Thursday, October 28, 2010

Gorbachev's Afghan Pessimism: BBC Interview

Former Soviet head of state Mikhail Gorbachev spoke plainly about the war in Afghanistan during an interview with the BBC earlier this week.

"Victory is impossible" is his leading statement on the topic of the war.  Gorbachev states that Obama is right to pull the troops out, "no matter how difficult".  Mr. Gorbachev underlines one of the 'difficulties' as being America's deep and well established ties to militants and factions within Afghanistan.  He does not miss the opportunity to remind his English speaking audience as to who the original sponsors of the current violence are: "The Americans... were training militants, the same ones who today are terrorizing Afghanistan and more and more of Pakistan."

In making such statements, Mr. Gorbachev alludes to and seems prepared to discuss the vested interests or bureaucratic and military resistance at work to slow or block a US military withdrawal from Afghanistan.  Surely Mr. Gorbachev's experience and insight in this area would have made for some fascinating and revealing news copy, however BBC correspondent Steve Rosenberg fails to engage the topic.

The clip ends with Mr. Gorbachev shrugging at the alternatives to withdrawal: "But what's the alternative?  Another Vietnam?  Sending in half-a-million troops?  That wouldn't work."  Mr. Gorbachev paints a picture of America, caught in a trap of its own making, bleeding and unable to free itself.

Mr. Gorbachev presided over the USSR's final extrication from the Soviet-Afghan war at the end of the 1980's.  Since the American invasion of Afghanistan in October 2001, a long list of former Soviet government and military officials, including Mr. Gorbachev, have gone on record saying that the west's war in Afghanistan is unwinnable.  While such predictions seem always to be hinted with pride and sour grapes, after nine years in Afghanistan, Americans can no longer hope that they will do better.  The Soviet-Afghan war ended after 9 years, and cost the Soviet Union 14,453 lives.  Troop deployments reached a height of 104,000, and a total of 620,000 Soviet soldiers served in the war.  As of this week, NATO troop levels exceed 100k, and coalition deaths in Afghanistan have reached 2,095 people, according to wikipedia.  However, this number does not include western contractors and NGO workers doing security and infrastructure work.

Read the article and watch the clip:  http://www.bbc.co.uk/news/world-south-asia-11633646

Saturday, October 16, 2010

Currency War?: Truth is the first casualty

In recent days, major news outlets across the world have been reporting on the growing rift, particularily between China and the US, and more generally between 'developped' and 'developping' nations, over currency markets and monetary policy ahead of the G20 meetings in Korea this November.  

The issue not only highlights the growing ability of emerging economies, such as China and Brazil, to stand up to the unbalanced global economic order imposed by European and American institutions, but the nature of the coverage has itself revealed a staggering bias and lack of insight by the Western media and points to an unsurprising but serious misunderstanding in the Western public as to how their economies function and relate to the global economy.

The issue has been politicized in the US for some time now, where people are being made to feel somehow that in a general way China is threatening the welfare of the American economy by holding its currency 'artificially low', causing the hemorraging US trade deficit and the continual loss of American factory jobs.  The intended message to the public is clear when the US Treasury Department's not-yet-released study of whether China manipulates its currency to gain an 'unfair' trade advantage is referred to again and again, while credible statements to the contrary go unnoticed, such as the World Bank and IMF who foresee currency 'tensions', not 'war', and who admit that allowing China's currency to rise will do little to help the balance of trade in the US.  Quite often, the fact that the yuan has already risen against the dollar by 20% since Chinese currency reforms five years ago is completely glossed over, or is noted as insignificant.

Nearly without exception, all Western news outlets decry China's 'intervention' or 'state manipulation' of the value of its own currency, along with other vaguely 'commie' sounding terminologies which are sure to raise the hairs on the back of every red-blooded American. 

A nation's currency is the lifeblood of its economy, and a government's right to manage and manipulate the value of its own currency is not only necessary for the maintenance of economic stability, but also sovereignty.  Free trading nations such as the US and EU resort to 'open market operations', manipulating interest rates, and lately 'quantitative easing'- the modern-day high-tech equivalent of printing more money.  While China 'pegs' its currency's value against a basket of currencies to maintain its stability in global markets, something that the US and EU do not do, it is the height of hypocrisy for the US and EU to enact major inflationary measures such as quantitative easing to drive down the value of its currency for selfish political and economic reasons, and then call China beligerent and interventionist when it merely allows the value of the yuan to float along with the Euro and greenback.

Western efforts to cheapen the value of US and Euro dollar denominated debts and to make foreign-produced goods more expensive in their domestic markets, to beat back looming deflation, to bailout its financial institutions and to inflate economic data, all by devaluing their currencies, is neo-mercantilism, and an extreme provocation to developping nations dependent on exports, such as China, Brazil, India, Korea, and Thailand to name a few.  Furthermore, Western governments, by lowering lending rates and increasing the supply of money in their domestic markets, have provided impetus to large financial institutions to go overseas to look for opportunities, thereby increasing competition, prices and the value of the domestic currency in those developping nations, as Western capital virtually invades and destabilizes their markets.  To then attempt to dictate how these nations should or should not react to such provocations is the height of arrogance.

The truth is that the US and European economies remain extremely vulnerable to further collapse, and politicians and bureaucrats in these economies remain willing to enact extreme measures to prevent this, or to at least give the appearance to their constituents that they are doing so.  The past few years have seen massive uncertainty and volatility in currency markets because of the banking crisis of 2008 and the Keynesian reaction to it and the recession it caused.  That such uncertainty and volatility would spill over into the relations between the West and its global trading partners is perhaps predictable.  However, painting China's monetary policy as the sponsor of Western economic woes is ridiculous, and does more to damage the accusors's credibility than it does to improve their economic situation.


Read articles on this topic, good and bad, at:

ABC News "China trying to avoid currency war"
http://abcnews.go.com/Business/wireStory?id=11865837

Xinhua News:  "Sword of Damocles dangling over China-US economic ties"
http://news.xinhuanet.com/english2010/indepth/2010-10/16/c_13560709.htm

The Council on Foreign Relations:  "Concerns over currency wars grow"
http://www.cfr.org/about/newsletters/editorial_detail.html?id=2222

The Globe and Mail:  "Averting currency war tops G20 agenda"
http://www.theglobeandmail.com/report-on-business/economy/averting-currency-war-tops-g20-agenda/article1758134/

Arirang News:  "Currency disputes heat up ahead of G20 Seoul summit"
http://www.arirang.co.kr/News/News_View.asp?nseq=108013&code=Ne2&category=2

The News Center:  "Fx tensions mount ahead of Fed's Bernanke"
http://www.moneycontrol.com/news/world-news/fx-tensions-mount-aheadfed%60s-bernanke_491477.html

Monday, October 11, 2010

China squeezes world supply of rare earths

An article about rising prices and China's decision to reduce by 40% their export quota of "rare earth" commodities such as cerium, lanthanum and yttrium, which are used in the manufacturing of flat-screen monitors and aerospace alloys among other things, appeared in the September 4 edition of the Economist.  China "accounts for almost all of the world's production" of rare earths.

The article, entitled 'Digging in', reports that "announcements of rare-earth projects have accelerated in recent months", as "high prices have already begun to propel a supply response elsewhere in the world."

More interestingly, discussing the possible motivations behind China's new export quota on rare earths, the Economist speculates that China is leveraging its virtual monopoly on rare earths in an attempt to control more of the secondary sector production of high end goods which require them. 

While at this time Western markets may be able to absorb the higher costs of these elements and eventually balance and diversify their supply, rare earths can be added to the growing list of commodities, critical to the West's consumption based economies, who's futures are uncertain.  The situation also highlights China's unapologetic pragmatism and self interest as far as the security of the supply of resources to its economy is concerned.  While such self-interested behavior is not exclusive of other powerful nations, might China's willingness to nearly half their exports in rare earths suggest something of the shape of things to come?

Read the Economist article at http://www.economist.com/node/16944034

Saturday, October 9, 2010

The ANA: Afghan National Army or Afghan Notional Army?

An article in the August 21st 2010 edition of the Economist, 'Fixing the Unfixable', describes in colorful detail the challenges facing the American effort to create a cohesive Afghan National Army (ANA).  The article makes the argument that a capable ANA is a prerequisite to Western forces leaving the country, if the Afghan government is to be spared collapse.  In making its case, the article draws attention to different aspects of the ANA's situation, which reeks of amateurism from top to bottom.

While credible reports as to the the Afghan National Army and Police's moral corruption abound, whether it be the routine torture of detainees or the pedophilic practice of bachabazi, the Economist provides insightful data as to the actual capability of the ANA, or lack thereof.  The article cites a report released earlier this year by Arnold Fields, the US inspector general for Afghan reconstruction, which says that only 23% of ANA soldiers and 12% of police can be trusted to work unsupervised.  Senior officers are known to be stealing food and fuel, and are accused of stealing weapons.  Certainly the capability of the ANA to govern itself and command respect from its own members is under serious question.

As to the ANA's capability in the field, the Economist presents some interesting numbers: "During operations, they remain almost totally reliant on NATO troops, who suffer twice as many casualties."  The image this conjures is one of ANA troops taking full cover at first sign of the Taliban, before calling in Western forces to clean up the mess.  An episode is described where, without the operational support of NATO, 300 ANA soldiers managed to get themselves ambushed by the Taliban in Laghman.  A quick look into this story, reported in the Wall Street Journal, August 10, 2010, tells that the ANA commando units, such as the one defeated in the ambush "are supposed to be the force's best units."  Many were killed and captured and the unit was "missing" according to the words of Gen. Zahir Azimi of the Afghan Defense Ministry. 

Another concern raised by the Economist is over the ANA's sustainability and identity as a 'National' army.  "Less than 3% of recuits to the ANA are from the Pushtun south, from where the Taliban draw most support."  This is a huge discrepancy, as the Pushtuns are the largest ethnic group within Afghanistan.  Apparently translators are often required not just for NATO officers, but also for ANA officers when operating in Pushtun districts, where most of the insurgency is being fought.  That the makeup of the ANA is being drawn along the same divisive ethnic and tribal lines as the rest of Afghanistan is a concern to many as to the viability of the ANA, as to who the ANA truly represents and is willing to defend, and as to whether or not the ANA can help avoid a civil war after Western forces leave, or whether it would infact help precipitate one. 

The article mentions that Army pay has been increased from $120 to $165 a month.  While this is apparently good pay in Afghanistan, it does raise the question of motivation.  To speculate, it would seem likely that in such a poor and divided country, with no national military tradition, it is the pay and the pay alone that motivates recruits to keep coming back.  In combat, as we have seen, the ANA forces seem to shrink from confrontation, which may be a sign that ANA soldiers show up to work to get paid, not to risk their necks.  In many cases the pay does not seem to be enough, as the ANA's desertion rate is astronomical.  A Nov. 26, 2009 article in the Asia Times cites an Inspector General for reconstruction report revealing that one in every four combat soldiers quit the ANA during the year ending in September 2009. 

The Economist discusses all of these problems in the context of their appraisal and addressing by General William Caldwell, who upon recently taking charge of organising the ANA, is reported as "horrified" that the focus was on "quantity, not quality".  Horrifying perhaps, but unsurprising that priorities at the ANA are out of place.  That much is already evident.  But the type of training received by many recruits may also have spoken to them about the nature and strength of the West's commitment to the ANA.  Caldwell reports that "The ratio of instructors to students was 1 to 80... On one base, it was 1 to 466 - There were no training standards... It was just, eight weeks and you're done."  It may have seemed to many recruits that the type of Army they were joining was one of appearances.  "Some contractors failed even to show recruits how to calibrate the sights on their weapons" the article reports.  With this being the level of preparation, losses in the field and desertion in the ANA ranks seems to find context.

To learn that contractors are responsible for the dismal type of training given to ANA recruits is to consider another aspect which puts the viability of not only the ANA, but the entire mission into question.  While the profit motive is ever present in any military adventure, and particularly American ones, in this instance it has undermined its objectives.  It is astounding that such an integral part of the American strategy for reconstruction, the training of an effective national army, could be commoditised and offered up for contract, and then to be administered privately and with such little oversight.  It leaves one to question the administration of the entire operation, and where else profit motives are being allowed to hinder the objectives of the Afghan mission.

Perhaps General Caldwell may find it more horrifying, the prospect of forming a credible modern army out of an ill-equipped ragtag group of illiterate peasants, pedophiles, corrupt officers and amateurs with mixed loyalties, ill-trained by foreigners more interested in making a quick buck than in the future of Afghanistan.  Perhaps he is deluded: his goal is to expand the army from 134,000 to 171,600 over the next 12 months.  This would represent an increase of some 37,000 soldiers, which is as much as the ANA has grown in the last 5 years when the focus was on "quantity, not quality".  These numbers are pie in the sky, as much as the mission is itself. 

That such an army, divided against itself, could ever prop up a national government seems a far away prospect.  Indeed the ANA appears to be something of a joke, and an army more in name than in reality.

Read the Economist article at http://www.economist.com/node/16846714

Wednesday, October 6, 2010

Western taxpayers to bail out Karzai's Kabulbank?

An article in the September 11 edition of the Economist, "House of Karzai", sheds light on the corrupt regime of Hamid Karzai. It investigates the causes of a run on an Afghan bank, Kabulbank, mired in corruption and on the brink of failure.  The Economist describes a group of people working together, including Mahmoud Karzai, president Karzai's brother, who have managed to control Kabulbank and use it to invest in their own speculative ventures.  Mahmoud Karzai apparently is the 3rd biggest shareholder at the bank.  It is well known that he holds a 7% share, which he purchased for $5million by first borrowing the $5m from Kabulbank itself.

The article describes an area on Dubai's famous palm shaped peninsula refered to as "Little Afghanistan" where are found luxury mansions for "Afghanistan's business and political elite."  The article asserts directly that Kabulbank was used improperly in the funding of these Dubai real-estate ventures when it says "Hundreds of millions went into Dubai properties then handed to shareholders and their friends" and "the bill was picked up by ordinary Afghans who put money into Kabul Bank, a scandal-wracked institution..." Little Afghanistan is but one example of the missappropriation of the banks funds and lending.  According to the Economist, there is a string of loss generating companies owned by Kabulbank shareholders, into which Kabulbank loans and funds were siphoned, including an airline and a cement factory. 

Thus a run on Kabulbank?  Some may wonder how it could not have come sooner.  In proper form, Mahmoud Karzai has publicly solicited a bailout for the bank from the American taxpayer, which is hilarious and revealing on its own- after all, why shouldn't he just go right to the source?  That being turned down flat by the Americans, the article reports that the "Afghan government" aka Hamid Karzai, "said it would give the bank whatever it needed from its own reserves".  Though "American officials" have pushed for an inquiry into the fiasco, to no one's surprise, the Afghan government, aka Hamid Karzai, is not forthcoming.  The Economist article concludes first by stating that the bank is "too important to fail", and it evokes the image of civil strife should the bank "enrage almost a quarter of a million armed customers".  Are they not yet enraged?

Inquiry or not, it seems the use of the Afghan treasury to rebuild Kabulbank is inevitable.  While for all parties this is a more politically palatable solution than that proposed by Mahmoud- a direct bailout from the US treasury, it is only so because most Western voters are not aware that roughly two-thirds of the Afghan treasury is funded by their taxes, through their governments via aid payments and the World Bank.  Western nations with military involvement have already seen their voters sour at the thought of risking more lives and spending further military resources to prop up the corrupt Karzai government, but the decision to use the Afghan treasury for such a payoff should in fact raise the ire of the hundreds of millions of taxpayers in all Western nations who have invested in Afghanistan, or the World Bank for that matter. In either case, it is the Karzai family getting the best of people of Afghanistan, the US and the rest of the world. 

To be fair, it may be that the Karzais are merely a product of the system of patronnage, curruption and elitism that has divided Afghanistan for so many generations.  And while the legitmacy and the exact reach or sustainability of the institutions created under the Karzai regime are in constant question, episodes such as the Kabulbank fiasco should inspire debate in Western Democracies as to the methods and motives of their own governments and businesses, who after 8 years of war and 9 years of standing behind Mr Karzai, have managed only to help create for themselves another corrupt and dictatorial client state.  One can hope.

Read the Economist article at http://www.economist.com/node/16996926