. There have been some reservations, which may be melting away in due course of time, on the part of Japan and the Australia, as they do not want to abet Chinese suspicions of joining any grand US strategy to contain China. All these countries, along with Singapore, however, participate in the bilateral Indo-US Malabar naval exercises since 2007 that is being closely monitored by China. There is also a new US move to institutionalise a trilateral meeting of US-Japan-India to discuss regional issues. The first meeting is expected to be held before the end of 2011. Thirdly, new opportunities for India and the US to collaborate in the Asia-Pacific region will also reinforce India‟s broader bilateral cooperation with the US in the areas of technology transfers, military modernisation and economic development. India also looks towards greater support from the US in the areas like its permanent membership of the UN Security Council, joining the strategic global decision making groups like the Nuclear Suppliers Group and participation in G20. Greater Indo-US partnership in the Asia-Pacific region will also ensure, as India may like to expect, greater US support for India‟s concerns and priorities in other Asian regions like South and Central Asia.

India’s Concerns Whatever be the opportunities that arise from the new Obama doctrine for strengthening Indo-US strategic cooperation in the Asia-Pacific, they come wrapped in concerns, anxieties and challenges for India. To begin with, India has to guard against any compromise in its foreign policy autonomy while working together with the US in maintaining Asian balance. It also has to ensure that the countries of the region do not view India as playing just a second fiddle role to the US. In spelling out his Asia-Pacific doctrine, President Obama has clearly underlined the continuing leadership role for the US in the region. In this leadership role, the prospects of the US intervention and encroachment cannot be ruled out, though US leadership seems to be cautious of the fact that such moves driven by the habit of unilateralism have not served the US interests best in the past. It also remains to be seen as to what extent, the US role will go in support of its military alliances in the region and the ideological agenda of the doctrine. In the unlikely situation of China taking any offensive action against the countries of the region, like Philippines or Vietnam, under the pressure of its nationalist and hardline constituencies, as also post-2012 new leadership, what would be the US reaction? Vietnam may not be the formal US ally, but Philippines is. It is not clear if the USPhilippines mutual defence commitments entered under the 1951 treaty would apply to any conflict involving the Philippines in South China Sea. India may be expected to take the US side if such conflicts or even tensions are precipitated, but will India find it possible and prudent to do so? It‟s not only India but other regional countries like Malaysia and Indonesia 6


have also expressed reservations that the Obama doctrine, as it is defined with emphasis on military alliances, will generate tensions in the region. Indonesian military is acutely concerned that frequent naval movements and military exercises by the estimated 2,500 US marines, based close to Indonesian shores in northern Australia, may make them uncomfortable. Likewise, India has to take into account that increased US activities in the region may not impinge adversely on its own strategic space. India shares with the US, values of democracy, freedom and human rights. But it does not approve of the US methods to protect and promote these values through intervention and regime change. India has not endorsed the use of force, though sanctioned by the UN under the „responsibility to protect‟ in situations like Libya. It has had serious differences with the US on forcing Myanmar on the path of democracy through sanctions and diplomatic pressures. In Southeast Asia, the understandings and practices of the values of democracy, freedom and human rights are vastly different from those of the US and Europe. Any aggressive moves by the US in the Asia-Pacific region in support of these moves will not go well for India. Like many other countries in East Asia, India is also concerned if any intensification of US-China tensions in the region result in adversely affecting the evolution and growth of institutions like the EAS or the ASEAN architecture, which may become the main playground of competition between these two major powers. The challenge that the new US strategy of Asia-Pacific assertion poses before India is that its support for this strategy should not lead to increase tensions and hostilities from China. As already mentioned, China views the prospects of any Indo-US collaboration in Asian affairs as detrimental to its own core interests in the region. Any perception of such collaboration may harden China‟s already un-accommodative instance on critical bilateral issues like the unsettled border in the Himalayas and lead China to intensify its competition and containment of India in its sensitive South Asian neighbourhood. This may also adversely affect Sino-Indian cooperation in various other areas like trade and economic engagement, climate change issues and search for multi-polar world. India would be very keen to avoid such developments. After meeting the Chinese Prime Minister Wen Jiabao in Bali, Dr Singh remarked: „We are committed to developing the best of relations with China…strategic and formulated relationship. We are neighbours and also to large extent great economies of Asia. We should cooperate on the issues regional, bilateral and global.‟ In these discussions, India reiterated its position on energy cooperation with Vietnam, and explained the raising of defence forces in Arunachal Pradesh as China entertains reservations on both these issues.12

12

Report by CNN IBN TV network. http://ibnlive.in.com/news/start-ntrade-but-within-our-laws-pm-toobama/203568-3.html. Accessed on 21 November, 2011. Also see „assertive India‟.

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Lastly, the US policy of „drawdown‟ in Afghanistan and assertive presence in the AsiaPacific has opened new areas of active engagement and initiatives in India‟s Asia policy. This was evident in the conclusion of India-Afghanistan strategic partnership Agreement concluded in October 2011, and this will be evident in the US expectations out of India in the Asia-Pacific. In this entire Asian arc, India‟s competition is directly with China which has far more resources and focused plan of action than any other country including India. India‟s democratic decision making, where diverse interests and stakeholders have to be kept on board on every significant policy initiatives and move, constitutes considerable constraints. There are also constraints of economic resources, bureaucratic manpower and institutional resilience that are required to be invested in pursuance of foreign policy aspirations and strategic outreach. Besides its own resource constraints, India is also not unaware of the economic burden that Obama‟s doctrine will have to carry for its effective execution. An American scholar Robert Kelly has argued: The US is now borrowing 40 cents of every dollar it spends; the deficit is US$1.5 trillion (160% of South Korea‟s entire GDP); the debt is almost US$10 trillion, the IMF predicts. America‟s debt-to-GDP ratio will exceed 100% by the end of the decade and integrated US national security spending tops US$1.2 trillion, 25% of the budget and 7% of the GDP. These are mind boggling figures that all but mandate some manner of US retrenchment from its current global footprint. 13 In view of these constraints, India‟s response to the US expectations in the Asia- Pacific will be cautious, careful and issue based. That may not be necessarily damaging to the Indo-US strategic partnership, as the US seldom expects a complete compliance of its strategic priorities by India. The Indo-US strategic partnership has evolved along with their mutual differences on a range of issues including Iran, those related to the Arab Spring, Pakistan and the nuclear liability provisions. It will accordingly continue to evolve even when differences crop up between India and the US on critical and sensitive strategic issues in the Asia-Pacific region. .....

13

As quoted in M.K. Bhadrakumar, „Hindu art of double hedging against China‟, http://atimes.com/atimes/prin tN.html. Accessed on 19 November, 2011.

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ISAS Insights No. 145 – 30 November 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

WTO Accommodates RTAs: A Triumph of Pragmatism over Pristine Theory Iftekhar Ahmed Chowdhury1

The World Trade Organization (WTO) champions global free trade on the basis of a set of universal norms and principles, developed through consensus. But of late as it falters on delivery, as in the stalled Doha Round of negotiations, members are reaching their own arrangements through Regional Trading Arrangements (RTAs) to advance their perceived commercial interests. This is particularly true of Asia and the Pacific region, as evidenced in the Trans-Pacific Partnership (TPP) reached at the recent APEC (Asia Pacific Economic Cooperation) Summit in Honolulu. Resistance to this inexorable phenomenon would be futile, and so the WTO, whose need still obviously exists, is doing well by tweaking its fundamentals to accommodate this phenomenon through coexistence and coherence, as indicated in its 2011 Report.

Introduction The WTO rests on a tripod. Those familiar with the laws of physics will be aware that an object is most stable when it rests on three legs. Is what is true of physics, also valid for trade? Testing it would be a worthwhile intellectual challenge. The first of the triad that holds up this champion of global free-trade, with near-universal membership of 153 with Russia now also on the cusp of joining, is the Multilateral Agreement on the Trade in Goods (including GATT 94 and associated agreements). The second is the General Agreement on 1

Dr Iftekhar Ahmed Chowdhury is Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous institute at the National University of Singapore (NUS). He was the (Foreign Advisor) Foreign Minister of Bangladesh from 2007-2009. He can be contacted at isasiac@nus.edu.sg. The views expressed are those of the author and do not necessarily reflect the views of the Institute.


Trade in Services, or GATS. The third is the Agreement on the Trade-Related Aspects of Intellectual Property Rights or TRIPS. It is noteworthy that the last two distinguishes it from its predecessor GATT which only dealt with goods. But this has not absolved the WTO from being still seen by many as a „rich man‟s club‟ with concomitant passionate opposition.

Underlying Principles Like any other multilateral system, the WTO is also governed by a set of principles that form its essence. The first of the tripod, the Trade in Goods, has four basic rules. The first is that it is only through tariffs that protection can be provided to domestic production against foreign competition, and the use of quantitative restriction, though with some exceptions is prohibited. The second is that those tariffs should be reduced, and Non-Tariff Barriers (NTBs) eliminated, and the tariffs so reduced bound against any increases. The third is that each member must accord all others „Most Favoured Nation‟ (MFN) treatment, though noteworthy are exceptions provided by Regional Trading Agreements (RTAs) and the Generalized System of Preferences (GSP). The fourth is that no distinction can be made between imported and domestic productions in levying taxes or applying regulations, i.e. „national treatment‟ (NT) must be universally accorded. The second leg of the tripod has to deal with GATS. Their characteristics are intangibility and invisibility, as opposed to the visibility of goods. The WTO has recognised over 150 such service sector activities. These range from banking, insurance and telecommunications to recreational, cultural and sporting, comprising nearly 30 per cent of all contemporary trading. GATS has a framework for discipline in the four modes in which trade in services take place. These are, Mode-1, cross-border supply: Mode-2, consumption abroad: Mode-3, where suppliers move to territory of consumers: and, Mode-4, which involves movement of „natural persons‟. The principles of MFN and NT also apply. The third and last leg involves TRIPS. The objects of intellectual property are the creation of human minds, and Intellectual Property Rights (IPRs) pertain to those of the creators of innovative or artistic works. These cover copyrights, patents, industrial designs, trademarks and other such signs of product distinction that generate consumer loyalty. TRIPS complements other agreements under the World Intellectual Property Organization (WIPO). It covers those aspects of intellectual property issues related to trade, and indicates minimum standards and periods for protection that are legally enforceable. As with goods and services, the rules of MFN and NT are applicable. The WTO system thus constitutes a variety of multilateral legal instruments. It is to be treated as a „single undertaking‟ subjecting all, in one stroke, to all its provisions, norms and rules. The responsibilities, however, are varied as some WTO members enjoy „Special and 2


Differential Treatment‟ (SDT) because of their low level of economic development. In theory, decision-making is by consensus which could at times be irksome as Georgia holding up the Russian membership, but in reality, the shots are called by the big players, huddled together with the Director General, currently Pascal Lamy of France , in what is called the Green Room. Changes to rules of trade are brought about through rounds of negotiations. The current one, called the Doha Development Round, has reached an impasse because of some fundamental differences mainly between the developed and emerging economies. The epithet „Development‟ in the Rounds name was meant to mollify the poorer countries who, however, remained entirely unconvinced as to its genuineness. Everyone pays lip-service to the round, but no one seems overly anxious for its conclusion, except perhaps for the WTO Director General and his staff of 640 persons.2

Enter FTAs Unsurprisingly, with the Doha Round in limbo, countries are anxious to make the best trade deals they are able to, particularly with their major trading partners. The result has been a spate of RTAs. This is particularly true of Asia now, on who‟s rising economic clout the attention of the world is focused. To be fair though the European Free Trade Agreement (EFTA), and the European Union itself must be considered among the earlier and most important RTAs, though with multiple goals, like the North American Free Trade Agreement (NAFTA), a lesson Asia seems to have learnt well. Logically they appear to erode, and indeed to some extend do, the global principles enunciated by the WTO. But the WTO‟s position appears to be that if the RTAs are inevitable, one might as well „relax and enjoy‟. Indeed the WTO allows for such derogation, perhaps designed earlier to fit in the major European and American players, through GATT Article XXIV and GATS Article V, though the language has been kept deliberately vague. The Doha Round actually endorsed those, adding some clauses to underscore transparency. The idea appears to be „Don‟t ask too much, don‟t tell too much!‟3 The intertwining understandings are often seen as a „spaghetti bowl‟ or „noodle bowl‟ in Asian parlance, a phenomenon that has sorely perturbed unabashed votaries of pristine free trade like Jagdish Bhagwati, who has called it a „fool‟s way of doing business‟.4

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3

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Information and analyses provided above are based on the personal experience of the author who had served as Ambassador and Permanent Representative of Bangladesh to the WTO between 1996 and 2000. He was also Chairman of WTO Trade Policy Review Body, and of the WTO Committee on Trade and Development. Gary Clyde Hufbauer and Jeffrey J. Schott, „Fitting Asia-Pacific Agreements into the WTO system‟ .Paper presented at a Joint Conference of the Japan Economic Foundation and the Pearson Institute for International Economics, Washington DC, 27 November 2007. „Reshaping the WTO‟, Far Eastern Economic Review, (January/February 2005).

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Asia-Pacific Takes the Lead Rules require that the WTO is notified of RTAs, separately for goods and services. Between 2000 and 31 December 2010, 484 RTAs were notified to the WTO out of which 293 were in force.5 Contemporary RTAs tend to want to broaden and deepen their coverage becoming more and more ambitious and comprehensive including services, investments, trade facilitation, government procurement, intellectual property, electronic commerce and even labour and environment. Some are bilateral, comprising little more than existing WTO principles, such as the one of Pakistan‟s, according of MFN to India (reciprocating India‟s 1996 WTO-centered decision), but announced with much fanfare obviously because of its political implications as a „tectonic shift in bilateral relations‟.6 At the two-day Seventh International Conference on South Asia, organised by the Institute of South Asian Studies (ISAS) in Singapore on 23 and 24 November 2011, Ambassador Shyam Saran stated that it had impacted the South Asian Free Trade Agreement, whose progress otherwise is unremarkable, with a „new energy‟. Recent attention is on Asia and the Pacific, given the importance of the region in politics and economics. In consonance with India‟s „Look East‟ or „Look and Engage East policy‟, an important development is India‟s several trade arrangements with the regional countries. Worth particular mention is the India-ASEAN (Association of Southeast Asian Nations) agreement, which received an impetus during Prime Minister Manmohan Singh‟s visit in November to the region and to the Bali Summit. As of now, the Agreement is on goods, trade reaching US$50.33 billion in 2010 and expecting to grow to US$72 billion in 2012. But it is the services sector that is key to India, contributing over 55 per cent of its GDP, but Philippines a strong regional player in the area, is somewhat chary and 10 rounds of talks have not broken the logjam.7 India has also signed not „free trade‟ but „Comprehensive Economic Cooperation Agreement (CECA)‟ bilaterally with Singapore and South Korea in 2005 and 2009 respectively. Since then, with Singapore, bilateral trade has doubled to reach US$17.4 billion in 2010-2011.8 The fact that the CECA with South Korea is more political is evidenced in that it is more „cautious‟ and less „tariff slashing‟ than Korea‟s FTA‟s with Europe and the US, for instance.9 The latest in the series was the CECA with Japan, signed in February 2011, said to „hold promise‟ particularly in the important services sector.10 5 6

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8 9

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Most statistics in this respect are cited from „WTO Annual Report 2011‟, Geneva, 2011. Shahid Javed Burki, „A New Paradigm‟, Express Tribune, 6 November 2011. http://tribune.com.pk?story/2 88495/a-new-paradigm/?print==true. Accessed on 11 November 2011. Economic Times, 13 November 2011. http://articles.economictimes.indiatimes.com/2011-09-18/news/3017 2113_1_india-asean-. Accessed on 13 November 2011. Ravi Velloor, „The island republic and the South Asian giant‟, The Straits Times, 20 November 2011. Matthew Weigand, „Korea , India sign cautious FTA‟ Korea IT Times 12 August 2009. http://www.koreaittimes.com/story/4476/korea-india-sign-cautious fta. Accessed on 21 November 2011. C.P. Ravindranathan, „FTA with Japan holds promise‟, Business Line 21 June 2011. http://www.thehindubu sinessline.com/opinion/article2120935.ece?homepage=true. Accessed on 23 November 2011.

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China has emerged as a major driver of regional RTAs, despite ironically, having undergone 11 years of intense negotiations to join the WTO, which it did in 2001.It has since linked up with the ASEAN, and thereafter with many others but their thrust appears political rather than economic, and according to one analyst, as „less threatening to the world trade system than they appear‟.11 Indeed at the recent APEC Summit at Honolulu, Chinese President Hu Jintao actually endorsed WTO values, when, anticipating US President Barack Obama‟s initiative for a trans Pacific mega pact, to which China was aloof, obviously for political reasons, he said: „We should uphold the multilateral trading regime and deepen regional integration.‟12 He actually wanted the Doha round to reap an „early harvest agreement within the year‟, mainly for giving tariff-free and quota-free access to products of the least developed countries, or LDCs 13 (This obviously has a political overtone as the LDCs are usually roundly ignored by the major RTAs). The big story emerging out of Honolulu was the new free-trade agreement „spanning the Pacific‟, called the Trans-Pacific Partnership‟(TPP)14. It involves Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, the US and Vietnam. A potential market of 500 million people of booming economies, accounting for 61 per cent of the total US goods export to the world, it describes itself as a „21st century agreement‟ including such new issues as green technologies and the digital economy. If brought to fruition, it will dwarf the European Union. Ambitiously it aims to conclude negotiations by next July, significantly close to the US elections. Japan has said it is interested, but for a country that slaps 800 per cent tariff on rice to protect its farmers, it is difficult to see how, though not why, if the goal is political. China, as we have seen, is not amused, nor Russia, and judging by their immediate reactions, they, particularly China, may see this as a ploy to „squeeze‟ it out of Asian trading arrangements.15A media reaction from China, reflected in the „People‟ Daily‟ was: „Using a new mechanism of cooperation to replace an existing one, will seriously harm [emphasis mine] the East Asian (economies) and the global economy.‟16 The Indonesian President, Susilo Yudhoyono, with an eye on China, has inserted a modicum of circumspection: „New power centres are growing rapidly and power relations are changing and becoming more fluid.‟17 The Chinese will need convincing that „it is not “a fight” but „an opportunity‟18. 11

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13 14 15 16

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Richard Pomfret, „Asian Regionalism: Threat to the WTO-based Trading System or Paper Tiger?‟, Vox (22 June 2007). http://voxeau.org/index.php?q=node/309.Accessed on 27 September 2010. Reuters, 13 November 2011.http://www.reuters.com/article/2011/11/12/us-apec-idUSTRE7AB12920111112 Accessed on 13 November 2011. Business Times, 14 November, 2011. This expression, and the immediate following details, are taken from, The Straits Times, 14 November 2011. Financial Times, 14 November 2011. Cited in, Michael Richardson, „US must sell Trans-Pacific deal to Asia‟, The Straits Times, 21 November 2011. Cited in, David Pilling, „How America should adjust to the Pacific Century‟, Financial Times, 17 November 2011.

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There is no evidence to suggest that this is happening, or is about to happen. On the contrary, the reverse is more likely. Indeed irked, China is seeking to „counterbalance‟ the TPP with a trilateral FTA of its own with Japan and South Korea!19 A major problem now may be a surfeit of RTAs, many with much unfinished business, and some seen as more worthwhile to pursue the laid-down goals of key ones like the integration of the ASEAN itself, in order to be able to compete with China.20

From Coexistence to Coherence The plethora of RTAs is not to deny the usefulness of the WTO even at these times. First, the WTO does uphold a set of global norms and values; second, it provides all members, strong and weak, large and small, a platform to deliberate on trade issues of interest to them; third, its trade policy review mechanism actually renders immense service, through peer reviews, to sharpen and hone the members‟ trade policies; fourth, the theoretical acceptance of the principle that trade is linked to development is a positive global normative advance; fifth, the idea that uneven level field must be acknowledged in the market place is also novel and positive; and finally, the WTO does accord effective technical assistance to members that require it. So in the foreseeable future, even the most ardent proponents of RTAs would not negate the WTO, indeed would like them to co-exist.21 In fact, the WTO wants to do more. Its latest Report of 2011 clearly signals a desire to embrace the phenomena of RTAs and, indeed, move from coexistence to coherence. This „embracing [of] the irresistible‟, as an analyst Peter Gallagher calls it, is wise. 22 The RTAs push for much the same values as the WTO, and concepts such as facilitating the supply chains, qualification and accreditation of service providers or investment and competition policies hold similar (if not always same) interest for the WTOs. So deepening existing domains of global trade could be termed „WTO +‟ and widening them to those it would like to cover, „WTO-X‟, formulating appropriate agenda to incorporate them.23 This accommodation of pragmatism with pristine theory would call for some innovative thinking, and WTO should be in possession of the intellectual wherewithal to muster the same. Also as a „rising‟ Asia breaks new paths in the journey to reconstructing or contributing to a trading architecture more in line with its contemporary aspirations, one is reminded of a Spanish

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Laura Meckler, „Obama Sets Asia Agenda of His Own‟, Wall Street Journal, 21 November 2011. The Straits Times, 23 November 2011. Raymond Atje and Pratiwi Kartika, „A Bumpy Road Toward ASEAN Economic Community 2015‟, The Global Economic Crisis: Implications for ASEAN , (ISEAS Report No.10, Singapore), p 126.. See, Iftekhar Ahmed Chowdhury, „WTO and the RTAs: How the „Spaghetti-bowl‟ Impacts on Global „Trade-Meal‟, ISAS Working Paper No. 118, 6 December, 2010. http://petergallagher.com.au/index.php/site/article/wto-and-ptas. Accessed on 12 November 2011. Ibid.

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saying, that Henry Kissinger cited:24 „Traveler, there are no roads. Roads are made by walking.â€&#x;

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Henry A. Kissinger, Diplomacy (New York: Simon & Schuster, 1994), p. 835.

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ISAS Insights No. 146 – 6 December 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

India and China’s 12th Five Year Plans: A Comparison of Changing Priorities Suvi Dogra1 Abstract China’s 12th Five-Year Plan (FYP) was released in March 2011. The 12th FYP sets direction for national development for the 2011-15 period aiming to restructure the economy by encouraging domestic consumption. The Planning Commission of India, too, released ‘An Approach to the Twelfth Five Year Plan (2012-2017),’ a paper that sets the tone for the 12th FYP paper next year. India’s approach paper calls for ‘faster, sustainable and more inclusive growth’. The two documents set out the key indicators of directions and changes in the development philosophy of governments in both China and India. While there are similarities in objectives, the proposed strategies appear to be quite different. This paper attempts to compare and contrast the similarities and differences in the planning process of the two Asian giants based on the text of the FYPs of both China and India.

The economic march of both India and China since early 1990s and 80s respectively has been the subject of much research and analysis. Both the countries began their industralisation process from low-starting points having lagged behind bigger global economies for decades. To begin with, both the countries had similar economic structures with a large public sector and heavy dependence on agriculture before each country underwent a phase of economic reforms. These economic reforms have been supported and directed by the Five Year Plans (FYPs) in each country. FYPs have served as blueprints of national strategy that provide 1

Suvi Dogra is Research Associate at the Institute of South Asian Studies (ISAS), an autonomous institute within the National University of Singapore (NUS). The author can be reached at isassuvi@nus.edu.sg. The views expressed are those of the author and do not necessarily reflect those of the institute.


goals and set targets for economic and social development in both India and China.2 The mapping out of policy frameworks over five-year cycles has played a crucial role in shaping each country’s progress and charting the course towards higher growth. In March 2011, China’s National People’s Congress (NPC) approved the 12th FYP. Later, in August 2011, India’s Planning Commission developed an Approach paper for charting India’s 12th FYP due in 2012.3 China’s 11th FYP (2006-2010) was viewed as a major milestone in China’s policy framework as the country moved away from a focus on growth at any cost to a more balanced and sustainable course of growth. In China’s 12th FYP, the focus has shifted from ‘speed of growth to quality of growth’ as well as from enumerating concrete production targets to ascertaining broader principles.4 The 12th FYP approach paper for India has deployed several macro‐economic techniques to examine the feasibility of targets in terms of internal consistencies and inter‐sectoral balances. In a first, the Planning Commission is also weighing the chances of deploying scenario mapping technique for inculcate flexibility in 12th FYP to adjust unexpected events especially exogenous factors such as inflation, land and environment issues that would affect projects. The strategy may also include intangibles such as public and market sentiments, political will and governance issues among others.5 In the approach paper for the 12th FYP of India, the Planning Commission has set two alternative target scenarios for economic growth for the country. The first target of nine per cent growth is a repetition of the previous FYP, which is yet to be achieved. The second target however is a higher one at 9.5 per cent average growth. The sectoral growth rates indicated in Table 1 are consistent with the nine per cent and 9.5 per cent alternatives. The nine per cent target requires a significant acceleration in growth in agriculture, electricity, gas, water supply and also manufacturing. Agricultural growth has always been an important component for inclusiveness in India, and recent experience suggests that high GDP growth in the secondary and tertiary sectors without a matching contribution from the agriculture sector may lead to distortions in income generation process. 2

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The comparison of the two FYPs is more to understand the changing strategies for growth by the two countries by comparing the objectives stated in China’s 12 th FYP and India’s Approach paper for 12 th FYP. Since India is yet to finalise its 12th FYP document and it is still in the Approach paper stage, a target by target comparative analysis would not be accurate. Hence only the key objectives have been taken into consideration for a broad brush comparison. Any reference to the 12 th FYP of India refers to the Approach paper. All references to China’s 12th Five Year Plan (FYP) and India’s Approach Paper to its 12th FYP in this paper are from ‘China's Twelfth Five Year Plan (2011-2015) - the Full English Version,’ in http://cbi.typepad.com/china_direct/2011/05/chinas-twelfth-five-new-plan-the-full-english-version.html and http://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdf respectively. Accessed on 01 November 2011. John Wong and Lye Liang Fook, ‘China’s National People’s Congress endorses the 12 th Five-Year Plan: Laying a stronger foundation for socio-economic progress,’ EAI Background Brief No. 608. Devika Banerji, ‘New Strategy for 12th five year plan to include intangibles and uncertainties,’ The Economic Times, 11 November 2011. Accessed on 15 November 2011.

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Table 1: Sectoral Growth Rates � Previous Plans and Target for 12th Plan of India 11th 12th Plan Plan 9 % target 9.5% target Agriculture, forestry & fishing Mining & quarrying Manufacturing Elect. gas & water supply Construction Trade, hotels etc. + Transport, communication, storage Financing, insurance, real estate & business services Community, social & personal services Total GDP Industry Services

3.2* 4.7 7.7 6.4 7.8 9.9

4.0 8.0 9.8 8.5 10.0 11.0

4.2 8.5 11.5 9.0 11.0 11.2

10.7

10.0

10.5

9.4

8.0

8.0

8.2 7.4 10.0

9.0 9.6 10.0

9.5 10.9 10.0

Such growth is likely to come from productivity increase and improved technology (which the 12th FYP Approach Paper recommends) rather than increased labour intensity of production. Thus, the main onus for providing additional jobs to the growing labour force will rest on manufacturing and construction and on the services sectors. The target set for the mining sector, mainly reflecting additional production of coal and natural gas, is also very demanding, but is necessary to meet the primary energy requirements without resorting to excessive imports. Taking the growth rate to 9.5 per cent would require much faster growth in the manufacturing, as well as in electricity, gas and water supply sectors. The feasibility of achieving such large acceleration in key sectoral performance needs to be considered carefully before the growth targets for the 12th FYP are fixed. This is particularly true for the energy sector where supply constraints could be severe. This paper identifies and contrasts the key similarities, differences and unique features of the 12th FYPs of India and China and tries to highlight the challenges associated with the goals stated in the two plans.

Similarities in Objectives In terms of economic targets which are key elements of the FYPs, China has recognised that double-digit growth may be challenged by external factors and has thus maintained a conservative GDP target of seven per cent even as some industry reports suggest an eight per cent growth. China’s 11th FYP too had a conservative target of 7.5 per cent even though the

3


actual growth was around 11 per cent.6 India, on the other hand, aims to grow at nine per cent annually on average and also has an alternate scenario of 9.5 per cent growth. The economic performance of China has been supported by its strong ‘demographic dividend’ of a large workforce. In just 15 years (from 1995 to 2010) China was able to leverage its ‘demographic dividend’ to build the world’s second-largest economy after the U.S.7 India’s demographic window is just opening and the country needs to capitalise on the opportunity. Both countries are producing more employable graduates each year. Perhaps with this in mind, both the countries have envisioned job creation as an important objective for the future of both the countries. China targets more than 45 million jobs in the urban areas with the urban registered unemployment to be limited to no higher than five per cent. India’s focus, however, is on the manufacturing sector, an area India has been aiming to grow further and transform it into a globally competitive sector. With this in mind, India’s FYP paper has envisioned a target of creating 100 million additional jobs in the manufacturing sector by 2025 in order to considerably absorb the 250 million additional income seekers. This target is also in line with India’s skill policy vision. Inflation has been an issue both countries are grappling with. China’s plan does not set a target but hopes to keep prices stable whereas India hopes to bring down its WPI inflation rate to 4.5 to 5 per cent. The rate of urbanisation in both India and China has accelerated faster than they can cope with. The urbanisation phenomenon has drawn significant attention in both countries and both FYPs acknowledge the challenges of it. These challenges have also been acknowledged in earlier plans without a significant change in strategy. For instance, the approach paper notes that India’s urban population is estimated to increase from 400 million in 2011 to about 600 million or more by 2030. China’s urbanisation rate on the other hand is expected to reach 51.5 per cent up four percentage points from the previous plan. In the field of innovation, both the plans recognise the pressing need to promote innovation in order to achieve greater competitiveness in the global economic space. The Chinese plan has put the total expenditure on research and development to account for 2.2 per cent of GDP. The Indian plan while does not define innovation in numbers and data, it spells out the aim to expand Research and Development (R&D) as well as other innovations especially in the focus area of Indian manufacturing. 6

7

KPMG, ‘China’s 12th Five-year Plan: Overview,’ http://www.kpmg.com/CN/en/IssuesAndInsights/Ar ticlesPublications/Publicationseries/5-years-plan/Documents/China-12th-Five-Year-Plan-Overview201104.pdf. Accessed on 11 November 2011. Lakshman Krishnamurthi and Sugandha Khandelwal, ‘Why India’s Demographic Dividend Will Lag China’s,’ The Wall Street JournaI, 08 April 2011, http://blogs.wsj.com/indiarealtime/2011/04/08/indiajournal-why-indias-demographic-dividend-will-lag-chinas/. Accessed on 14 November 2011.

4


Both Indian and Chinese economies have grown from agrarian roots, even though the contribution of agriculture in the GDP has declined over the years. Agriculture continues to be an important sector for both India and China. China sets a target of annual grain production capacity to be no less than 540 million tons. Indian plan sets a target of four per cent average growth in agriculture. The estimate of foodgrains has been put at about two per cent per year and non-food grains (notably horticulture, livestock, dairying, poultry and fisheries) growing at five to six per cent.

Differences and New Priorities India’s 12th FYP in a sense demonstrates that expenditure in the development sector may have to now come from the private sector more than the public sector. The plan has only a small incremental growth of social spending by the government. There needs to be a significant shift in the economic strategy of India with a greater reliance on private sector for the social sector.8 This is in stark contrast to China’s plan which bases itself on building a stronger foundation for socio-economic progress while India looks at faster and sustainable growth without spelling out the government expenditure commitments to the social sector. While the plans of both countries have similar priorities which were discussed in the previous section, there are major differences in approaches to key areas that challenge developing economies. The most important area in this regard is the issue of climate change, environment and clean energy. The 2011 CO2 Emissions from Fuel Combustion Report by International Energy Agency (IEA) puts India and China among the largest emitters. 9 This may seem a no brainer as the positive correlation between higher development and higher consumption of energy is well established. As both the countries continue to grow at above seven per cent rates, the energy consumption is likely to remain high. Further, being nonsignatories of the Kyoto Protocol under the United Nations Framework Convention on Climate Change (UNFCCC), the two countries have often been scrutinised for any practices that may risk the climate balance, China’s 12th plan has come a long way from its 6th FYP which for the first time moved away from mere energy production and consumption targets to improving energy efficiency.10 With this in mind, the Chinese FYP sets out clearly defined targets for dealing with the issues of environment and clean energy. The Chinese FYP has capped the non-fossil fuel to account for 11.4 per cent of primary energy consumption. 8

9

10

Approach Paper to the 12th FYP, Planning Commission Of India, http://planningcom mission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdf. International Energy Agency, ‘CO2 Emissions from Fuel Combustion Report,’ 2011 Edition available at: http://www.iea.org/co2highlights/co2highlights.pdf.Accessed on 15 November 2011. Yuan, Xueliang & Zuo, Jian, 2011.’Transition to low carbon energy policies in China--from the Five-Year Plan perspective,’ Energy Policy, Elsevier, vol. 39(6), pages 3855-3859, June. Accessed on 15 November 2011.

5


Further it intends to cut down water consumption per unit of value-added industrial output by 30 per cent. The overall energy consumption per unit of GDP is to be cut by 16 per cent. The carbon dioxide emission per unit of GDP is envisaged to be cut by 17 per cent. Attention has also been paid to increasing the forest cover and a target forest coverage rate of 21.66 per cent has been set with forest stock to be increased by 600 million cubic meters.11 India’s plan in stark contrast does not define and recognise the challenges of climate change or lay out the objectives as clearly as the Chinese plan even though it does touch upon the need to managing the environment and dealing with climate change. India’s targets in this respect include ones on the issue of water such as securing the ecology of watershed and catchments, Cumulative Environmental Impact Assessments (CEIAs) for vulnerable regions, carrying capacity studies in selected river-basins, maintaining acceptable water quality and quantity through pollution control of water resources, restoration of wet lands/lakes and management of waste water discharge from industrial and commercial establishments into major water bodies. India also flags the issue of clean energy by setting the share of new and renewable energy could go up to 15 per cent by 2020. In terms of direct climate change targets, India plans to further its agenda through the National Action Plan for Climate Change and Expert Group on Low Carbon Strategies for Inclusive Growth Report. The other key feature of the Chinese Plan is the targets of economic restructuring. China has set a target to achieve breakthrough in emerging strategic industries. Further it hopes to make the service sector value-added output to account for 47 per cent of GDP, up four percentage points. Both the plans also recognise and try to address the growing income gap between rich and the poor. The Chinese FYP seeks to improve people’s livelihoods, social infrastructure and safety nets. In this regard, spurring domestic consumption fits into China’s structural adjustment plan for achieving more balanced growth. Improved livelihood targets find a significant place in the Chinese FYP. To this end, some significant goals set under the 12th FYP worth noting are:  Population no larger than 1.39 billion  Increasing the average life expectancy per person by one year,  Pension schemes to cover all rural residents and 357 million urban residents  Construction and renovation of 36 million apartments for low-income families  Minimum wage standard to increase by no less than 13 per cent on average each year.

11

‘China's Twelfth Five Year Plan (2011-2015) - the Full English Version,’ in http://cbi.typepad.com/china_dir ect/2011/05/chinas-twelfth-five-new-plan-the-full-english-version.html and http://planningcommission.g ov.in/plans/planrel/12appdrft/appraoch_12plan.pdf respectively. Accessed on 01 November 2011.

6


The goal of affordable housing ties into China’s target of increasing domestic consumption as cheaper housing would increase the disposable income level for lower-income citizens and promote broader consumer spending.12 Indian FYP doesn’t have similarly defined objectives.

Political Systems, Governance and Reforms By virtue of being the world’s biggest democracy and the second most populous nation, India has realised the need to engage its citizens in the planning process. In preparing the approach paper for the 12th FYP, the Planning Commission consulted citizens, civil society, business associations as well as the media in the country. There is also an understanding that better governance is required for effective implementation and increased accountability of the plans in their entirety and especially the flagship programmes. That said, the approach plans identify the problems in implementation including the larger issues of rampant corruption. On the Chinese side too while there is no mention of democratic and political reforms, there is an emphasis on improving governmental processes, observing the rule of law and curbing excesses in the exercise of power. The FYP has references such as ‘make institutional changes to end excessive concentration of power and lack of check on power,’ ‘resolutely punish and prevent corruption,’ ‘establish a sound operational mechanism for decisionmaking’ among others.13

Challenges Ahead The global economic environment is not very stable and the energy prices will continue to soar. In this scenario setting ambitious growth targets may not seem the best deal for either country, and therefore China’s more conservative GDP target vis-à-vis India’s seems more achievable. Energy is the prime driver of economic growth. To deliver the GDP growth forecast over the next 20 years would require a quadrupling of energy capacity, according to the Indian government. The energy required to fuel infrastructure growth is daunting and is unlikely to be met and would require massive importation of coal and oil. That will raise input costs, leading to significant balance of trade deficits, and crimp GDP growth. In case of China, looking inwards for growth i.e. domestic consumption is the key objective of the 12th FYP. There is a focus in the Chinese Plan on increasing domestic consumption and a move away from an export-led growth model alone. This is perhaps the main challenge for China to set in the transition from an export manufacturing-led economy to a domestic

12

13

Jamil Anderlini, ‘Housing subsidies at heart of Beijing’s ‘new deal’,’ Financial Times, 31 May 2011. http://www.ft.com/intl/cms/s/0/92c6ff5e-8b9e-11e0-a725-00144feab49a.html. Accessed on 10 November 2011. John Wong and Lye Liang Fook, ‘China’s National People’s Congress endorses the 12 th Five-Year Plan: Laying a stronger foundation for socio-economic progress,’ EAI Background Brief No. 608.

7


consumption driven economy by establishing a macro-environment that encourages domestic spending. The fact that both India and China need to weigh in their demographic dividends is a consideration for the success of the five year plans here on. China’s population may age sooner than that of India as its demographic window is expected to close soon. The challenges for China are to move ahead in technology and productivity. While for India, the challenges would lie in skill formation and increasing employment opportunities, the success of any FYP ultimately lies in the ability of the government to implement it and deliver results despite issues of governance, corruption, problems of land and infrastructure among others. That said, goals need to be set and efforts need to be made to put both the countries on the track towards high income developing country and beyond.

Appendix 1: Similarities and differences in 12th FYPs of China and India China- Stronger foundation for Socio-economic progress Economic targets :  GDP to grow by seven per cent annually on average  More than 45 million jobs to be created in urban areas  Urban registered unemployment to be kept no higher than five per cent  Prices to be kept generally stable.

India - Faster, sustainable and more inclusive growth Economic targets:  GDP to grow by nine per cent annually on average  Increase the rate of job creation in manufacturing to create 100 million additional jobs by 2025.  CAD to an average below 2.5 per cent over the 12th Plan period  WPI Inflation Rate : 4.5 – 5.0 per cent.

Economic restructuring  Rise in domestic consumption (moving towards a consumption-led growth model)  Breakthrough in emerging strategic industries  Service sector value-added output to account for 47 per cent of GDP, up four percentage points  Urbanisation rate to reach 51.5 percent, up four percentage points.

Economic restructuring  Restoring fiscal discipline  Rate of fixed capital formation to be improved to around 33.5 per cent of GDP; For public sector 9.1 per cent of GDP.  the cumulative investment in infrastructure is targeted at around $1 trillion  India’s urban population is expected to increase from 400 million in 2011 to about 600 million or more by 2030 Innovation  Expansion of Research & Development (R&D), as well as other innovations, to lift Indian manufacturing to a higher level.  Building an India Inclusive Innovation Fund Managing the Environment  Securing ecology of watershed and catchments,  Cumulative Environmental Impact Assessments (CEIAs) for vulnerable regions  Carrying capacity studies in selected river‐basins  Maintaining acceptable water quality and quantity

Innovation  Expenditure on research and development to account for 2.2 per cent GDP  Every 10,000 people to have 3.3 patents Environment & clean energy  Non-fossil fuel to account for 11.4 per cent of primary energy consumption  Water consumption per unit of value-added industrial output to be cut by 30 per cent  Energy consumption per unit of GDP to be cut by

8


16 per cent  Carbon dioxide emission per unit of GDP to be cut by 17 per cent  Forest coverage rate to rise to 21.66 per cent and forest stock to increase by 600 million cubic meters

through pollution control of water resources  Restoration of wet lands/lakes and  Management of waste water discharge from industrial and commercial establishments into major water bodies is necessary.  The share of new and renewable energy could go up to 15 per cent by 2020 Climate Change  National Action Plan for Climate Change  Expert Group on Low Carbon Strategies for Inclusive Growth Report Farm Sector  Four per cent average growth in agriculture (food grains growing at about two per cent per year and non-food grains{notably, horticulture, livestock, dairying, poultry and fisheries}growing at five to six per cent  Farmer issues arising out of MGNREGA and RKVY schemes to be reviewed.  Separate water management schemes for agriculture.  New Technologies for the Farm Sector  Land and Tenancy Reforms Livelihood/Urbanisation  Seven flagship programmes for rural areas to receive further boost.  Focus areas under MGNREGA - technical capacity at the local level has to be significantly enhanced and rural infrastructure creation  Step up investment in new urban infrastructure assets and strengthen urban governance  Address the basic needs of the urban poor

Agriculture  Annual grain production capacity to be no less than 540 million tonnes  Farmland reserves to be no less than 1.818 billion mu.

Livelihood  Population to be no larger than 1.39 billion  Life span per person to increase by one year  Pension schemes to cover all rural residents and 357 million urban residents  Construction and Renovation of 36 million apartments for low-income families  Minimum wage standard to increase by no less than 13 per cent on average each year

Social management  Improved public service for both urban and rural residents  Improved democracy  Better social management system for greater social harmony  More than 10 per cent of all residents will be registered as community volunteers.

Social management  Emphasis on Social Mobilisation  Strengthening of local (district) planning, supervision and execution  Encouraging an operational framework, which results in PRI and State Government officials working more closely  To improve the design of development schemes taking into account the special characteristics of the region/area/culture  Deepen financial inclusion.  PPP model should be extensively used wherever possible to build commercially viable infrastructure assets.

9


Reform  Encourage qualified enterprises to get listed in stock markets  In-depth reform in monopoly industries for easier market entry and more competition  Improved government efficiency and credibility

Governance and reform  Building Quality and Strengthening Local Institutions  Partnerships with Civil Society  Separation of Delivery and Policy Making Functions  Multi-faceted Approach to Deal with Corruption  Institutional Mechanisms of Conflict Resolution  Public Private Partnerships and Regulatory Reform  Electoral reforms

Appendix 2: China’s Five Year Plans over the years: Plan First Second Third Fourth Fifth Sixth Seventh Eighth Ninth Tenth Eleventh Twelfth

Timeline 1953-57 1958-62 1966-70 1971-75 1976-80 1981-85 1986-90 1991-95 1996-2000 2001-05 2006-10 2011-15

Key feature Stalinist Central Plan Great Leap Forward Agricultural Push Cultural Revolution Post-Mao (Reforms and Opening Up) Readjustment and Recovery Socialism with Chinese Characteristics Technical development SOE Reforms Strategic Restructuring Rebalancing Alert Pro-consumption

Source: Morgan Stanley Investment Management, Stephen S Roach – China’s 12th Five-Year Plan: Strategy vs. Tactics.

India’s Five year plans:* Plan First Second Third

Timeline 1951-56 1956-61 1961-66

Key feature Agriculture led Socialistic Industrial Policy Self reliance in agriculture and industry (Plan affected by wars with China and Pakistan in 1962 and 1965 respectively), price stablisation Fourth 1969-74 Society oriented (education, employment and family planning) Fifth 1974-79 Non-economic variables Sixth 1980-85 Infrastructure (Six per cent per annum growth achieved) Seventh 1985-89 Welfare sector, programmes such as Jawahar Rozgar Yojana Eighth 1992-97 Dismantling license prerequisites and reducing trade barriers Ninth 1997-2002 Agriculture and rural focus Tenth 2002-07 Globally competitive growth Eleventh 2007-12 Employment and social indicators Twelfth 2012-17 Sustainable and inclusive growth *India had three annual plans between 1966 and 1969 Source: Planning Commission Of India, http://planningcommission.gov.in/plans/planrel/fiveyr/welcome.html.

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Appendix 3: Key Development Indicators of India and China (2010) Population GDP growth (annual %) Gross savings (% of GDP) Exports of goods and services (% of GDP) Imports of goods and services (% of GDP) Foreign direct investment, net inflows (% of GDP) Foreign direct investment, net outflows (% of GDP) Manufacturing, value added (annual % growth) Manufacturing, value added (% of GDP) Services, etc., value added (% of GDP) Services, etc., value added (annual % growth) Source: The World Bank Statistics

India 1.2 billion 9.71 % 28.4 % 18.4%

China 1.34 billion 10 % 51 % 29.44%

24.85%

24.78%

1.39%

3.14%

0.76%

1.02%

9

9

15.96%

32.42%

55.35 %

45.89%

9.14%

9.21%

.....

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ISAS Insights No. 147 – 7 December 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

China-India Strategic Economic Dialogue: Avoiding Unavoidables? Amitendu Palit1

Bilateral economic ties between China and India have improved rapidly. Both countries are attaching considerable significance to their economic relationship. This is evident from the decision to hold an annual strategic economic dialogue (SED). The first SED was held in Beijing on 26 September 2011. It focused on several areas where the two countries can meaningfully collaborate such as infrastructure development, energy efficiency and water conservation. However, it avoided discussion on barriers to market access that exporters and service providers from the two countries continue to face in each others’ domestic markets. The paper argues that future SEDs should discuss possible ways for removing these barriers. Till these restrictions persist, growth in bilateral economic engagement will continue to face restrictions.

The bilateral economic relationship between China and India is gradually assuming significant proportions in scale and scope. Rapid growth in trade has been a key driver of the relationship. Having already crossed US$60 billion, trade is expected to increase to US$100 billion, well before the target date of 2015.2 Reaching US$100 billion will not make the trade the largest bilateral trade relationship in the world. But it will still be of a significant economic size, almost as much as the economic size of Vietnam and bigger than those of Iraq and Morocco. 1

2

Dr Amitendu Palit is Head (Development & Programmes) and Visiting Senior Research Fellow at the Institute of South Asian Studies, an autonomous research institute at the National University of Singapore. He can be contacted at isasap@nus.edu.sg and amitendu@gmail.com. The views expressed are those of the author and do not necessarily reflect those of the institute. Joint Communiqué of the Republic of India and the People’s Republic of China, 16 December 2010, Ministry of External Affairs, India; http://www.mea.gov.in/mystart.php?id=100016879&pi d=1921 Accessed on 15 November 2011.


It is difficult to estimate the exact value of bilateral trade since data on trade in services is not available. There are also differences between trade figures released by national agencies from both sides: General Administration of Customs in the People’s Republic of China and the Directorate General of Commercial Intelligence and Statistics (DGCI&S) in India 3. In spite of these differences, however, there is no doubt about trade accelerating rapidly towards the US$100 billion mark, as recently endorsed by India’s Commerce Minister Anand Sharma.4 For both countries, the bilateral economic engagement is being accepted as an increasingly significant relationship. For India, the relationship is particularly noteworthy with China becoming its second largest trade partner, a long distance ahead of the US. During the year 2010-11, India’s bilateral trade (in goods) with China was US$63.1 billion, which was 38 per cent more than India’s bilateral trade of US$45.6 billion with the US.5 Greater trade with China and the latter's emergence as one of India's topmost trade partners augurs well for India’s economic prospects as deeper commercial linkages with the world's fastest growing and largest emerging market implies greater opportunities for the Indian economy. At the same time, it is also a strategic challenge for India to keep up the economic tempo in bilateral ties, since this is a rare occasion when it has to balance good economic ties with lukewarm political ties. For China, on the other hand, India is beginning to emerge as a key market in the Asian region, a market that by virtue of rising consumer incomes offers Chinese producers alternative options at a time when sluggish demand from Western markets is slowing exports and reducing trade surplus. Reducing surplus and making its trade with the rest of the world more balanced is a key objective of China's current macroeconomic policies. However, for ensuring a stable move towards balanced trade, it is preferable to bring down the surplus in a calibrated fashion. Sudden drops in exports from demand fluctuations, while reducing trade surplus, might mean adverse prospects for export-oriented manufacturers and enterprises. China would prefer a steady growth in exports, while expanding imports, for reducing the trade surplus. And this is where a country like India with a wide consumer base and relatively low costs for shipping goods compared to the Western markets, becomes an attractive option for China.

3

4

5

Trade statistics for China are compiled on the basis of calendar year and for India on the basis of financial year. Bilateral trade, as reported in China Statistical Yearbook (2010) is US$43.4 billion. The corresponding figure for 2009-10 reported by the Department of Commerce, Ministry of Commerce and Industry, India, is US$42.4 billion. The figures, however, are for merchandise trade only. See http://www.stats.gov.cn/tjsj/ndsj/2010/indexeh.htm and http://commerce.nic.in/eidb/iecn ttopn.asp. Both accessed on 15 November 2011. ‘India China to achieve Trade of US$100 billion by 2015 Chinese Firm to Invest Rs 2500 crore in Green Energy’, Department of Commerce, Ministry of Commerce and Industry, Government of India. http://www.commerce.nic.in/pressrelease/pressrelease_detail.asp?id=2851 Accessed on 16 November 2011. United Arab Emirates (UAE) was India’s highest trade partner for the year with a bilateral trade of US$67.1 billion. See http://commerce.nic.in/eidb/iecnttopn.asp Accessed on 15 November 2011.


The importance that both countries are attaching to bilateral economic engagement is evident from their deciding to establish a strategic bilateral economic dialogue (SED). India is the only country other than the US with whom China has embarked on such a dialogue. The initiative was decided during the Chinese Premier Wen Jiabao's last visit to India in December 2010. The objective of the dialogue, as declared in the Joint CommuniquĂŠ issued on the occasion, was ‘to enhance macro-economic policy coordination, to promote exchanges and interactions and join hands to address issues and challenges appearing in the economic development and enhance economic cooperation’.6

The First Bilateral SED The first bilateral SED between China and India took place in Beijing on 26 September 2011. The Indian delegation was led by the Deputy Chairman of the Planning Commission, Mr Montek Singh Ahluwalia, and the Chinese delegation was led by Mr Zhang Ping, Chairman, National Development and Reform Commission (NDRC). The SED was keenly watched not only because it was the first of its kind. The dialogue took place at a time when the international community was struggling (as it still is) to find a solution to the debt crisis in Europe. There were expectations that both countries would discuss the situation in Europe and come out with their views on the same. The official minutes of the SED does mention both countries taking note of the world economic situation and the risks in the outlook, particularly those involved with sovereign debts in major developed economies, in an obvious reference to the crisis in Europe. However, both countries refrained from suggesting anything beyond the known and obvious and avoided offering any clues on whether they were considering extension of financial assistance to Europe7. The SED focused on a host of issues pertaining to common concerns, where both countries can look forward to major takeaways from each other's experiences. Energy efficiency and conservation, along with environmental protection, featured prominently in the discussions. These were expected themes of discussion given the similarity of problems faced by China and India in accessing energy and improving its end-use efficiency and also the increasing levels of water and air pollution along with challenges of tackling climate change. The decision to cooperate actively in renewable energy and environment expands the existing institutional cooperation efforts between the two countries on environment, eco-systems and bio-diversity8. The SED also focused on water conservation and development of clean water technologies. Infrastructure development too featured in the discussions as an area where both countries can collaborate with particular focus on railways. Finally improving investment environment between the two countries for facilitating greater cooperation 6 7 8

As in 2 earlier. http://southasiamonitor.org/detail.php?type=pers&nid=1138. Accessed on 22 November 2011. See Palit, Amitendu (2012), China India Economics: Challenges, Competition and Collaboration, Routledge, UK and US; Chapter 2, page 37, for details on earlier collaborations.


between businesses on both sides was also discussed though the specifics discussed in this respect are not available from the minutes. The next SED will be held in India in 2012. The SED marks a positive beginning to consolidation and expansion of economic engagement between two of Asia's largest economies. However, such expansion cannot afford to overlook a few issues that remain unresolved and can obstruct economic exchange. These primarily relate to access (or the lack of it) in each other's domestic markets and are not confined only to difficulties faced by Chinese telecom and power equipment exports to India and pharmaceutical and film exports by India to China. The SED was noticeable for bypassing these contentious issues.

Barriers to Trade: The Unfinished Agenda Despite a remarkable acceleration in bilateral trade in recent years, it still remains difficult for exporters from both countries to gain access in each other's domestic markets. This has much to do with the restrictions retained by both countries for protecting domestic enterprises in different sectors. India’s average tariffs on manufactured (non-agricultural) imports are 10.1 per cent, which are slightly higher than those of China’s (8.7 per cent). India, however, has a ‘bound’ rate of 34.1 per cent, which is much higher than the corresponding rate of 9.2 per cent for China. A higher ‘bound’ rate allows India a much wider band for raising its tariffs if it wants to. This makes room for potential access cramped in the Indian market. Chinese manufacturing exports in particular have been subject to extensive anti-dumping action from India further limiting their market access. During the period 2002-2010, India has initiated 96 anti-dumping actions against China covering almost 200 tariff lines 9. Chinese exports facing anti-dumping actions include organic and inorganic chemicals, photographic products, tanning extracts, plastic articles, rubber products, wood, paper and ceramic products, textile products, iron & steel, glass and aluminium products, machinery & mechanical appliances, electric machinery, vehicle parts and optical instruments. High incidence of anti-dumping duties has been driven by the Indian industry's worries over loss of space in the domestic market from the unending deluge of cheap Chinese exports. The growing imbalance in goods trade with China has further accentuated these anxieties. While tariffs and anti-dumping duties are measures restricting access of Chinese exports in the Indian market, Indian exporters face a different variety of restrictions in the Chinese market through non-tariff barriers (NTBs). These NTBs include technical standards, safety requirements, phyto-sanitary measures, certification procedures, environmental risk analysis, quarantine permission requirements, delays in obtaining import licenses, customs procedures, re-inspection and packaging regulations.

9

Ibid; Chapter 3, page 66.


Pharmaceuticals, one of India’s major export interests in the Chinese market, have been particularly affected by NTBs, as have been fish, rice and vegetables. Machinery exports face competitiveness problems due to subsidies offered to domestic producers. Wind and nonconventional energy suppliers encounter problems of local content requirement as well as difficulties of complying with indigenous intellectual property right (IPR) regimes10. Finally, quotas on foreign language films have prevented distribution of Indian films in the Chinese market. Despite integrating with the world economy, both China and India have been sensitive to interests of their indigenous enterprises and have tried to ensure that they do not lose their competitive advantages against foreign products or service providers. As a result, China and India continue to limit access to their domestic markets, either through high tariffs or other restrictive regulations. While these limitations are usually generic and affect all exporters or service providers, there are occasions when Chinese (or Indian) producers of specific items and services are affected relatively more. These are for those products or services where Chinese (or Indian) producers have distinct comparative advantages in the Indian (or Chinese) markets respectively. For Chinese producers, the relevant products, for example, could be chemical and machinery exports, while for Indian exporters, pharmaceutical and entertainment products (e.g. films) are two of the relevant products. The SED did not touch upon the specific territories where both countries are facing problems of access in each others’ economies. This could be on account of the effort on part of both sides to avoid relatively difficult matters and focus on simpler, non-controversial and potentially collaborative areas. While the latter must feature in the SED, it can hardly afford to exclude the more contentious issues of market access. Unless access issues are sorted out, business facilitation and improvement of investment environment between the two countries will be difficult to achieve.

.....

10

Ibid; Chapter 3, page 68-70 for more details.


ISAS Insights No. 148 – 14 December 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Of Diasporas and Displacements: What does it mean to be Sri Lankan? Hema Kiruppalini1

Abstract It is often contended that the ethnic war in Sri Lanka has ended. In actuality the conflict is ongoing and it has taken a renewed form. In this respect, the question of ethnic identities is often overlooked. The preoccupation with war crimes, political reconciliation and economic progress has overshadowed a very poignant aspect of how a nation is conceived. As the island republic changed its name from Ceylon to Sri Lanka, an ongoing tussle that will remain unresolved for long is the question of what does it mean to be Sri Lankan?

Introduction ‘I look at Colombo and Ceylon, or Sri Lanka, I mean changing names, sometimes maybe you deceive the gods, but I don’t think you are deceiving the people who live in them.’ Excerpt from the book Lee Kuan Yew: The Man and His Ideas (1998).

In what is termed to be ‘post-conflict Sri Lanka’, what can one infer when a Sri Lankan national insists that he/she is Tamil and not Sri Lankan? What implications are there when one identifies himself/herself as a member of the ‘Transnational Government of Tamil Eelam’ and not the Sri Lankan government? What are the political ramifications to be part of 1

Hema Kiruppalini is a Research Associate at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. She can be contacted at isashk@nus.edu.sg. The views expressed are those of the author and do not necessarily reflect those of the institute.


the Tamil Eelam diaspora and not the Sri Lankan diaspora? With the prevailing political sentiments pointing towards a divided Sri Lanka, can it be safely assumed that peace has been restored and the ethnic conflict has ended? I argue that the ethnic conflict in Sri Lanka has taken a different shape and the state is entrusted with an even greater task of creating an inclusive Sri Lankan identity – an ideal that appears to be implausible given contentions that the Rajapakse administration is vehemently opposed to sharing power with the minority groups. Instead of one Sri Lanka, diasporic sentiments in Canada, Europe and to a lesser extent Australia, render visible the perceptions of two Sri Lankas emerging, each with a separate vision of the state. Tamil nationalist sentiments are more pronounced in states like Canada, Switzerland and the United Kingdom2. According to an International Crisis Group (ICG) report - ‘The Sri Lankan Tamil Diaspora After LTTE’ - the new organisations formed following the defeat of the LTTE have initiated plans for a Transnational Government of Tamil Eelam and an independent referenda among Tamils in various countries endorsing the call for a separate state’.3 The Tamil diaspora’s continued struggle for a separate state was referred to in another report by ICG - ‘Reconciliation in Sri Lanka: Harder Than Ever’ - that emphasises that so long as the issue of war crimes and political negotiations with Tamil political parties remains unresolved, the ‘Tamil diaspora will remain convinced that their community needs the protection that only a separate state can offer’.4 Although the war has officially ended and economic recovery is underway, Sri Lanka’s national identity will remain fractured for a long time to come and the role played by the Tamil diaspora serves to accentuate the divisiveness in conceptualising an all-inclusive identity. The strategy adopted by the Tamil nationalist diaspora to call for a separate state highlights that the ethnic issue is unresolved in Sri Lanka. However, it is critical to understand that the Tamils abroad share dissimilar views on the issue of a separate state. Furthermore, the agendas of the Tamil nationalist groups do not necessarily mirror the perceptions of the Tamils in their homeland and this has contributed to abating radicalism in the diaspora.5 In view of the myriad perceptions among Tamil nationalist groups, diaspora identity will remain divided among members of the Sri Lankan Tamil diaspora.

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For further information, see, Dave Besseling. ‘Toronto Eelam’. Himal South Asian. October 2009; and, Ramachandra Guha. ‘Tigers in the Alps’. World Policy Journal, 20(4), Winter, 2003/2004:63-73. ‘The Sri Lankan Tamil Diaspora After LTTE’. International Crisis Group Report. Asia Report N°186 – 23 February 2010. p.i. ‘Reconciliation in Sri Lanka: Harder Than Ever’. International Crisis Group Report. Asia Report N°209 – 18 July 2011. p.ii. For further information, see, Nirmala Rajasingam. ‘The Stimulated Politics of Diaspora’. Himal South Asian. January 2011; and Kitana Ananda, V V Ganeshananthan and Ashwini Vasanthakumar. Sri Lanka’s Alternatives Abroad, Himal South Asian, December 2010.

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Ceylonese Tamil versus Sri Lankan Tamil In today’s context, to regard oneself as ‘Ceylonese’ and ‘Sri Lankan’ interchangeably carries similar meaning and at the same time is loaded with nuances that distinguish the terms. To identify oneself with Ceylon rather than Sri Lanka is to claim heritage to the vestiges of a bygone era and pride upon a time when the country was more advanced than even Singapore. Ceylon was saturated with educated talent and its people (Sinhalese, Tamils, Burghers and Moors) made contributions to the development of countries like Malaya and the United Kingdom above and beyond their numerically minority status. Identifications as ‘Ceylonese’ rather than ‘Sri Lankan’ underpin an integrity that was once associated with being elitist, English-educated and of a premier class. Members of the Ceylonese diaspora who migrated to Malaya (present day Malaysia and Singapore) still tend to regard themselves as Ceylonese rather than Sri Lankan. In many ways, the continued usage of the term ‘Ceylonese’ disassociates one from being regarded as ‘Sri Lankan’ which carries the baggage of a civil war. In Singapore, the present generation conceives of themselves as an established Sri Lankan diaspora welcomed by their host country, continuing to make significant contributions in myriad fields and perceiving themselves in terms of multiple identities. Their experiences and consciousness are markedly different from the victim diasporas that characterise the Sri Lankans in Canada, Australia and some of the European countries. The connotation of being ‘Sri Lankan’ is closely tied to refugees, asylum-seekers, Tamil Tigers and terrorism. Some members of the Sri Lankan diaspora in Singapore rather prefer an ‘Indian’ identification 6. The glory of Ceylon - a country that in the 1950s was fashioned as the ‘Switzerland of the East’ - has undergone immense transformations and there exist undercurrents that differentiate a ‘Ceylon Tamil’ from a ‘Sri Lankan Tamil’. Prior to the escalation of the ethnic conflict, there was no such thing as a ‘Tamil diaspora’. Those who migrated during the colonial era regarded themselves as Ceylonese, irrespective of whether they were Sinhalese, Tamils, Burghers or Moors. The shift in the domestic policies in Sri Lanka following independence from Britain compelled members of the diaspora to reconsider their notions of home and reconfigure their identity in view of the burgeoning ethnic strife in their homeland. And, diasporic identity continues to be shaped by the ethnic tensions in Sri Lanka and underpins the differentiation in such categories as ‘Ceylonese diaspora’ versus ‘Sri Lankan diaspora’; ‘Ceylon Tamil’ versus Sri Lankan Tamil’; and ‘Tamil Eelam diaspora’ versus ‘Sri Lankan diaspora’. The differing implications in each of these categories reveal that the Sri Lankan diasporic identity in the contemporary context is conflict-ridden. 6

In a letter written by V.K. Pillay in 1991, he argues that though his identity card states his race is Ceylonese, he is a ‘Singaporean Singaporean’ and nothing more. V.K. Pillay. ‘Why I would rather be called Indian’. The Straits Times, 5 October, 1991. p.32.

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Sri Lankan Diaspora versus Tamil Eelam Diaspora The Sri Lankan diaspora is commonly linked with the outflow of Tamils and this disregards the ethnic diversities that make up the island state. Theravada Buddhism is the religion for majority of the Sinhalese, Hinduism that of the Tamils and Islam that of the Moor and Malays. Christianity cuts across racial and ethnic lines with thousands of followers most of whom are Roman Catholics. Other important minority groups include the Burghers, Colombo Chettys, etc. All these myriad groups who make up Sri Lanka have migrated overseas over differing periods of time in search of better livelihood. It is common understanding, although inaccurate, that the Sri Lankan diaspora is largely regarded as the movement of the Jaffna Tamil community. Similar to the Jews who are regarded as a victim and de-territorialised diaspora, the Tamil diaspora in Canada, Europe and Australia define themselves in reference to exclusion and discrimination. Just as how the ‘promised land’ of the Jews flows with milk and honey, the Assyrians in London and Chicago reminisce of their link to the great civilisation in Mesopotamia, the Sri Lankan Tamils also retain an idealisation of the supposed ancestral home – Tamil Eelam – where just order, meritocracy and the individual rights are believed to reside. The quest for a resolution of war crimes, equal rights to education and employment opportunities shapes the psyche of this displaced community now. The retention of collective memories of this nature and myth about their homeland has led to strong identifications with the ‘Tamil Eelam diaspora’ rather that the ‘Sri Lankan diaspora’ which is deemed to be a construct by the Sri Lankan government. The Tamil Eelam diaspora is a resourceful and powerful grouping with political clout that is arguably incomparable to many other diasporas. The Indians in Fiji, Sikhs in Britain, Palestinians in Kuwait each had a troubled relationship with their host society. Although the Sri Lankan Tamils also experience antagonism, legal or illegal discrimination, what is more striking is their strategic ability to use their host countries as a platform to voice their grievances about the Sri Lankan government. They have achieved considerable success in galvanising public sympathy in the host-countries that they reside in and have mobilised international human rights groups as proxies for their transnational political agendas. The extent to which the dichotomy between the ‘Sri Lankan’ and ‘Tamil Eelam’ identifications will play out in the long run will have consequences on the nature of relations forged between the myriad communities that make up Sri Lanka. Conclusion As Sri Lanka aspires to recover quickly from the civil war that dislocated the country, its displaced citizens that now form the Sri Lankan diaspora serve as reminders of enduring ethnic tensions and a racially polarised nation. The presence of ‘Transnational Government of Tamil Eelam’ indicates that the civil war in Sri Lanka is now orchestrated from abroad and 4


this transformation has resulted in an even more complex understanding of identity and sense of belonging. As long as the ethnic imbalance is unresolved in Sri Lanka, Tamil nationalism abroad will thrive and diasporic identity will remain fissured. .....

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ISAS Insights No. 149 – 27 December 2011 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Imran Khan’s Political Rise Shahid Javed Burki 1

Abstract Imran Khan a former cricketer who, in 1992 won the cricket World Cup for Pakistan 2 has emerged in the last couple of months as a political phenomenon in a highly troubled country. He has thrown an open challenge to the governing Pakistan People’s Party (PPP) founded four and a half decades ago by Zulfikar Ali Bhutto, another populist leader who created the same kind of excitement as Khan is doing today. The PPP is currently headed by President Asif Ali Zardari, the most unpopular leader in the country’s history. The Pakistan economy has performed poorly under Zardari, the country’s politics is in disarray, the military leadership is at odds with the civilian government, relations with the United States (US) have reached possibly the breaking point. Islamic extremist groups continue to operate in the country and on the border with Afghanistan. As Bill Keller, former editor of The New York Times wrote for his old paper, ‘if you survey informed Americans, you will hear Pakistan described as duplicitous, paranoid, self-pitying and generally infuriating’ 3. Can Khan halt the country’s descent and prevent it from becoming a failed state? Hundreds of thousands of his well-wishers and supporters – mostly young in a very young population – have certainly pinned their hope on the former cricket star. As Khan reminded his admiring audience in Karachi at a massive rally on 25 December that he may not have been the best cricketer in the world, but he won his country the World Cup; he may not have been the most experienced philanthropist, but he built the country’s best cancer hospital; he may not be a educationist 1

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Mr Shahid Javed Burki is Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He can be reached at sjburki@yahoo.com. The views expressed are those of the author and do not necessarily reflect the views of the institute. Imran Khan has scored 3,807 runs in test cricket while taking 362 wickets, making him one of eight world cricketers to have achieved ‘all-rounders triple’ in test matches. Bill Keller, ‘The Pakistanis have a point’, The New York Times Magazine, 26 November 2011, p. 46.


but he has built the only private sector university in rural Pakistan. Would he now succeed in this new enterprise – saving Pakistan from disaster—he asked his Karachi audience? The large crowd came back with a roaring ‘yes’.

Feeding a hunger for honest and dedicated leadership There was hunger for change in leadership as Pakistan stumbled in 2011 in more than one way. Economy’s poor performance, politicians’ inability to address the problems created by shortages of electricity and natural gas, breakdown of relations with the US, terrorist activities in the country’s northern areas, growing lawlessness in all major cities, and the growing belief that the people holding senior positions were enriching themselves at the expense of the economy and to the cost of the poorer segments of the population made large numbers of people very anxious and very unhappy. Khan, the 59-year-old cricketer who had become a national hero in winning the cricket World Cup for his country in 1992, tapped into the growing discontent. On 30 October, he addressed a large rally in a Lahore ground that supports the Minar-e-Pakistan, a monument to the passage, on 23 March, 1940, of a resolution by the Muslim League demanding the creation of an independent state for the Muslims of British India – Pakistan. There he pulled crowds not seen since Benazir Bhutto, the late prime minister, returned from exile in 1986. The turnout, which some estimates put above 100,000, stunned the country’s political elite, say leading diplomats in Islamabad. 4 He repeated this remarkable feat in Karachi, a more difficult place for the rising star. Khan is from Lahore, descendent from a father who was a Niazi Pathan from Mianwali, a district in northern Punjab and his mother a Burki Pathan now from Lahore. Pathans and Punjabis have been at war with the Muhajir community – the Urdu-speaking refugees who came from India at the time of Pakistan’s founding in August 1947. Could Khan draw a large crowd in a city that has boiled over with ethnic violence, most notably in the summer of 2011? 5 The answer came on 25 December when he addressed a crowd even larger than the one he drew in Lahore on 30 October. After retiring from cricket, Khan was more successful as a philanthropist rather than a politician. According to Financial Times’ Lionel Barber who spent an afternoon at Khan’s hill-top residence in Islamabad, ‘inside two and half weeks, he raised Rs2.5 billion ($30 million) to help the flood victims; now he is in the middle of a $20m annual fund-raising exercise for the cancer hospital he set up in his native Lahore in 1994 in memory of his mother, a victim of colon cancer. He is also expanding Namal College in the rural north, built in association with the University of Bradford, where he is chancellor’. Barber not only played cricket with Khan but also talked politics. ‘Like many of his countrymen, Imran is enraged by the stand-off between President Zardari and the judiciary, which is challenging 4

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James Lamont, ‘Khan seeks to turn groundswell of support into serious political challenge’, Financial Times, 24 December 2011, p. 4. Shahid Javed Burki, ‘Exploding Karachi’, ISAS Brief No. 212, 15 August, 2011, Institute of South Asian Studies, National University of Singapore.

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the president’s right to immunity against long-standing but unproven corruption charges. Imran has an ill-disguised contempt for Zardari, the widower of former Prime Minister Benazir Bhutto. We are ready to go out on the street at any time,’ he says with a booming laugh. 6

The Zulfikar Ali Bhutto Parallel Perhaps a good parallel between the rise of Khan is with the rise in the late 1960s of Zulfikar Ali Bhutto, Benazir’s father, and that of his newly founded political organisation, PPP. As Khan was to do four and half decades later, Bhutto built his political career and the future of the PPP on the basis of simple populist slogans. 7 He promised all people ‘roti, kapra and makan’ (food, clothing and shelter) and promised to distance himself from the US by following a foreign policy designed to serve Pakistan’s interests rather than those of Washington. Bhutto, who entered politics at the invitation of General Ayub Khan who was looking for a Sindhi presence in his cabinet, ultimately turned against his mentor. The issue was the orientation of the country’s foreign policy. Ayub Khan had built strong ties with the US, having engineered the membership of his country in two defence pacts in order to stop the advance of Communism into Asia. The pacts – the Central Treaty Organization (CENTO) and the South-east Asia Treaty Organization (SEATO) were the brain children of the US Secretary of State, John Foster Dulles under President Dwight Eisenhower. After having left the cabinet headed by the general, Bhutto questioned the wisdom of becoming so subservient to American strategy in the region that Pakistan was unable to pursue its own interest, Ayub Khan countered by calling his political autobiography, Friends not Masters. 8 Bhutto was not persuaded and published his own book under the title of The Myth of Independence. 9 Bhutto was keen on developing close relations with China, Pakistan’s neighbour to the east. He succeeded and now China is commonly referred to as Pakistan’s ‘all weather friend’ to distinguish its relations with the US that have been on a roller-coaster ride for the last half century 10. It is interesting to note that after holding a successful public meeting in Lahore, Imran Khan went on a visit to Beijing where he met with some of China’s senior leaders.

The Khan Bandwagon Begins to Roll The political establishment was also stunned and shaken by the number of prominent leaders who began to climb on the Khan bandwagon as it began to roll forward following the meeting 6 7

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Lionel Barber, ‘Cricket with the FT: Imran Khan’, Financial Times, 5 November 2010, p. 12. Philip E. Jones, The Pakistan People’s Party: Rise to Power, Karachi: Oxford University Press, 2003, for a competent account of the founding and political ascent of the People’s Party of Pakistan. Mohammad Ayub Khan, President of Pakistan, Friends not Masters: A Political Autobiography, London, Oxford University Press, 1967. Zulfikar Ali Bhutto, The Myth of Independence, Karachi, Oxford University Press, 1969. For a detailed analysis of Pakistan’s relations with the United States, see Dennis Kux, The United States and Pakistan: Disenchanted Allies, Baltimore, Md. Johns Hopkins Press, 2001.

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in Lahore. Among those who came on board was the respected former Foreign Minister, Shah Mahmood Qureshi. A long-standing member of the PPP, Qureshi served the Zardari administration for three years, from 2008 to 2011. He left in early 2011 over his differences with his government on the ‘Raymond Davis affair’ – the matter involving the murder by a Central Intelligence Agency (CIA) operative of two young men in a busy Lahore street. The US sought diplomatic immunity for Davis; the Foreign office refused to grant him that. Davis was ultimately let go and Qureshi chose not to return to the cabinet when it was reconstituted. With his coming on board as the Vice Chairman of the Pakistan Tehrik-e- Insaf (PTI), Khan’s political party, the Khan bandwagon received acceleration it was looking for. Following Qureshi into PTI were other senior politicians including Khurshid Kasuri who had served the military government of Pervez Musharraf also as foreign minister. Jehangir Tareen, another minister from the Musharraf cabinet also came on board as did Ishaq Khaqwani and Owais Leghari both prominent south Punjab politicians. But perhaps the most important catch for PTI was Javed Hashmi, a highly respected politician also from south Punjab who had been a loyal supporter of Mian Nawaz Sharif and the latter’s Pakistan Muslim League. Hashmi joined the party on the eve of Imran Khan’s meeting in Karachi. The 64-year-old leader from south Punjab had a large political following in all parts of Punjab. In the 2008 elections, he contested from four seats for the National Assembly, winning three. His only loss was to Shah Mahmood Qureshi who was now a fellow senior member of the PTI group. Even before switching sides, moving from Nawaz Sharif’s Muslim League to the Tehrik, Hashmi was known to have had serious differences with the Sharif brothers on matters of policy. He opposed Muslim League’s support for Zardari when the latter offered himself for the presidency in the elections held in August 2008. The Sharifs refused to follow Hashmi’s advice and threw their support behind Zardari. This was one of the several occasions when the wily Zardari was able to outmanoeuvre the Sharif brothers. Hashmi would have wanted to be the Leader of the Opposition in the Assembly elected in February 2008 but the Sharifs chose instead Nisar Ali Khan, a trusted lieutenant. For the last several months, Hashmi was campaigning for the division of Punjab, now with a population of close to 100 million people, into four smaller provinces. The PML (N) opposed the idea. Most political observers were of the view that Hashmi’s entry into the Tehrik would add significant weight to the fledgling party. 11

The Karachi Meeting For the meeting in Karachi, the PTI chose another place that would serve as symbol for the rising organisation: the grounds surrounding the mausoleum of Mohammad Ali Jinnah, Pakistan’s founding father. The Karachi meeting pulled an even larger crowd than the one that heard the Tehrik-e-Insaf leader at Lahore’s Minar-e-Pakistan. It was estimated at 11

Amir Wasim, ‘Why Hashmi decided to leave PML-N’, Dawn, 26 December 2011, pp. 1 and 3.

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200,000. Held on 25 December, the Karachi jalsa or political rally, made clear that the party had done some serious homework since the meeting in Lahore. Several leaders who spoke posed a direct challenge to President Zardari with Qureshi, the former foreign minister, suggesting that Pakistan’s nuclear assets were not safe in the hands of the government that was in power. Khan’s Karachi speech was more focused on Pakistan’s internal problems, in particular corruption which he claimed was costing the country $5 million a day. This would amount to almost $2 billion a year or about two per cent of the country’s gross domestic product. This is probably a fair estimate. There was no direct reference to Pakistan’s relations with the US; only the suggestion that Pakistan will not become a ‘servant of any outside power’, echoing the theme used in the 1960s by Zulfikar Ali Bhutto. The Americans, keenly aware that it will matter a great deal for their country as to who gains the lever of power in the nuclear-armed nation as it began to disengage from Afghanistan, were paying close attention to political developments in Pakistan. A reasonable accommodation was needed to smoothen the American exit from Afghanistan. But they seemed not too worried about the growing influence of Imran Khan and his party. Cameron Munter, the US Ambassador who met with the rising star of Pakistan’s politics right after the Lahore meeting, seemed not to be too worried. ‘Imran Khan is, as far as he tells me, for the same kind of values that we think are important’, he said on a popular talk show on 22 November. ‘He says he is for democracy, he’s for governance that is clean, and he’s for economic growth. We’re for all these things.’12 A day after the Karachi meeting, The New York Times reported on its front page that Washington had concluded that an arrangement with Pakistan could be worked out that would be limited in scope from the one envisaged earlier and more costly for the US. ‘We have closed the chapter on the post 9/11 period,’ a senior American official told the newspaper. ‘The US will be forced to restrict drone strikes, limit the number of its spies and soldiers on the ground and spend more to transport supplies through Pakistan to allied troops in Afghanistan. US aid to Pakistan will also be reduced sharply,’ said the officials. 13 This relationship was in line with what Imran Khan had been demanding. Imran Khan’s platform remained defined in vague terms. ‘Mr Khan has won support with his anti-Americanism and contempt for Zardari-led government beset by claims of corruption. He has mocked Hillary Clinton, the US Secretary of State, for hectoring style towards Islamabad as ‘Chachi’ or aunty; and called for a halt to army operations in the country’s unruly tribal areas in the border with Afghanistan.’ 14 Focus on Baluchistan was a new element in Imran’s developing programme. He said he would apologise to the Baloch people on behalf of other Pakistani citizens. Addressing the people of the estranged province, he said that ‘we have committed excesses and have treated you like the people of a colony as we did 12 13

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Imtiaz Shah, ‘Massive Khan rally defies Pakistan ruling party’, Reuters, 25 December, 2011. Eric Schmitt, ‘U.S. redraws Pakistan ties with limits’, The New York Times, 26 December 2011, pp. A1 and A8. Lionel Barber, ‘Cricket with the FT: Imran Khan’, Financial Times, 5 November 2010, p. 12.

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in the case of the people of East Pakistan. I pledge that when we come to power, we will give you a special status as West Germany gave to East Germany by diverting all development projects to the latter’. 15 He informed his audience that his next big public meeting would be held on 23 March 2012 in Quetta, Baluchistan’s capital. The country celebrates 23 March as Pakistan Day, the day the Pakistan resolution was adopted in 1940. The choice of the date was important: to underscore to the disenchanted Baluchi youth that their future was in a united and prosperous Pakistan. However, recognising that in order to win votes from the citizenry he had to be more specific in laying out his plan if he were to gain power, he announced that he had set up a working group under the chairmanship of Jahangir Tareen, who had served with distinction as the minister of industry in one of the administrations headed by General Musharraf. Tareen was also a successful entrepreneur having built modern agricultural processing industries in a southern Punjab district. The Tareen group would produce a number of position papers dealing with the subjects of concern for the common man. Some of these were mentioned by Khan is his Karachi address. They included increasing agricultural productivity, introducing computerised land records, improving working conditions of industrial and commercial labour, improving women’s welfare, reorienting relations with India, reforming the civil service, encouraging the members of the rich Pakistani Diasporas to invest in their homeland and – of course – reducing the incidence of corruption. Imran Khan promised he would wipe out large scale corruption in 90 days after assuming office, modifying his Lahore stance when he had talked of eliminating all corruption in three months. The papers to be produced by the working group would be discussed in seminars Tehrik-e-Insaf will organise. This was reminiscent of the approach adopted by Zulfikar Ali Bhutto when he launched his political organisation in 1967. The PPP produced a number of ‘foundation documents’ to explain its position on a number of important social and economic issues. Some of these documents were to become the basis of the making of public policy once the PPP under Zulfikar Ali Bhutto came to handle the reins of power.

Conclusion Judging by some of the reactions to the Karachi rally, it appears that Imran Khan succeeded in persuading those who had treated the Lahore meeting as flash in the pan, not likely to endure. ‘After Imran Khan’s October 30 rally in Lahore, we asked the question: Is Khan’s Tehrik-e-Insaf a jalopy or a juggernaut? As hundreds of thousands poured into the grounds opposite the Mazar-e-Quaid in Karachi on Sunday and rallied in Imran’s support, the answer to the above question has become clearer: not only has Imran’s status as a rising star in politics been cemented, his PTI will also be a force to reckon with in the coming days,’ wrote The News in an editorial published a day after the Karachi rally. ‘After the rally in Lahore, it 15

Habib Khan Ghori, ‘Tsunami sweeps Karachi’, Dawn 26 December 2011, pp. 1 and 3.

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was said that it would take weeks before we could assess the impact of the rally and months before the party’s real prospects at the upcoming general elections become clear. But as the crowds came to cheer for Imran, it could be reasonably said that the show of force and the numbers in Lahore wasn’t a one-off.’ 16 But some scepticism remained. There were some bloggers who thought that Imran Khan was setting himself for failure by promising more than he could possibly deliver. According to one, ‘Imran says a lot of things that sound really great. His apology to Baluchistan at the Karachi jalsa is welcomed and much needed recognition of the situation there, but changing national policies and stabilising the region will require much more than applause lines at rallies. He says he won’t allow any militant group from Pakistan. He says if he becomes PM, the Army and ISI will answer to him. He says he will set up an ‘e-government system’ which will ‘automatically eliminate corruption from society’. He promises free legal aid, free health care, and free education. He promises that the police will treat everyone equitably – from the lowest mangnay wala (beggar) to the PM himself. The tax system will be reformed so that it is perfectly just, and everyone will gladly pay. The most amazing thing about this list of promises is that my otherwise perfectly rational friends are accepting them with the most delusional excitement. It’s not that I don’t like some of what Imran Khan says; it’s that even if PTI’s tsunami sweeps national elections, achieving even a fraction of these changes during one five-year term would be next to impossible. Even two terms is unlikely. And how long until the same people who today complain that the present government has been a miserable failure in its three years of governing will decide that Imran has overpromised and underdelivered?’ 17 If Imran Khan makes it to the top rung of the Pakistani political ladder, he would have performed a rare feat in the country’s history. His rise would have happened without being catapulted by family connections or being pushed up by institutional support such as that from the military. General Ayub Khan assumed power as a result of a military coup as did Generals Yahya Khan, Ziaul Haq, and Pervez Musharraf. Zulfikar Ali Bhutto owed his ascent to his mentor Ayub Khan, who brought him into his cabinet. Bhutto had been the army general’s hunting partner. Nawaz Sharif got elevated to leadership by the support given to him by General Ziaul Haq. He was first appointed Chief Minister of Punjab by General Gilani, then Governor of Punjab province who was a close associate of the military president. Benazir Bhutto was anointed by her father Zulfikar Ali Bhutto while Asif Ali Zardari was appointed as Chairperson of the PPP since that was the will of his assassinated wife, Benazir Bhutto. He went on to become president. Imran Khan is, therefore, breaking new ground by being lifted from below by the youths, who are desperately looking for a person who can arrest the country’s rapid downward slide.

16 17

The News, editorial, ‘Imran in Karachi’, 26 December 2011, p. 7. ‘We’re no angels. New Pakistan’ new-pakistanblog@gmail.com, 26 December, 2011, 9:51 AM.

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While it is too early to speculate as to the kind of governance Imran Khan and the Tehrik will bring to Pakistan, what appears at this stage is that were he and his party to succeed, it would be a repeat of what is being seen in the Arab world. As the Arab Spring moves into the second phase in which alternative systems of governance are being found to replace autocratic rule, the citizenry appears to be opting for the parties that draw their inspiration from Islam. The success of Turkey under the rule of this kind of party is being seen as a model that the Muslim world can follow. Perhaps under Imran Khan Pakistan may also be headed that way.

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